Sunday, March 25, 2018

Sensex, Nifty charts (Mar 23, 2018): breakout below downward-sloping channels

FIIs were net buyers of equity worth Rs 25.2 Billion during the week. The bulk of their buying occurred on Fri. Mar 23, as per provisional figures.

DIIs were also net buyers of equity, worth Rs 2.1 Billion. They were net sellers of equity on Mon. & Fri. (Mar 19 & 23).

A possible trade war between US and China can lead to shrinking global trade volume and currency volatility - both of which will affect exports from India, according to a recent report by CARE Ratings.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex consolidated sideways near the lower edge of the downward-sloping channel from Mon. to Thu. (Mar 19 to 22), giving some hope to bulls.

Fears of a trade war between USA and China triggered a breakout below the downward-sloping channel with a 243 points 'gap' (marked 'Gap 2') on Fri. Mar 23.

The index closed below its 200 day EMA for the first time in 14 months, but received support from the 32550 level (lower edge of 'Support/resistance zone 1').

All four daily technical indicators are in bearish zones, but not showing any upward momentum. Any attempt at a pullback by the index is likely to face resistance from the 200 day EMA and 'Gap 2'.

Note that the 132 points downward 'gap' (marked 'Gap 1') on Feb 5 is a 'breakaway gap', while 'Gap 2' is looking like a 'measuring gap' that occurs in the middle of a (down or up) move. 

If 'Gap 2' does turn out to be a 'measuring gap' then the index will have a downward target of about 29725. Can it fall that far? Nothing is impossible if bears run riot - and a looming trade war may be just the incentive they need.

The zone between 31400 and 30700 (marked 'Support/Resistance zone 2') should provide good support. What if 30700 gets breached? Long-term support exists at 29800 - which is close enough to the downward target of the 'measuring gap' (Gap 2).

On longer term weekly Sensex chart (not shown), the 50 week EMA (at 32380) is likely to provide near-term support. Weekly Slow stochastic has entered oversold zone, and can trigger a technical bounce.

The rising 200 week EMA is at 28130. Even if the index falls below 30000, the long-term bullish structure of the Sensex chart will remain intact.

NSE Nifty index chart pattern

Bears are wresting control as the weekly bar chart pattern of Nifty broke out below the downward-sloping channel within which it was correcting after forming a 33 points downward 'gap' on Feb 5.

The index dropped below its 50 week EMA for the first time in almost 15 months and just managed to close on it.

Weekly technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in bullish zone. RSI is falling below its 50% level. ROC and Slow stochastic have entered their respective oversold zones, and can trigger a technical bounce.

Nifty's TTM P/E has moved down further to 24.38 - but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling in neutral zone, hinting at a technical bounce. 

Bottomline? Sensex and Nifty charts have broken out below downward-sloping channels - opening the doors to deeper corrections. Several recent IPOs have diverted liquidity from the secondary market. A 'sell on rise' strategy should continue to work well in the near-term.

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