Wednesday, January 4, 2017

Nifty chart: a midweek technical update (Jan 04 ‘17)

Activities were muted during the first three trading days of the year. FII net selling in equities was worth Rs 15.6 Billion, as per provisional figures. DIIs were net buyers of equity worth Rs 10.1 Billion.

The Nikkei/Markit Services PMI was almost unchanged at 46.8 in Dec '16 against 46.7 in Nov '16. The Manufacturing PMI fell to 49.6 in Dec '16 against 52.3 in Nov '16 - as demonetisation of Rs 500 and Rs 1000 bank notes took its toll. 

The composite PMI (including services and manufacturing) fell to a three years low of 47.6 in Dec '16 against 49.1 in Nov '16. (A number below 50 indicates contraction.)

Domestic auto sales in Dec '16 were a mixed bag. Maruti, Hyundai, M&M showed 4-8% fall in sales (compared with sales in Dec '15). Renault and Toyota showed sales growth of 9% and 29%. 

The daily bar chart pattern of Nifty had bounced up after touching a slightly lower bottom on Dec 26 '16. Note that MACD and RSI touched higher bottoms. The positive divergences triggered a technical bounce.

Has the index formed a 'double bottom' reversal pattern? Technical confirmation is still awaited. The index needs to cross convincingly above the intermediate top (of 8275, touched on Dec 9) between the two bottoms.

The index has been facing strong resistance from its falling 50 day EMA during the first three trading days of Jan '17. Looming overhead are likely resistances from the 200 day EMA and the down trend line.

The zone between 8200 and 8300 is a long-term resistance zone. Both the 50 day and 200 day EMAs are within the resistance zone. Bulls will need to work real hard if the index has to move above 8300.

Daily technical indicators are not holding out much hope for bulls. MACD is rising above its signal line, but remains in negative zone. RSI is moving sideways in neutral zone, and not showing any upward momentum. Slow stochastic has entered its overbought zone, but its upward momentum has stalled.

Nifty's TTM P/E is hovering near the 22 mark - well above its long-term average. The breadth indicator NSE TRIN (not shown) seems stuck in neutral zone. The index appears to be running on a treadmill as it awaits Q3 (Dec '16) results.

Nifty needs to make a strong move above 8300 or below 7900 to break its current state of ennui.  The dominant down trend line and the 'death cross' (marked by brown oval) of the 50 day EMA below the 200 day EMA means the bears are in control of the chart.

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