Sunday, September 23, 2018

Sensex, Nifty charts (Sep 21, 2018): bears threatening to change the market trend

Bears (i.e. FIIs) had the upper hand in another holiday-shortened trading week. FIIs were net sellers of equity on Mon., Tue., and Wed. (Sep 17-19), but net buyers on Fri. Sep 21. Their total net selling was worth Rs 26.7 Billion. DIIs were net sellers of equity on Mon. but net buyers on Tue., Wed. and Fri. Their total net buying was worth Rs 17.8 Billion, as per provisional figures.

The failure of IL&FS to repay a loan from SIDBI, and RBI's refusal to grant an extension to Yes Bank's MD triggered panic selling in the stocks of banks, NBFCs and Housing finance companies on Fri. Sep 21. DHFL and Yes Bank bore the brunt of the bear attack.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex corrected during the first three trading days of the week, falling below its 20 day and 50 day EMAs but remaining within the downward-sloping channel.

Friday's panic selling dropped the index well below the channel to an intra-day low of 35993, before short-covering and some value buying led to a recovery and a close just above the lower edge of the channel. The index is trading above its rising 200 day EMA in a bull market, but bears are threatening to wrest the advantage.

On a weekly closing basis, Sensex lost almost 1250 points (3.3%). Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line in bearish zone. ROC is below its falling 10 day MA in oversold zone. RSI and Slow stochastic are inside their respective oversold zones. Any technical bounce may encounter more bear selling.

By touching a low of 35993, Sensex has retraced 46% of its 6500 points gain from the Mar '18 low of 32484. That is close to the 50% Fibonacci retracement level of 35737. The 200 day EMA is at about 35370. If the index corrects some more and falls below its 200 day EMA, expect support near the 61.8% Fibonacci retracement level of 34970. 

What if the index falls below 34970? That will technically confirm a change of trend from bull to bear. As of now, that possibility may seem remote. Nevertheless, knowing about the various support levels can help in making better buy/sell decisions.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty, which had been correcting within a downward-sloping channel, dropped sharply below the channel during intra-day trading on Fri. Sep 21.

The index recovered to close exactly at its 20 week EMA within the channel, losing 372 points (3.2%) on a weekly closing basis. However, Friday's sharp selloff has caused a major dent in bullish sentiment, and opened the door for a deeper correction.

On the downside, support can be expected from the 50 week EMA (at about 10700) and the support/resistance level of 10550. If those two supports fail, the index can test its Mar '18 low of 9998 - though the possibility may seem remote as of now.

Weekly technical indicators are correcting overbought conditions and showing downward momentum. MACD is about to cross below its signal line and fall from its overbought zone. ROC has crossed below its 10 week MA and is falling towards its neutral zone. RSI and Slow stochastic have dropped from their respective overbought zones.

Nifty's TTM P/E has come down to 27.09, but remains above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown), which had fallen vertically from its oversold zone, has re-entered it. Some more correction is likely.

Bottomline? The corrective downward moves on Sensex and Nifty charts appear to be gathering strength. Macro concerns like rising oil prices, a depreciating Rupee, widening trade and fiscal deficits have been compounded by the ongoing debt woes in IL&FS. Fear has spread like a wildfire in the market. Time to sit on the sidelines and wait for the dust to settle.

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