Sunday, June 17, 2018

Sensex, Nifty charts (Jun 15, 2018): bulls fail to overcome resistance from bears

FIIs stepped up their selling. They were net sellers of equity worth a huge Rs 52.9 Billion during the week. DIIs were net buyers of equity worth Rs 40.1 Billion, as per provisional figures. Sensex and Nifty gained about 0.5% each on a weekly closing basis.

India's Current Account Deficit (CAD) widened to US $13 Billion (1.9% of GDP) in Q4 (Mar '18), up from US $2.6 Billion (0.4% of GDP) in Q4 (Mar '17), but slightly lower than $13.7 Billion (2.1% of GDP) in Q3 (Dec '17). Higher software exports and remittances were not enough to cover higher crude oil and commodity prices.

WPI inflation jumped to 4.43% in May '18 - a 14 months high - against 2.26% in May '17 and 3.6% in Apr '18 - largely on account of higher fuel, fruit and vegetable prices.

BSE Sensex index chart pattern

The following remarks were made in last week's post on the daily bar chart pattern of Sensex: "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."

On Wed. Jun 13, the index crossed above the down trend line intra-day but faced resistance from the upper edge of the 'rising wedge' pattern (within which it has been trading for the past 4 weeks).

Profit booking ensued. The index dropped towards the lower edge of the 'wedge', and touched an intra-day low of 35420 on Fri. Jun 15. Bears bought the dip and prevented a fall below the 'wedge'. Sensex closed for the week above its three daily EMAs in bull territory. 

Daily technical indicators are in bullish zones, but turning bearish. MACD is moving sideways above its rising signal line in bullish zone. ROC formed a 'double top' reversal pattern and fell below its 10 day MA. RSI has dropped from its overbought zone. Slow stochastic is about to fall from its overbought zone.

There are strong supports for the index on the downside. The 20 day EMA is merging with the lower edge of the 'rising wedge'. That ought to help bulls put up a fight to prevent a likely fall below the 'wedge'.

The 50 day EMA has just entered the 132 points 'gap' (formed on Feb 5), and should provide stronger support to the index in case of a fall below the 'wedge'.

Can the index fall below the 'gap'? Anecdotal evidence suggests the possibility. Rising interest rate and a falling Rupee has sent even long-only funds scurrying towards the 'exit' door. In which case, Sensex can fall towards the 'Support/Resistance zone' and test support from the rising 200 day EMA.

An index move above the down trend line and the May '18 top of 35994 will lead to new lifetime highs. But that may happen after some more correction and consolidation.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed higher for the 4th week in a row, and managed to breach the down trend line intra-week. The 20 week and 50 week EMAs are rising, and the index closed above them for the 10th straight week.

In other words, the bull market is very much alive - even though the index has closed below the down trend line for 20 weeks in a row. Note that the volume bars are showing negative divergence by falling while the index has been rising higher for the past two weeks.

Weekly technical indicators are in bullish zones. MACD has started to rise above its signal line. RSI has climbed up to the edge of its overbought zone. Slow stochastic has entered its overbought zone. ROC is above its rising 10 week MA, but is poised to fall from its overbought zone. Some correction or consolidation may follow.

Nifty's TTM P/E has moved up to 27.44 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone, and can limit near-term index upside.

Bottomline? Another attempt by bulls to regain control of Sensex and Nifty charts was thwarted by bears, who defended the down trend lines well. Some more consolidation or correction appears likely. Small investors should continue their SIPs but stay away from any impulsive buying/selling till a clear trend emerges. Long term chart structures remain bullish. 

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