Sunday, August 20, 2017

Sensex, Nifty charts (Aug 18, 2017): Infosys CEO exit give bears another chance to sell

FIIs were net sellers of equity on all four days of a holiday-curtailed trading week. Their net selling was worth Rs 58.9 Billion. DIIs were net buyers of equity on all four days - their net buying was worth Rs 43.7 Billion.

However, both Sensex and Nifty gained (1% and 1.3% respectively) on a weekly closing basis despite being in down trends since touching lifetime highs in the first week of this month.

Both indices were in the midst of pullback rallies after the previous week's sharp corrections. The unexpected news of Infosys CEO Vishal Sikka's resignation on Fri. Aug 18 sent bulls running for cover.

BSE Sensex index chart pattern

Note the following comments from last week's post on the daily bar chart pattern of Sensex:

"The selling appears a bit overdone. A technical bounce can occur at any time. However, some more correction or consolidation can't be ruled out...It is possible that a technical bounce from current level will face resistance from the falling 20 day or 50 day EMA, and the index will then correct towards the support zone." 

The technical bounce occurred as expected. Sensex received strong resistance from its 20 day EMA and the (blue) down trend line (drawn through Aug 2 & Aug 8 tops) on Thu. Aug 17. Friday's heavy selling by FIIs triggered a close below the 50 day EMA for the 2nd week in a row.

Daily technical indicators are suggesting that some more correction or consolidation is likely. MACD is falling below its signal line in bearish zone. ROC, RSI and Slow stochastic emerged from their respective oversold zones, but are showing downward momentum.

The index is trading well above its rising 200 day EMA in a bull market. Any fall towards the 'support zone' between 29220-30040 (refer last week's post) will provide an adding opportunity.

With FIIs booking profits, a reversal of the down trend may take some time. Be very selective about what you buy. Companies with good fundamentals that faced top line and margin pressure due to de-stocking before GST implementation should be on the top of 'buy lists'.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty bounced up after receiving support from the 9700 level, but failed to cross above 9950 and closed below 9850 for the week.

Weekly technical indicators have corrected overbought conditions, but remain in bullish zones. MACD is about to close below its signal line. It did so in Sep '16 and triggered a 1000 points correction. 

RSI and Slow stochastic had corrected down from their respective overbought zones in Sep '16 as well. So, odds of a correction below the 20 week EMA towards the 'support zone' between 9015-9285 are getting better.

Nifty's TTM P/E has moved up to 25.1 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling sharply in neutral zone, and can limit index upside.

Nifty is trading above its rising 20 week and 50 week EMAs in a bull market. A deeper correction towards the 'support zone' will be a good adding opportunity.

Bottomline? Sensex and Nifty charts are in down trends for the past two weeks. FIIs first got spooked by nuclear war rhetoric of North Korea and then by the sudden departure of Infosys CEO. DIIs are still buying, and providing downside protection to both indices. This is a bull market correction, hence an opportunity to add. Be very selective.

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