Wednesday, September 27, 2017

Nifty chart: a midweek technical update (Sep 27 ‘17)

FIIs were net sellers of equity worth Rs 40.2 Billion during the first three days of trading this week. DIIs were net buyers of equity worth Rs 44 Billion, as per provisional figures. 

Nifty touched a low of 9714 today, wiping out all gains of the previous 5 weeks in just 7 trading sessions. The index has dropped below a large 'rising wedge' pattern.

GST collection for Aug '17 was Rs 907 Billion - almost 4% lower than the downward revised Jul '17 figure of Rs 941 Billion. Senior political leaders have openly castigated the Finance Minister for the GST implementation mess and the havoc it has caused to small and medium enterprises.

The daily bar chart pattern of Nifty is undergoing another sharp bull market correction - just like the one it suffered last month. Only, this time it could be different.

The index tested support from the 'support/resistance' level of 9700 after falling below its 20 day and 50 day EMAs; all three daily technical indicators are looking bearish and showing downward momentum - just like they did in Aug '17. 

However, observant readers may note that all three indicators have fallen slightly lower than their respective Aug 11 '17 lows while Nifty has touched a slightly higher low.

The negative divergences, plus continuous heavy selling by FIIs may cause a breach of the support level of 9700, and drop the index to seek support from its rising 200 day EMA.

Support from the 20 week EMA (not shown), and short-covering before a long weekend can trigger a technical bounce. Bears are likely to use the steadily worsening economic scenario as an excuse to sell again.

If the index falls below its Aug 11 low of 9686, the 'rising wedge' will evolve into another bearish pattern called a 'broadening top' (higher high, lower low).

The index is trading well above its rising 200 day EMA in a bull market. The correction is improving the technical 'health' of the chart - but it may not be an opportune time to buy yet.

Nifty's TTM P/E has slipped a little to 25.36 - which is still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply from its overbought zone, and may limit index downside.

Stay invested and continue with your regular SIPs. Avoid bulk buying in unknown small-cap stocks.

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