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Wednesday, May 24, 2017

Nifty chart: a midweek technical update (May 24 ‘17)

FIIs were net sellers of equity worth Rs 6.4 Billion in the first three days of trading during F&O expiry week. DIIs were net buyers of equity worth Rs 18.1 Billion, as per provisional figures.

Nifty closed just below its 20 day EMA, losing 67 points from last Friday's closing level of 9428, but is trading well above its rising 50 day and 200 day EMAs in a bull market. 

The Government has abolished the 25 years old FIPB (Foreign Investment Promotion Board) since 90-95% of the sectors are already under the automatic route. Individual ministries will look after the 11 sectors not covered under automatic route. 

The daily bar chart pattern of Nifty has corrected almost 200 points since touching a lifetime high of 9533 on Wed. May 17.

Several overbought technical indications had suggested the possibility of an impending correction (refer last week's post).

Daily technical indicators have corrected overbought conditions, and are turning bearish. MACD has crossed below its signal line in bullish zone. RSI has dropped into neutral zone and is seeking support from its 50% level. Slow stochastic has slipped below its 50% level in neutral zone.

The index had opened with an upward 'gap' of 25 points (between 9225 and 9250) on Apr 25. That 'gap' remains unfilled till date. Nifty may attempt to fill this 'gap' either partly or completely - after which the up move should resume.

Can the index fall below the 'gap' (marked in grey on the chart)? If FIIs continue to sell, anything can happen. 

However, the rising 50 day EMA is just below the lower edge of the 'gap' - and should provide some support. Also, FIIs were net buyers of equity today. They may increase their buying on a further dip.

In case Nifty falls below its 50 day EMA, stronger support can be expected from the zone between 9000 and 9100.

Nifty's TTM P/E is at 24.73 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply from its overbought zone into neutral zone.

Some more correction or consolidation is possible before the index decides which way it wants to move.

Stay invested, but maintain a stop-loss - just in case FIIs turn aggressive sellers. 

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