Wednesday, May 23, 2018

Nifty chart: a midweek technical update (May 23, 2018)

FIIs were net sellers of equity during the first three trading days this week. Their total net selling was worth Rs 24.6 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 34.8 Billion, as per provisional figures.

The fear of losing control over their companies has led to defaulting promoters of 2100 companies settle their dues of around Rs 830 Billion before action was initiated under the newly-enacted Insolvency & Bankruptcy Code (IBC).

During FY 2017-18, India's net direct tax collections have crossed Rs 10 Trillion mark, which is 18% higher than the collections in FY 2016-17.

The following was the concluding remark in last week's technical update on the daily bar chart pattern of Nifty: "A fall below 10602 can lead to a deeper correction."

The index dropped below its 20 day EMA, and closed at 10596 on Fri. May 18. That encouraged bears to continue their rampage.

The index fell below its 50 day EMA on Mon. May 21, only to pullback to its medium-term moving average the next day. The index dropped further and closed below 10450 today.

A test of support from - and possible breach of - the 200 day EMA is on the cards. A fall below the Mar 29 low of 9952 will form a bearish pattern of 'lower tops, lower bottoms' and take the index lower towards 9700.

Daily 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 in bearish zone. 

Slow stochastic has dropped well inside its oversold zone, but is showing negative divergence by touching a lower bottom than its Mar 29 low. Some more correction is likely.

Nifty's TTM P/E has slipped down to 25.86 - which is still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone, and can limit near-term index down side. 

Small investors should avoid the impulse to rush in to 'buy the dip'. Let the correction play out. Patience can get rewarded with better entry points.

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