Wednesday, February 21, 2018

Nifty chart: a midweek technical update (Feb 21, 2018)

FIIs were net sellers of equity worth Rs 29.6 Billion during the first three trading days this week. DIIs were net buyers of equity worth Rs 34 Billion, as per provisional figures.

The 33 points downward 'gap' formed on Feb 5 is looming like a dark cloud over bullish hopes of a quick index recovery - threatening more rain (i.e. selling).

India's trade deficit widened to a 56 months high of US $16.3 Billion in Jan '18 compared to $14.9 Billion in Dec '17 and $9.91 Billion in Jan '17. The deficit increased to $131.14 Billion during Apr '17-Jan '18 period against $114.9 Billion during Apr '16-Jan '17.

The daily bar chart pattern of Nifty has been consolidating sideways after falling below its 50 day EMA to an intra-day low of 10276 on Feb 6. The sliding 50 day EMA has provided strong overhead resistance since then.

The Feb 6 panic low was tested on Feb 19 without getting breached. The index bounced up a bit today on short-covering. The index continues to trade above its rising 200 day EMA, so all is not lost yet for bulls.

However, the 20 day EMA is about to cross below the 50 day EMA after staying above it for almost 13 months. A test of support from the 200 day EMA may occur sooner than later.

Can the index fall below the 200 day EMA? The possibility can't be ruled out, as FIIs are selling large-cap stocks. Will that indicate the beginning of a bear market? Not quite.

A 20% correction from the top - i.e. to 8940 - will be treated technically as start of a bear market. That is a long way down from the current level. 9700 is a strong support level. Buying should emerge in the zone between 10000 & 9700.

Daily technical indicators are in bearish zones. MACD is showing negative divergence by falling below its Dec '17 low. RSI is moving sideways. Slow stochastic has entered its oversold zone and can trigger a technical bounce.

Nifty's TTM P/E has slipped to 25.18 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has dropped sharply from its oversold zone. The index may pullback towards its 50 day EMA. 

The long-term bullish structure of the chart remains intact. In the near term, 'sell on rise' may be a better option to get rid of non-performers from one's portfolio.

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