Wednesday, April 25, 2018

Nifty chart: a midweek technical update (Apr 25, 2018)

FIIs were net sellers of equity on all three days of trading this week. Their total net selling was worth Rs 12.4 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 13.3 Billion, as per provisional figures.

The counter-trend Nifty rally from the Mar 23 low has retraced 50% of the fall from the Jan 29 top, and is facing a bit of resistance near the previous intra-day high of 10638 (touched on Feb 8).

According to Nomura, investment and consumption demand will drive India's YoY GDP growth to 7.8% during the first half of 2018. A Deutsche Bank report is expecting a 25 bps repo rate hike by RBI in Jun '18 or Aug '18 due to the inflationary effects of high oil prices. 

A month long counter-trend rally on the daily bar chart pattern of Nifty has managed to climb over a wall of worries and resistance levels before pausing at the 10638 level.

10638 was the intra-day high on Feb 8 - which was tested on Feb 27 before the sharp fall to the Mar 23 intra-day low of 9952. Nifty tested 10638 again on Mon. & Tue. (Apr 23 & 24) before slipping down today.

Note that today's correction breached the (purple) up trend line intra-day, but the index closed exactly on the trend line. Bulls may feel encouraged to breach 10638 on Thu. Apr 26 (which is F&O expiry day).

Daily technical indicators are in bullish zones, but not showing any upward momentum. MACD is above its signal line, but may be forming a bearish 'rounding top' pattern. RSI's gradual up move towards its overbought zone has been halted. Slow stochastic is sliding down inside its overbought zone.

All three EMAs are rising, and Nifty is trading above them in a bull market. However, bears will remain in control as long as the index trades below the 33 points downward 'gap' formed on Feb 5.

As per 'gap theory': even if the 'gap' is filled partly or completely, the down move should resume thereafter. With FIIs in selling mode, a breach of the (purple) up trend line is the more likely near-term outcome.  

Nifty's TTM P/E has moved up to 26.24 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising quickly in neutral zone, and can trigger some correction or consolidation.

Small investors should stay invested as per their asset allocation plans. With Q4 (Mar '18) results season getting into full swing, concentrate on individual stocks instead of worrying about index movements.

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