Wednesday, December 13, 2017

Nifty chart: a midweek technical update (Dec 13 ‘17)

During the first three days of trading this week, FIIs were net buyers of equity worth Rs 0.8 Billion. DIIs were net sellers of equity worth Rs 8.6 Billion, as per provisional figures. Interestingly, both were net sellers of equity today. Nifty lost 73 points (0.7%).

There has been a setback in India's macroeconomic front. CPI inflation increased to a 15 months high of 4.88% in Nov '17 against 3.58% in Oct '17 due to rising food and oil prices. RBI may have no option but to raise interest rates.

The Index of Industrial Production (IIP) slowed to 2.2% in Oct '17 against an upwardly revised 4.14% in Sep '17 due to a contraction in consumer durable goods production for the second straight month.

The following remarks were made in last week's update on the daily bar chart pattern of Nifty: "Can the index bounce up from here? Technical signals...are conducive, but a sharp rally - like the one during Oct '17 - seems unlikely."

On Wed. Dec 6, the index was testing support from its 100 day EMA (not shown), and did bounce up above its 20 day and 50 day EMAs during the next three trading sessions. 

Bears sold the rise and pushed the index to a close below its 50 day EMA today. By bouncing up after touching an intra-day low of 10033 on Dec 6, a bullish 'flag' pattern has been formed.

Nifty has been consolidating within the 'flag' for the past 5 weeks - after touching a lifetime high of 10490 on Nov 6. Since a 'flag' is usually a continuation pattern, the expected breakout is upwards.

Daily technical indicators are looking bearish and showing downward momentum. MACD and RSI are in bearish zones. Slow stochastic is in bullish zone. Some more correction within the 'flag' is possible.

Nifty's TTM P/E is at 26.1 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone - and can limit index downside. 

Bulls seem undecided about the likely outcome of Gujarat state elections. Anything short of a majority for NDA can lead to more index correction.

Nifty is trading above its rising 200 day EMA in a bull market. Dips can be used to add to existing holdings. Buy more on a convincing breakout above the 'flag' - whenever that occurs.

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