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Sunday, July 2, 2017

Sensex, Nifty charts (Jun 30, 2017): GST doubts keep investors out

For the third month in a row, FIIs were net sellers of equity - worth Rs 37.6 Billion during Jun '17. DIIs were net buyers of equity worth Rs 65.3 Billion, as per provisional figures.

Both Sensex and Nifty closed lower for the month after five straight monthly gains, as concerns about GST implementation turned investors cautious.

RBI's bi-annual Financial Stability Report is not optimistic about India's economic growth due to the stressed banking sector, leveraged corporate balance sheets and weak investment demand.

Manufacturers had cut production to deplete existing inventory before GST roll-out. The May IIP number can be affected also because of high base effect. 

BSE Sensex index chart pattern

The following comment appeared in last week's post on the daily bar chart pattern of Sensex: "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."

'Fan line 3' (marked as 'up trend line' on chart) was breached on Fri. Jun 23. Breaching of the three 'fan lines' is an indication that the up trend from the Dec '16 low is over for now.

The index continued its correction by breaching support from its 20 day EMA and the lower edge of the 'rectangle' on Jun 27 and dropped to test support from its 50 day EMA by the end of the week.

Note that the index is trading well above its rising 200 day EMA in a bull market. What we are witnessing is a consolidation-cum-correction near a new index high.

Can the index correct some more? Yes, it can. How much further can it fall? If the 50 day EMA gets breached, stronger support can be expected from the zone between 29300 and 30200.

The 38.2% Fibonacci retracement level of the entire rally from the Dec '16 low to the Jun '17 top is at 29300, which coincidentally happens to fall within the partly-filled upward 'gap' formed on Mar 14 '17.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. ROC, RSI and Slow stochastic are in recovery mode in bearish zones.

Any pullback towards the 20 day EMA and the lower edge of the 'rectangle' may be used by bears to sell again. 

From initial reactions - particularly from small traders - GST implementation is unlikely to be a smooth process.

Stay invested. Wait for the consolidation-cum-correction to play out.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed lower for the third week in a row, and breached the lower edge of the 'rectangle' - but it has not been a convincing breach yet.

The index is trading well above its two rising weekly EMAs in a bull market. A further correction towards its rising 20 week EMA and the 9110 level will improve the technical 'health' of the chart.

Weekly technical indicators are in the process of correcting overbought conditions. MACD is about to cross below its signal line inside its overbought zone. ROC and RSI are moving sideways near the lower edges of their overbought zones. Slow stochastic has slipped down from its overbought zone.

Nifty's TTM P/E remained above 24 throughout Jun '17 - well-above its long-term average valuation. The breadth indicator NSE TRIN (not shown) has moved up from extremely overbought region.

Expect Nifty to continue with its consolidation-cum-correction a little longer. Without FII buying, the index is unlikely to rise much higher in the near term.

Bottomline? Sensex and Nifty charts are in corrective modes after touching new highs. Some more consolidation or correction is likely. Stay invested. 

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