Wednesday, April 11, 2018

Nifty chart: a midweek technical update (Apr 11, 2018)

FIIs were net sellers of equity on Mon. & Tue. (Apr 9 & 10) but net buyers today. Their total net selling was worth Rs 16.2 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 11.2 Billion, as per provisional figures.

Nifty managed to gain 85 points (0.8%), but is facing resistance from its 50 day SMA (at 10425) and has formed a small 'hanging man' candlestick pattern that can end the recent rally from the low of 9952 (touched on Mar 23).

India's 'Goldilocks economy' is getting derailed by rising oil prices and major scams in PSU and Private banks. Expectations of significant improvement in India Inc's Q4 (Mar '18) results may be belied.

The daily bar chart pattern of Nifty broke out convincingly above the downward-sloping channel (refer last week's update) and the 20 day EMA on Thu. Apr 5.

The index continued its rally above the 50 day EMA and the resistance level of 10400 into bull territory. However, the rally from the Mar 23 low has been a bit too steep. Such steep rallies can't be sustained for long.

Nifty is in the process of retracing the entire 1220 points fall - from the Jan 29 top of 11172 to the Mar 23 bottom of 9952. Fibonacci retracement levels of 38.2% and 50% give upward index targets of 10418 and 10562.

The first target has already been met today. Since technical targets are never exact, a Fibonacci retracement zone has been marked on the chart between 10400 and 10550. This zone is likely to provide strong resistance to the rally.

Looming above the Fibonacci retracement zone is an ominous dark cloud - the 33 points downward 'gap' formed on Feb 5. It seems unlikely that this particular leg of the rally will be able to conquer the 'gap'.

A more likely scenario could be some near-term consolidation or correction followed by a stronger attempt by bulls to get past the Fibonacci retracement zone. 

Note that the 61.8% Fibonacci retracement level of the 1220 points correction (from Jan 29 top to Mar 23 bottom) is 10706 - which happens to be just inside the downward 'gap' formed on Feb 5. 

Conquering the 'gap' will be of utmost importance for Nifty bulls, but it may not happen in 2018. As per 'theory of gaps', the index down move should resume if and when the 'gap' is partly or completely filled.

Daily technical indicators are looking bullish. MACD is rising above its signal line and is poised to enter bullish zone. RSI is moving sideways above its 50% level. Slow stochastic is well inside its overbought zone, and can trigger a correction or consolidation.

Nifty's TTM P/E has moved up to 25.86 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has dropped from its oversold zone, and can cap index upside.

At a time like this, with Q4 (Mar '18) results around the corner, waiting can be an excellent strategy. However, planned SIPs should be continued.

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