Sunday, June 10, 2018

Sensex, Nifty charts (Jun 08, 2018): bulls try to charge but bears lurk in the shadows

FIIs were net buyers of equity worth Rs 13.7 Billion during the week. All their net buying occurred on Mon. Jun 4, when ESOP allottments at HDFC Bank brought down FII threshold limit, allowing them to add to their HDFC Bank holdings. They were net sellers during the rest of the week.

DIIs were net buyers of equity worth Rs 21.3 Billion, as per provisional figures. They were net sellers on Mon. Jun 4, and net buyers during the rest of the week. Sensex and Nifty gained about 0.6% each on a weekly closing basis.

Nikkei India Services PMI declined to 49.6 in May '18 from 51.4 in Apr '18. Service sector output dipped into contraction (below 50) for the first time in three months. The Composite PMI (Manufacturing + Services) slipped to 50.4 in May '18 from 51.9 in Apr '18.

The Serious Fraud Investigation Office (SFIO) has drawn up a list of more than 113,000 shell companies as the government prepares for another onslaught on black money. The database compiled by SFIO has red-flagged more than 80,000 companies suspected to be shell entities while it has confirmed illegal activities in 16,537 of them.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex corrected during the first two days of the week, falling below its 20 day EMA and the 132 points downward 'gap' intra-day on Tue. Jun 5 before managing to close just inside the 'gap'.

The index bounced up the next day - despite an interest rate hike by RBI - and ended the week above its three rising EMAs in bull territory.

Daily technical indicators are in bullish zones. MACD is about to cross above its signal line. RSI is rising towards its overbought zone. Slow stochastic has entered its overbought zone. ROC, however, has turned down after facing resistance from the edge of its overbought zone.

Sensex is trading below the down trend line (drawn through the Jan 29 and May 15 tops), keeping bulls in check. A bearish 'hanging man' candlestick formed on Fri. May 8. The index has been trading within a bearish 'rising wedge' pattern for the past three weeks.

Bears are not giving up just yet. A fall below the 'rising wedge' may lead to a test of support from the 'Support/Resistance zone'. The balance can swing toward bulls if the index moves above the down trend line.

The rising 200 day EMA is a clear indication that the long term structure of the chart remains bullish.

NSE Nifty index chart pattern

After three weekly closes below the 33 points downward 'gap', the weekly bar chart pattern of Nifty managed to close above the 'gap', and is trading above its rising weekly EMAs in a bull market. 

However, the index is still below the down trend line, and formed a weekly 'dragonfly doji' bar that can set off a corrective move.

Weekly technical indicators are in bullish zones. MACD has managed to cross above its signal line. RSI is moving above its 50% level. Slow stochastic is just below its overbought zone. But ROC is looking a bit bearish by starting to correct inside its overbought zone.

Nifty's TTM P/E has moved up to 27.27 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is trying to emerge from its overbought zone, and can trigger a correction.

Bottomline? Bulls are trying to regain control of Sensex and Nifty charts but bears are making their task difficult. Some more consolidation or correction seems likely. Some times it can be a prudent strategy to stay on the sidelines till a clear trend emerges in the near term. Long term chart structures are bullish. 

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