Sunday, September 30, 2018

Sensex, Nifty charts (Sep 28, 2018): corrective moves approach support zones

FIIs were net buyers of equity on Thu. (Sep 27), but net sellers on the other four days. Their total net selling was worth Rs 37.1 Billion. DIIs were net sellers of equity on Thu. but net buyers on the other four days. Their total net buying was worth a huge Rs 84.4 Billion, as per provisional figures.

Demand for services and manufactured goods slowed in Aug. '18, while a cross-section of high-frequency indicators compiled by Bloomberg News suggest economic growth may moderate in the coming months from an 8%-plus pace in the Apr-Jun '18. 

A recent report by the United Nations Conference on Trade and Development (UNCTAD) stated that trade tariff tussle between USA and China is a symptom of a "deeper malaise". The report added that four BRICS nations, including India, are doing better because of their domestic demands.

BSE Sensex index chart pattern

After the panic selling on Fri. Sep 21, the daily bar chart pattern of Sensex got some respite from bears by consolidating sideways in a range during the week. On Fri. Sep 28, the index slipped 8 points below the low of 35993 touched on Sep 21 - proving the market adage 'Panic bottoms seldom hold'.

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 have re-entered their respective oversold zones. Any technical bounce may encounter more bear selling.

The support zone mentioned in last week's post - based on 50% and 61.8% Fibonacci retracement levels of the rally from the Mar '18 low and Aug '18 top - has been marked on the chart. The 200 day EMA is inside the support zone. 

Bulls can be expected to put up a fight to defend the support zone. Note that heavy buying by DIIs during the week failed to prevent the index from touching a lower low. That is a clear indication that HNIs and small investors have joined FIIs in rushing through the exit door.

Stay calm and sit on the sidelines. If you have spare savings that you are waiting to invest, wait a little longer. The prudent thing to do would be to buy when the market is on the way up than when it is on the way down.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed lower for the fourth straight week, touching a low of 10850 before bouncing up to close within the downward-sloping trading channel. The index closed below its 20 week EMA for the first time in 6 months.

Nifty closed above its 50 week EMA in long-term bull territory. Any further correction should get support from the zone between 10850 and 10550. In case the index falls below 10550, it can drop to test its Mar '18 low.

Weekly technical indicators have corrected overbought conditions and are showing downward momentum. MACD has crossed below its signal line and has fallen from its overbought zone. ROC has crossed below its 10 week MA and has dropped to its neutral zone. RSI and Slow stochastic have also dropped to their respective neutral zones.

Nifty's TTM P/E has come down to 26.44, but remains above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) is falling in neutral zone, and can trigger a pullback.

Bottomline? The corrective downward moves on Sensex and Nifty charts have dropped near strong support zones. Technical bounces are likely, but bears may use them to sell again. Macro headwinds - like rising oil prices, a depreciating Rupee, widening trade and fiscal deficits, ongoing debt woes of IL&FS - remain concerns for bulls. Time to sit on the sidelines and wait for the indices to find bottoms.

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