Sunday, October 1, 2017

Sensex, Nifty charts (Sep 29, 2017): bears press home their advantage

The fight for domination heated up during F&O expiry week. FIIs were net sellers of equity worth a huge Rs 109 Billion. DIIs were net buyers of equity worth an equally huge Rs 116.7 Billion, as per provisional figures.

Both indices broke out below consolidation patterns. Sensex lost 2% and Nifty lost 1.8% on a weekly closing basis. During Sep '17, FIIs were net sellers of equity worth Rs 240 Billion; DIIs were net buyers of equity worth Rs 210 Billion.

For the period Apr-Aug '17, India's fiscal deficit touched 96.1% of the budget estimate for FY 2017-18 against 76.4% for the period Apr-Aug '16. With private investments and exports on the slow lane, govt. spending to boost the economy may worsen the deficit.

BSE Sensex index chart pattern



The following comment appeared in last week's post on the daily bar chart pattern of Sensex: "Bulls may try to prevent a fall below the 'flag', but selling by bears may overwhelm them."

The index dropped and closed below the 'flag' on Mon. Sep 25. On Wed. it attempted a pullback to the 'flag' only to face strong resistance from the 50 day EMA and fell below its Aug 11 low.

On Thu. Sep 28, the index formed a small 'reversal day' bar (slightly lower low, higher close) that led to a mild technical bounce on Fri., but bulls preferred to close their long positions before a long weekend.

Daily technical indicators are bearish. MACD is falling below its signal line in bearish zone. ROC and Slow stochastic are in their respective oversold zones. RSI is about to enter its oversold zone - but is showing positive divergence by touching a higher low.

Any attempt at a rally is likely to face resistance from the merging 20 day and 50 day EMAs. On the downside, support can be expected from the 30700 level and the rising 200 day EMA (currently at 30300).

In case the index falls below its 200 day EMA, expect strong support from the 'support zone' between 29220 and 30040 (which are 50% and 38.2% Fibonacci retracement levels of the entire 6932 points rally from the Dec 26 '16 low to the Aug 2 '17 top).

The index is trading above its 200 day EMA in a bull market. Some more consolidation and correction is possible. With Q2 (Sep '17) results around the corner, it may be prudent to wait for the results before thinking of buying.

NSE Nifty index chart pattern



The following comment appeared in last week's post on the daily bar chart pattern of Nifty"The previous 8 weeks' trading has formed a large 'rising wedge' pattern from which the likely breakout is downwards."

The index broke out below the 'rising wedge' and breached its 20 day EMA and the support level of 9700 intra-week, but closed the week above 9700 and its 20 day EMA in bull territory.

Technically, an intra-week breach is not considered a convincing one. Bulls will hope for a pullback towards the 'rising wedge'. Technical indicators are hinting that bears may use any pullback to sell.

All four are showing downward momentum. MACD, RSI, Slow stochastic are falling in bullish zones. ROC has entered bearish zone. Expect some support from the 9450 level on the downside.

If 9450 gets breached, stronger support can be expected from the 'support zone' between 9036 and 9306 (which are 50% and 38.2% Fibonacci retracement levels of the entire 2285 points rally from the Dec '16 low of 7894 to the Sep '17 top of 10179). The 50 week EMA is just below the upper edge of the 'support zone', and should provide good support as well.

Nifty's TTM P/E has slipped to 25.43 from last week's 25.95, but remains much higher than its long-term average. The breadth indicator NSE TRIN (not shown) rose sharply towards its oversold zone, but has turned down into neutral zone.

Bottomline? Sensex and Nifty charts have broken out below bearish consolidation patterns, and can correct some more. DII buying has prevented a deeper fall in spite of heavy FII selling. Any fiscal stimulus will further stoke inflation and widen the fiscal deficit. Let the correction play out.

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