Sunday, November 12, 2017

Sensex, Nifty charts (Nov 10, 2017): bears make their presence felt

FIIs were net sellers of equity worth Rs 40.4 Billion during the week; DIIs were net buyers of equity worth Rs 28.8 Billion, as per provisional figures. Their roles were reversed during the first two days of the week, as FIIs were net buyers of equity while DIIs turned net sellers.

Sensex and Nifty touched new highs but faced profit booking and closed lower for the week - by 1.1% and 1.25% respectively. Some more correction can't be ruled out.

Continuing impact of demonetisation and GST slowed industrial growth in Sep '17. The IIP number was 3.8% against 4.5% (revised from 4.3%) in Aug '17 and 5.7% in Sep '16. For the Apr-Sep '17 period, IIP was down 11.7% from the same period last year.

BSE Sensex index chart pattern

The following remarks were made in last week's post on the daily bar chart pattern of Sensex: "...negative divergences in three of the four indicators should be treated as a warning sign. A pullback towards the top of the sideways consolidation channel is a possibility."

The index touched a new high of 33866 on Tue. Nov 7, but formed a 'reversal day' bar (higher high, lower close) that triggered a correction. The 20 day EMA is providing good support, raising bullish hopes of a shallow correction. 

Daily technical indicators have dropped from their overbought zones. MACD has crossed below its signal line. ROC formed a 'triple top' reversal pattern and crossed below its 10 day MA. RSI slipped down from its overbought zone but is trying to re-enter it. Slow stochastic is falling towards its 50% level.

Some more correction towards the top of the downward-sloping channel is a possibility. Note that the 50 day EMA is just above the channel, and should provide additional support.

The index is trading above its three rising EMAs in a bull market. The correction is providing an adding opportunity.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new intra-week high (10490) but formed a 'reversal bar' (higher high, lower close) that often signals an intermediate top.

The index is trading above its three rising weekly EMAs in a bull market. Weekly MACD and Slow stochastic are moving sideways inside their respective overbought zones. ROC and RSI are sliding down in bullish zones.

The index may correct a bit more. Expect strong support from the 'support zone' between 10100 and 9700. The rising 20 week EMA is inside the 'support zone' and should provide additional support.

Nifty's TTM P/E has slipped down to 26.35, but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is poised to re-enter its overbought zone and can limit immediate upside.

GST on several items have been brought down from the highest slab rate of 28%. That may lead to some buoyancy in the index next week.

Bottomline? Sensex and Nifty charts show the effects of profit booking after touching new highs again. The corrections are expected to be shallow, and can be used as adding opportunities. But don't bet the farm.

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