Friday, September 7, 2018

Sensex, Nifty charts (Sep 07, 2018): breakout below trading channels

FIIs were net sellers of equity on Mon., Wed. & Thu. (Sep 3, 5 & 6), but net buyers on the other two days. Their total net selling was worth Rs 7.9 Billion. DIIs were net buyers of equity on Wed., Thu. & Fri. but net sellers on Mon. & Tue. Their total net buying was worth Rs 11.7 Billion, as per provisional figures.

During Apr-Jun '18, India's overall balance of payments slipped into deficit for the first time in six quarters due to large Dollar outflows. The deficit stood at US $11.3 Billion against a surplus of $11.4 Billion during Apr-Jun '17.

The Current Account Deficit (CAD) rose to US $15.8 Billion (2.4% of GDP) from $15 Billion (2.5% of GDP) in the year ago quarter. Outflows of US $8.1 Billion compared with inflows of $12.5 Billion a year ago led to a sharp depreciation of the Rupee. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex broke out below last two months' upward-sloping trading channel on Mon. Sep 3, and continued to correct during the next two days - closing below its 20 day EMA for the first time in two months.

A combination of short covering and some value buying led to a pullback and a close above the 20 day EMA by Fri. Sep 7. The index lost 255 points (0.7%) on a weekly closing basis, but remained above its three EMAs in bull territory.

Daily technical indicators have corrected overbought conditions. MACD has crossed below its signal line and descended from its overbought zone. RSI has bounced up after receiving support from its 50% level. Stochastic fell below its 50% level but is trying to cross above it. 

Sensex may correct or consolidate some more before it can resume its up move. Note that the MSCI Emerging Markets ETF (EEM) has been in a bear market for more than two months, so FII outflows are expected to continue.

That means the Rupee will depreciate some more, and consequent higher cost of imported oil will stoke the inflation fire. Expect RBI to hike interest rates again at its Oct '18 monetary policy meeting. A deeper index correction is likely to follow.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a slightly lower top of 11752 and broke out below the steep upward-sloping trading channel within which it had traded for more than two months.

After slipping below 11400 intra-week, the index retraced more than 50% of its 366 points fall from its previous week's high if 11760. All three weekly EMAs are rising, and the index is trading above them in a long-term bull market.

Weekly technical indicators are inside their respective overbought zones. MACD is still moving up above its signal line, but its upward momentum has reduced. RSI and Slow stochastic have started to move down.

Nifty's TTM P/E touched a high of 28.72 on Mon. Aug 27 but has corrected a bit to 28.17 - still well above its long-term average, and in overbought territory. The breadth indicator NSE TRIN (not shown) is in neutral zone. Some index consolidation is likely.

Bottomline? Bulls are still in control of Sensex and Nifty charts, but bears have signalled their willingness for a fight. Macro headwinds like high oil prices, a depreciating Rupee, widening trade and fiscal deficits, and US-China tariff war have enabled bears to stall two months long rallies. Stay invested but stay wary. This is not the time for making easy money.

(Note: I'm planning to take a short break - so there will be no blog posts next week. Regular readers may please bear with me till then.)

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