Sunday, June 3, 2018

Sensex, Nifty charts (Jun 01, 2018): bears refusing to back off

For the month of May '18, FIIs were net sellers of equity worth Rs 117.3 Billion. DIIs were net buyers of equity worth Rs 152.3 Billion, as per provisional figures.

Sensex barely gained 0.5% on a monthly closing basis, while Nifty closed flat (losing 3 points despite heavy buying by DIIs).

India's GDP growth rate was 7.7% for the Jan-Mar '18 quarter - the fastest growth rate in 7 quarters. For FY 2017-18, GDP growth rate was 6.7%. 

Nikkei India's Manufacturing PMI eased to 51.2 in May '18 from 51.6 in Apr '18. For the 10th straight month, PMI stayed above 50 (which indicates expansion).

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex is continuing to struggle near the 132 points downward 'gap' formed almost 4 months back (on Feb 5).

The index fell and closed inside the 'gap' on Tue. May 29. It fell further on May 30 - below its 20 day EMA and the 'gap' intra-day - but managed to close inside the 'gap'.

On Thu. May 31, the index bounced up to close well above the 'gap' and its three EMAs in bull territory, but formed a 'reversal day' bar (slightly higher high, lower close) and pulled back towards the 'gap'.

Daily technical indicators are looking bullish to neutral. MACD is trying to cross above its falling signal line in bullish zone. ROC has crossed above its 10 day MA, and is rising in bullish zone. RSI has slipped down after facing resistance from its 50% level. Slow stochastic has risen to its 50% level.

Oil's price has come down a little, but government's refusal to lower excise duty has resulted only in a few paisa lower prices for petrol and diesel. Losses in the recent by-polls and farmers' agitation in 10 states are ominous signs for BJP's prospects in forthcoming state and general elections.

RBI may have to tighten monetary policy at its Jun 4-6 '18 meeting. That can trigger off the next leg of the corrective move from the Jan 29 top.

Small investors should concentrate on preserving capital. That means no impulsive or bulk buying. Partial profit booking and reallocation of assets is suggested for those who are itching to 'do something'.

NSE Nifty index chart pattern

The following comments were made in last week's post on the weekly bar chart pattern of Nifty: "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'." 

Some times the index does exactly as expected. Nifty crossed above the 33 points downward 'gap' (formed on Feb 5) intra-week. Bear selling forced a close below the 'gap'.

Along with the 'gap', the down trend line (drawn through the tops formed in the weeks ending on Feb 2 and May 18) is another hurdle that the index will need to overcome before bulls can fully regain control.

Weekly technical indicators are in bullish zones, but only ROC is showing upward momentum. MACD is entangled with its signal line and is moving sideways. RSI is also moving sideways, with a slight upward bias. Slow stochastic has started to slide down after facing resistance from the edge of its overbought zone.

Nifty's TTM P/E is at 27.09 - well above its long-term average. The breadth indicator NSE TRIN (not shown) has dropped like a stone into its overbought zone, and can set off a correction.

Bottomline? The downward 'gaps' formed on Feb 5 on Sensex and Nifty charts are proving to be tough hurdles for bulls. Some more consolidation or correction is likely. At times like these, preservation of capital should take priority over bargain hunting. 

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