Sunday, October 8, 2017

Sensex, Nifty charts (Oct 06, 2017): pullback towards consolidation patterns

Trading was comparatively muted in a holiday-shortened trading week. FIIs were net sellers of equity worth Rs 30.2 Billion. DIIs were net buyers of equity worth Rs 39 Billion, as per provisional figures.

Both indices pulled back towards consolidation patterns below which they had broken out in the previous week. Sensex and Nifty gained 1.7% and 1.9% respectively on a weekly closing basis.

For Sep '17, Nikkei India's Manufacturing PMI was 51.2 - remaining unchanged from Aug '17. The Services PMI for Sep '17 rose to 50.7 from 47.5 in Aug '17. The Composite PMI (Manufacturing+Services) rose to 51.1 in Sep '17 from 49 in Aug '17. (A reading above 50 shows expansion.)

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex has formed a typical 'breakout and pullback' pattern. The index had broken out below a 'flag' pattern in the previous week. A pullback rally towards the 'flag' is in progress.

After facing a bit of resistance from the merged 20 day and 50 day EMAs, the index managed to close above both on Fri. Oct 6. Is the worst over for bulls, or will bears attack again?

A pullback after a downward breakout is usually a selling opportunity. However, the index is trading well above its rising 200 day EMA in a bull market. That is why dips are being bought.

Daily technical indicators are in bearish zones, but showing upward momentum. Some more upside is possible - specially if DIIs continue with their buying.

Note that the index has formed a bearish pattern of lower tops and lower bottoms since touching a lifetime high of 32686 on Aug 2, and is trading within a downward sloping channel (not marked on chart). 

Support levels on the downside are marked on the chart. In case the index continues to rally, expect resistance from the zone between 32500 and 32800.

Why are FIIs selling? A look at the Dollex 30 (Sensex in US Dollars) chart - not shown - may provide a clue. The Dollex 30 recently tested its lifetime closing high - touched way back in Dec '07 - before correcting a little.

If you are thoroughly confused about what to do under the current circumstances, just stay away from the market for a while. Enjoy Diwali with family and friends. Check Q2 (Sep '17) results before making your next move.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty has pulled back to the lower edge of the 'rising wedge' pattern after falling below it in the previous week. Such a pullback is a selling opportunity for those who had missed selling on the downward breakout.

The index is trading above its two weekly EMAs in a bull market. So, dips are being bought - preventing the index from crashing.

Weekly technical indicators are giving conflicting signals. MACD and Slow stochastic are sliding down in bullish zones. ROC is trying to recover after falling inside bearish zone. RSI is rising in bullish zone.

Nifty's TTM P/E has moved up to 25.92 from 25.43 in the previous week - staying well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling in neutral zone.

Nifty may consolidate before making its next move. Support levels on the downside have been marked on the chart. In case the index continues its rally, the 'rising wedge' will get negated, and resistance can be expected from the 10200 level.

If Q2 (Sep '17) results are just as bad or worse than Q1 (Jun '17) results, expect FIIs to step up their selling.

Bottomline? Sensex and Nifty charts have pulled back towards consolidation patterns below which they had broken out in the previous week. DII buying has resulted in the pullback while FIIs continue to sell. Await Q2 (Sep '17) results before deciding on next course of action.

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