Sunday, May 27, 2018

Sensex, Nifty charts (May 25, 2018): short covering helps bullish cause

FIIs were net sellers of equity on all five trading days. Their total net selling during the week was worth Rs 39.3 Billion. DIIs were net buyers of equity on all five trading days. Their net buying was worth Rs 58.5 Billion, as per provisional figures.

Despite heavy buying by DIIs, Sensex gained only 77 points (0.22%) on a weekly closing basis. Nifty closed almost flat - gaining just 9 points over the previous week.

India's GDP growth rate will accelerate to 7.5% in FY 2018-19 against 6.6% in FY 2017-18 on better performance from industrial and agricultural sectors, as per a CARE report. Inflation, lending rates, fiscal and current account deficits, exchange rates remain concerns.

BSE Sensex index chart pattern



The following comments were made in last week's post on the daily bar chart pattern of Sensex: "The index touched an intra-day low of 34822 on Fri. May 18, falling below its previous (May 4) low of 34848 which can lead to further downside. However, by closing exactly at 34848, the index has kept open the possibility of a technical bounce."

Bears had the upper hand during the first three days of trading. The index corrected below the 'gap' on Mon. May 21, received support from the 50 day EMA and bounced up a bit the next day.

On Wed. May 23, the index fell below its 50 day EMA to an intra-day low of 34303. Short covering triggered a technical bounce. The index recovered more than the first three days' losses in two days - closing inside the 'gap' on Fri. May 25.

Daily technical indicators are still looking bearish. MACD is below its falling signal line in bullish zone. ROC is below its falling 10 day MA in bearish zone. The up move of RSI towards its 50% level has stalled. Slow stochastic is trying to emerge from its oversold zone.

Q4 (Mar '18) results announced so far have clearly shown top line growth but bottom line pressure. Higher oil and commodity prices are starting to take a toll on corporate earnings.

Oil prices were not allowed to rise before the Karnataka state elections. Once the election got over and BJP failed to form the government, oil prices have been raised for 13 straight days!

When oil prices had fallen rapidly from US $60 to $40 during Jul-Aug '15, the NDA government raised excise duties and pocketed the benefits by depriving consumers. Now that prices have touched US $80, the government has refused to reduce excise duties and is burdening consumers with daily price hikes.

This disregard for the middle-class may hurt NDA's prospects in forthcoming state and general elections. It will also stoke the inflation fire - forcing RBI to raise interest rates. Neither event will be liked by the stock market.

Caution is suggested for those holding long positions. Sensex is trading well above its rising 200 day EMA in a bull market. That doesn't mean the corrective move from the Jan 29 top is over.

NSE Nifty index chart pattern



The following comments were made in last week's post on the weekly bar chart pattern of Nifty: "The previous 3 weeks' trading has formed a bearish 'broadening top' pattern (higher high, lower low) from which a downward breakout is likely."

The index did breakout below the 'broadening top' and the 20 week EMA intra-week, but short covering on Thu. & Fri. (May 24 & 25) ensured a pullback and close within the pattern.

Nifty has formed a 'hammer' candlestick that can trigger an up move towards the Feb 5 'gap'. Bears can be expected to 'sell on rise'. Weekly technical indicators are in bullish zones, but showing weak upward momentum.

Nifty's TTM P/E is at 26.24 - slightly lower than last week but well above its long-term average. The breadth indicator NSE TRIN (not shown) is about to fall from its oversold zone, and can limit near-term index upside.

Bottomline? The downward 'gaps' formed on Feb 5 are becoming 'lines of control' on Sensex and Nifty charts. Some more consolidation or correction is likely. At times like these, preservation of capital should take priority. Book partial profits and/or reallocate assets.

No comments: