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Sunday, June 25, 2017

Sensex, Nifty charts (Jun 23, 2017): consolidating before GST implementation

After the previous week's heavy selling, FIIs were net sellers of equity worth only Rs 2.5 Billion - thanks to their net buying on the last two days of the week. DIIs were net buyers of equity worth Rs 13.7 Billion, as per provisional figures.

The battle between bulls and bears remained unresolved. Sensex closed marginally higher (by 0.2%) while Nifty closed marginally lower (by 0.1%) for the week.

Trading activity may remain muted next week. Monday's Eid holiday will be followed by F&O expiry on Thursday. Market participants appear somewhat jittery about GST implementation from July 1.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex has been consolidating sideways within a 'rectangle' pattern for the past four weeks. Such a pattern is unreliable, because a breakout can occur in either direction.

The index received good support from 'fan line 3' during the first four days of the week, and rose to touch a new high of 31523 on Thu. Jun 22. However, all four technical indicators touched lower tops.

The combined negative divergences led to a sharp drop below 'fan line 3' towards the lower edge of the 'rectangle' on Fri. Jun 23. Like in the previous week, the 20 day EMA provided support to the index.

In case supports from the 20 day EMA and the lower edge of the 'rectangle' get breached, the index can drop to test support from its rising 50 day EMA.

Daily technical indicators are looking bearish. MACD is sliding down below its signal line in bullish zone. ROC, RSI and Slow stochastic are re-entering their respective bearish zones.

Some more consolidation is likely. The index may try to pullback towards 'fan line 3'. But only a convincing breakout above the 'rectangle' will restore control to bulls.

Stay invested, but maintain a stop-loss.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed lower for the second week in a row, but stayed well above its two rising weekly EMAs in a bull market. 

For the past four weeks, the index has been consolidating sideways within a 'rectangle' pattern - from which a breakout can occur in either direction. An upward breakout is more logical in a bull market. But markets often defy logic.

Weekly technical indicators are inside their respective overbought zones, but MACD, RSI and Slow stochastic are showing downward momentum.

Nifty's TTM P/E is at 24.37 - much above its long-term average. The breadth indicator NSE TRIN (not shown) has fallen deep inside its overbought zone.

Some more consolidation within the 'rectangle' is likely before a breakout occurs. Bulls may feel encouraged that FIIs were net buyers of equity on Thu. & Fri. (Jun 22 & 23).

Bottomline? Sensex and Nifty charts are consolidating after touching new highs. Some more consolidation or correction will improve valuations and enable the indices to climb higher. Stay invested. Avoid impulsive buying or selling.

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