Sunday, October 7, 2018

Sensex, Nifty charts (Oct 05, 2018): supports crumble under fierce bear onslaughts

FIIs were in a rush to exit - selling on all four days of a holiday-shortened trading week. Their total net selling was worth a huge Rs 95.2 Billion. DIIs were net buyers on all four trading days. Their total net buying was worth Rs 69.3 Billion, as per provisional figures.

Nikkei India's Services PMI declined to 50.9 in Sep '18 from 51.5 in Aug '18. Weak demand and stagnant new work led to slower growth. The Composite PMI (Manufacturing+Services) fell to a 4 months low of 51.6 in Sep '18 against 51.9 in Aug '18.

The share of private investments in India's infrastructure sector has dropped to a 10 years low of 25% in FY18 - down steeply from a high of 37% in FY08. A plethora of stalled projects and stressed assets dampened investor interest and risk appetite.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex dropped below its 200 day EMA into bear territory for the first time since Mar '18. Under a fierce onslaught by bears (read: FIIs), the index plunged below the support zone between 35737 and 34969 (marked on last week's chart).

By falling to an intra-day low of 34202, the index appears to be retracing the 13236 points rally from its Dec 26 '16 low (25754) to its Aug 29 '18 top (38990). The 38.2% and 50% Fibonacci retracement levels of the rally are 33934 and 32372 respectively (marked on chart).

The low of 32484 - touched on Mar 23 '18 - is just above the 50% retracement level of the 13236 points rally. Looks like the index wants to test 32484. May be not in one go, but after a pullback to its 200 day EMA.

Daily technical indicators are looking oversold. MACD and ROC are falling deeper inside their oversold zones. RSI and Slow stochastic are doing likewise, and hinting at a pullback. Expect bears to sell on every rise. 

RBI's policy announcement on Fri. Oct 5 came as a surprise. A 25 bps interest rate hike had been 'discounted' by the market. By holding rates, RBI hinted that it cared more about inflation than rupee depreciation. The rupee fell further against the US dollar, and dragged the market down with it.

Small investors should continue to sit on the sidelines, and wait for Q2 (Sep '18) results. Prepare a short-list of companies to put on your 'buy list' based on their results. If you are itching to invest, choose a good multi-cap or balanced fund.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty closed lower for the fifth straight week, as it fell below its 50 week EMA for the first time since Mar '18. The support zone between 10850 and 10550 crumbled under bear selling pressure. A test of the Mar '18 low of 9952 is on the cards. 

Weekly technical indicators are looking bearish and showing downward momentum. MACD has crossed below its signal line and is falling in bullish zone. ROC has dropped inside its oversold zone, and can trigger a pullback. RSI and Slow stochastic have fallen below their respective 50% levels.

The index can pullback towards 10550, but expect bears to use the opportunity to sell again. Market sentiment has been badly dented. Heavy selling by FIIs has overwhelmed continuous buying by DIIs.

Nifty's TTM P/E has come down from lofty levels above 28 to a more reasonable 24.95, which is still above its long-term average. The breadth indicator NSE TRIN (not shown) is rising in neutral zone, hinting at some more correction.

Bottomline? The corrections on Sensex and Nifty charts have gathered momentum and dropped below strong support zones. Technical bounces are possible, but bears are likely to 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. Check out Q2 (Sep '18) corporate results before venturing into value-buying.

No comments: