Sunday, February 25, 2018

Sensex, Nifty charts (Feb 23, 2018): bulls protecting the down side

FIIs were net sellers of equity worth a huge Rs 57.8 Billion during the week gone by. DIIs more than matched them with their net buying worth Rs 59.7 Billion, as per provisional figures.

For the third straight week, Sensex and Nifty traded below the downward 'gaps' formed on Feb 5, but bulls worked hard to protect the downside. Both indices gained about 0.4% on a weekly closing basis.

The amount of fraud at PNB is expected to climb from the estimated Rs 114 Billion. Another fraud estimated at Rs 4 Billion has been unearthed at Oriental Bank. As Buffett once said: There's never just one cockroach in the kitchen.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex continued to consolidate sideways below the 132 points downward 'gap' formed on Feb 5. The index may be forming a 'symmetrical triangle' pattern from which the likely breakout will be downwards.

The index dropped inside the 'support/resistance zone' between 32250 and 33800 during the first four trading days of the week, but bounced up on short covering to close with a weekly gain on Fri. Feb 23.

The sliding 20 day and 50 day EMAs are merging and can provide overhead resistance to any follow-up buying next week.

Daily technical indicators are correcting oversold conditions, but remain in bearish zones. MACD is below its signal line but showing signs of turning up. ROC has crossed above its 10 day MA and moving up towards neutral zone. RSI and Slow stochastic have emerged from their oversold zones.

Any attempt by the index to pullback towards the 'gap' may induce more bear selling. There is unlikely to be any respite for bulls in the near term, as investors will resort to 'sell on rise' to take advantage of zero LTCG tax till Mar 31 '18.

The long-term trend remains bullish, as the index is trading above its rising 200 day EMA. But the near-term bearish sentiment is not going away in a hurry.

Earnings growth of India Inc. in Q3 (Dec '17) has failed to set the bourses on fire. Bullish optimism about Q4 (Mar '18) results are fading by the day. 

Expect the index to limp along and correct some more. At some point, valuations will start looking reasonably attractive again. Be very selective, and enter quality large-caps slowly. They will withstand the downside better.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty spent another week below the 33 points downward 'gap' formed on Feb 5. The index closed above its two weekly EMAs in a bull market.

The weekly bar closed exactly at the 'support/resistance' level of 10490 and formed a 'dragonfly doji' candlestick, which can lead to a pullback towards the 'gap'.

Weekly technical indicators have corrected overbought conditions, but only RSI is showing some upward momentum by bouncing up from its 50% level. MACD is falling below its signal line in bullish zone. ROC is falling below its 10 week MA in bullish zone. Slow stochastic has dropped inside bearish zone.

Nifty's TTM P/E has moved up to 25.75 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is plummeting towards its overbought zone, and may limit index upside. 

Bottomline? Sensex and Nifty charts are undergoing month-long corrections after 13 months long bull rallies. The downward 'gaps' formed on Mon. Feb 5 have acted as resistance zones. Any pullbacks towards the 'gaps' may trigger more selling and likely lower levels in both indices. Use a 'sell on rise' strategy in the near-term.

1 comment:

Subhankar said...

From jobless growth to wary foreign investors, the dark clouds on the Indian economy are here to stay

There are three reasons to doubt the government's belief that economic growth will rebound sharply.