Sunday, December 9, 2018

Sensex, Nifty charts (Dec 07, 2018): bears wrest the initiative from bulls

FIIs were net buyers of equity on Mon. & Thu. (Dec 3 & 6), but net sellers on the other three days of the week. Their total net selling was worth Rs 8.7 Billion. DIIs were net buyers of equity on Fri. (Dec 7), but net sellers on the other four days. Their total net selling was worth Rs 22.7 Billion, as per provisional figures.

India's Current Account Deficit (CAD) widened to US $19.1 Billion (2.9% of GDP) during Q2 (Sep '18) compared to US $6.9 Billion (1.1% of GDP) during Q2 (Sep '17) - mainly due to a large trade deficit. CAD was US $15.9 Billion (2.4% of GDP) during Q1 (Jun '18).

Members of OPEC pledged to reduce their production by 800,000 barrels per day for 6 months beginning Jan '19. Russia and other non-OPEC producers have promised to slash production by 400,000 barrels per day. OPEC members Iran, Venezuela and Libya have been granted exemption from the production cuts. 

BSE Sensex index chart pattern

The following remark was made in last week's post on the daily bar chart pattern of Sensex: "Note that RSI and Slow stochastic are showing negative divergences by touching lower tops, and can trigger a pullback below the 'gap' towards the 200 day EMA."

The index touched an intra-day high of 36446 on Mon. Dec 3, only to close 200 points lower. That triggered the expected pullback below the downward 'gap' (formed on Oct 4). 

On Thu. Dec 6, the index breached the uptrend line (connecting Oct 26 and Nov 26 lows) and dropped to seek support from its 200 day EMA. Friday's pullback found resistance from the uptrend line.

Sensex managed to close above its three EMAs in bull territory, but lost more than 500 points (~1.4%) on a weekly closing basis. Bears will most likely use Friday's pullback to sell.

Daily technical indicators are looking bullish to neutral. MACD is receiving support from its signal line in bullish zone. ROC has crossed above its 10 day MA in bullish zone. RSI is seeking support from its 50% level. Slow stochastic has slipped below its 50% level.

RSI and Slow stochastic formed bearish 'double top' reversal patterns inside their respective overbought zones. The support zone between 33934 and 32372 is back in the picture again.

Oil prices are likely to rise, with consequent pressure on the Rupee. That will widen the CAD even further. State election results on Dec 11 is keeping the market on edge. FIIs have turned net sellers of equity. Bears have used the opportunity to wrest the initiative from bulls after a 5 weeks long counter-trend rally.

NSE Nifty index chart pattern

The possibility of a corrective move was mentioned in last week's post on the weekly bar chart pattern of Nifty. The index touched an intra-week high of 10941, but dropped below its 20 week EMA - forming a 'reversal' bar and closing more than 180 points (~1.7%) lower for the week.

A likely fall below the 50 week EMA will bring the support zone between 10283 and 9827 back into the picture. 

The 50% Fibonacci retracement level (10882) of the fall from the Aug '18 top to the Oct '18 low acted as a resistance for the 5 weeks long counter-trend rally - as Nifty failed to close above 10882.

Weekly technical indicators are in bearish zones, but not showing any upward momentum. MACD is moving sideways below its falling signal line. ROC is moving sideways after crossing above its falling 10 week MA. RSI and Slow stochastic are moving sideways.

Nifty's TTM P/E has moved down to 25.87, which remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is inside its oversold zone. Some index consolidation or correction is possible. 

Nifty is trading well above its 200 week EMA in a long-term bull market. A deeper correction will provide a very good buying opportunity.

Bottomline? FII buying had started counter-trend rallies on Sensex and Nifty charts from their Oct '18 lows. The rallies have run their course, and the down trends appear to have resumed. Possibility of opposition wins in a couple of state elections is keeping the market unsettled. Wait for the market to 'digest' election results - to be announced on Dec 11. Better entry points should become available.

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