Wednesday, April 10, 2019

Nifty chart: a midweek technical update (Apr 10, 2019)

FIIs were net buyers of equity on all three trading days this week. Their total net buying was worth Rs 29.7 Billion. DIIs were net sellers of equity on Mon. and Tue. (Apr 8 and 9) but net buyers today. Their total net selling was worth Rs 8.5 Billion, as per provisional figures.

Fall in auto sales, shortfall in direct tax collection and household savings, 7% contraction in FDI during Apr-Dec '18 are all pointing to a slow down in the Indian economy. 

According to the Federation of Indian Export Organisations (FIEO), rising protectionism, fluctuating commodity prices, inadequate availability of liquidity and slowdown in global trade will be major challenges faced by exporters.

Note the following comment from last week's technical update on the daily bar chart pattern of Nifty: "The last ten trading sessions have formed a bearish 'rising wedge' pattern, from which a downward breakout can be expected."

As expected, a breakout below the 'wedge' occurred on Thu. Apr 4. But bulls adopted a 'buy the dips' strategy that has so far prevented a correction towards the 46 points 'gap' formed on Mar 12.

Daily technical indicators are in bullish zones after correcting overbought conditions. MACD has crossed below its signal line. RSI and Slow stochastic are falling towards their respective 50% levels. Some more correction or consolidation is likely, which will improve the technical 'health' of the chart. 

Nifty's TTM P/E has fallen a little to 28.91, but remains much higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen to the edge of its oversold zone - hinting at some more consolidation or correction.

Annual results season and general elections have coincided. An index run-up to a new high before two major events has been followed by some profit booking. Nothing unusual with that.

The stock market has already 'discounted' a second term for the NDA government. If there is a hung parliament or an unlikely opposition victory, a sell-off can be expected. That will be a good long-term buying opportunity - if it occurs. 

Partial profit booking may be a good idea for those who were able to take advantage of the pre-election rally. Don't worry if you missed the rally. Stay invested and stick to your SIPs. The market keeps providing more opportunities to those who remain invested for the long-term.

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