Sunday, October 28, 2018

Sensex, Nifty charts (Oct 26, 2018): Fibonacci support zones in danger of getting breached

FIIs intensified their net selling of equity shares during the week. Their total net selling was worth Rs 57.5 Billion. DIIs were net buyers of equity on all five trading days. Their total net buying was worth Rs 45.1 Billion, as per provisional figures.

India's fiscal deficit touched 95.3% of full year budget estimate during Apr-Sep '18, compared with 91% during Apr-Sep '17. Spending touched 53.4% against 53.5% last year, but receipts were 39% against 40.6% of full year budget estimate last year.

Liquidity position of India's financial markets have worsened with cash deficit widening to Rs 1.4 Trillion this week against a small surplus in the first week of Oct '18. RBI's efforts to improve the situation through bond purchases haven't helped much.

BSE Sensex index chart pattern

The following comment was made in last week's post on the daily bar chart pattern of Sensex: "A drop inside the Fibonacci support zone (between 33934 and 32372) is on the cards."

The index dropped and closed inside the support zone on Tue., Thu. and Fri. (Oct 23, 25 and 26). The 20 day EMA has crossed below the 200 day EMA for the first time since Nov '16. The imminent 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a bear market.

From its Aug 29 top of 38990, Sensex has corrected 14.6% by touching a low of 33349 on Fri. 26th. A 20% correction is technically treated as the start of a bear market. The index is not in a bear market yet, but it sure feels like one - since the index has spent 16 straight trading sessions below its 200 day EMA.

Incidentally, BSE Midcap index and BSE Smallcap index (not shown) have corrected 26% and 33% from their respective Jan '18 tops. 'Death cross' on both indices have technically confirmed bear markets. Sensex is likely to enter a bear market as well.

Daily technical indicators corrected oversold conditions but remain bearish. MACD is facing resistance from its falling signal line inside its oversold zone. ROC and RSI have emerged from their respective oversold zones, but are still inside bearish zones. Slow stochastic has re-entered its oversold zone. 

All four indicators are showing positive divergences by touching higher bottoms while Sensex has dropped lower. Another technical bounce is likely. The previous bounce had faced resistance from the falling 20 day EMA.

Sensex may correct/consolidate some more. Large-caps are bearing the brunt of FII selling. It may be worthwhile to start looking at adding fundamentally strong mid-cap and small-cap stocks - particularly if they are already in your portfolios.

NSE Nifty index chart pattern

The following comment was made in last week's post on the weekly bar chart pattern of Nifty: "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." 

As if on cue, the index plunged to a low of 10004.55 - a level not seen during the past 7 months. For the 4th week in a row, the index closed below its 20 week and 50 week EMAs. It hadn't done that since Dec '16.

Weekly technical indicators are looking a bit oversold. MACD is falling below its signal line and has entered bearish zone. ROC is well inside its oversold zone, and is falling further. RSI has dropped to the edge of 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 24.12, which is still above its long-term average. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone, suggesting some more near-term downside.

Bottomline? Both Sensex and Nifty charts have closed inside Fibonacci support zones. Macro headwinds like high oil prices, a weak Rupee, widening trade and fiscal deficits, ongoing debt woes of NBFCs have increased bearish sentiment. No signs of a market bottom are visible yet.

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