Sunday, October 21, 2018

Sensex, Nifty charts (Oct 19, 2018): Fibonacci support levels holding for now

In a holiday-curtailed trading week, FIIs were net sellers of equity on Tue. & Fri. (Oct 16 & 19) but net buyers on Mon. & Wed. (Oct 15 & 17). Their total net selling was worth Rs 15.8 Billion. DIIs were net buyers of equity on Mon. & Tue. but net sellers on Wed. & Fri. Their total net buying was worth Rs 10.1 Billion, as per provisional figures.

Passenger vehicle sales have declined for three consecutive months due to floods in Kerala and higher ownership costs leading to postponement of purchases.

As per RBI, India's foreign exchange reserves fell by US $5.1 Billion from $399.6 Billion in the week ending Oct 5 to $394.5 Billion in the week ending Oct 12. It was the highest weekly fall in 7 years.

BSE Sensex index chart pattern

The following remark was made in last week's post on the daily bar chart pattern of Sensex: "A pullback to the zone between 35370 and 35736, followed by a corrective move towards 32372 (lower edge of the support zone) seems like a possible outcome." 

The index rallied past its 200 day EMA to touch an intra-day high of 35605 on Wed. Oct 17, but faced strong resistance from its falling 20 day EMA and closed 825 points lower. In the process, it formed a large 'reversal day' bar that ended the brief counter-trend rally.

On Fri. Oct 19, the index opened with a downward 'gap' and dropped to an intra-day low of 34140 before recovering to close at 34316 - losing more than 400 points (1.2%) on a weekly closing basis. A drop inside the Fibonacci support zone (between 33934 and 32372) is on the cards.

Daily technical indicators have corrected oversold conditions but remain in bearish zones. MACD is facing resistance from its falling signal line inside its oversold zone. RSI and Slow stochastic have emerged from their oversold zones, but are below their respective 50% levels. Only ROC is showing some upward momentum after crossing above its 10 day MA.

Reliance declared a good set of Q2 (Sep '18) numbers, as did HUL and TCS. But the stocks are facing selling pressure. Bears are in a punishing mood. Sensex may fall towards the lower edge of the support zone at 32372 - where bulls can be expected to put up a fight.

As mentioned in last week's post, a breach of 32372 can lead to a correction down to 30800. Should Sensex get there, it will be a good level to start bottom-fishing.

NSE Nifty index chart pattern

In last week's post on the daily bar chart pattern of Nifty, it was mentioned that a likely pullback rally towards the zone between the 50 week and 20 week EMAs was expected to trigger bear selling. That is precisely what happened.

The index rose above its 50 week EMA to touch an intra-week high of 10710, but bear selling led to a loss of 170 points (1.6%) on a weekly closing basis. The index closed just above the Fibonacci support level of 10283, but below its 20 week and 50 week EMAs in bear territory for the third straight week.

Formation of a weekly 'reversal' bar (higher high, lower close) is hinting at a further correction towards the lower edge (9827) of the Fibonacci support zone. A breach of 9827 can drop Nifty towards 9400.

Weekly technical indicators are looking bearish. MACD is falling below its signal line and is poised to enter bearish zone. ROC is inside its oversold zone, and is falling further. RSI has dropped towards its oversold zone. Slow stochastic has entered its oversold zone for the first time since Mar '18.

Nifty's TTM P/E has moved down to 24.83, which is still above its long-term average. The breadth indicator NSE TRIN (not shown) is rising in neutral zone, suggesting more near-term downside.

Bottomline? The corrections on Sensex and Nifty charts have found support at Fibonacci support zones again. Expected pullbacks towards long-term moving averages faced bear selling. Macro headwinds like high oil prices, a depreciated Rupee, widening trade and fiscal deficits, ongoing debt woes of NBFCs have increased bearish sentiment. Decent Q2 (Sep '18) corporate results announced so far have failed to cheer bulls.

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