Sunday, September 10, 2017

Sensex, Nifty charts (Sep 08, 2017): consolidating within bearish 'rising wedge' patterns

FIIs were net sellers of equity worth Rs 34.3 Billion during the week. DIIs were net buyers of equity worth only Rs 12.1 Billion. Sensex and Nifty closed lower for the week - Sensex by 0.6%, Nifty by 0.4% - while both consolidated sideways within 'rising wedge' patterns.

The government has imposed countervailing duties for 5 years on imports of certain flat steel products from China in an effort to protect domestic industry from unfair competition. 

The Rupee closed at its highest level against the US Dollar in a month on heavy unwinding of Dollars by exporters and corporates.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex shows that honours were even between bulls and bears. The index lost 200 points but managed to close above its 50 day EMA through the week.

The 200 day EMA is rising, and the index is trading 650 points above its long-term average in a bull market. The index has been consolidating sideways within a 'rising wedge' pattern for the past 4 weeks after correcting sharply from its lifetime high of 32686.

The pricewise and timewise correction is improving the technical 'health' of the chart. However, the likely breakout below the 'rising wedge' pattern, and a test of support from the 200 day EMA are possibilities that can't be overlooked.

Daily technical indicators are giving conflicting signals, which is often the case during periods of consolidation. MACD is slowly rising above its signal line, but remains in bearish zone. ROC has crossed below its rising 10 day MA, but remained in bullish zone. RSI has crossed above its 50% level. Slow stochastic is descending towards its 50% level.

With a falling US Dollar index, selling by FIIs is likely to continue. DII buying can not prop up the index indefinitely. So, be prepared for some more consolidation and correction.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty consolidated sideways within a 'rising wedge' pattern for the 4th straight week. The likely breakout from such a pattern is downwards.

Both the weekly EMAs are rising, and the index is trading above them in a bull market. The 9700 level has provided good downside support to the index correction.

There is no need to panic if the index does fall below the 'rising wedge' and the 9700 level. In fact, it will provide a good opportunity to buy.

Weekly technical indicators are in bullish zones, but giving conflicting signals. MACD and RSI are showing downward momentum. ROC and Slow stochastic are showing upward momentum.

Nifty's TTM P/E is at 25.9 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen from its overbought zone, and may trigger a correction.

The near-term outlook for the index is looking more bearish than bullish. Stay invested, but maintain a stop-loss.

Bottomline? Sensex and Nifty charts are consolidating within bearish 'rising wedge' patterns for the past 4 weeks. FIIs are selling heavily. DII buying has protected the downside so far. Disappointing earnings growth of India Inc. and the low Q1 GDP number show that the economy isn't in great shape. So, buy only on a further dip (or, if the indices break out convincingly above the 'wedges').

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