Sunday, May 19, 2019

Sensex, Nifty charts (May 17, 2019): pullbacks after downward breakouts from 'diamond' patterns

FIIs were net sellers of equity on all five trading days. Their total net selling exceeded Rs 62.2 Billion. DIIs were net buyers of equity on all five trading days, and more than matched the pace of FII selling. Their total net buying was worth Rs 67.3 Billion, as per provisional figures.

In Apr 2019, India's trade deficit widened to a five months high of US $15.33 Billion, compared to $10.9 Billion in Mar '19 and $13.72 Billion in Apr '18.

Merchandise export in Apr '19 grew 0.64% (a four months low) to $26.07 Billion - down sharply from $32.6 Billion in Mar '19. Imports increased 4.48% (a six months high) to $41.4 Billion - on the back of higher oil and gold imports.

BSE Sensex index chart pattern



The following comments were made in last week's post on the daily bar chart pattern of Sensex: "Sensex is just above a strong support zone, from where a technical bounce can be expected."

On Mon. May 13, the index dropped down to completely fill the 125 points 'gap' formed on Mar 12. During the next three trading days, Sensex oscillated about the 'gap' in a 630 points range.

On Fri. May 17, the expected technical bounce took the index above the trading range and its 50 day EMA, but failed to overcome resistance from its falling 20 day EMA. Further index upside may face resistance from the 39000 level, which corresponds to the level of the right apex of the 'diamond' reversal pattern.

Daily technical indicators are correcting oversold conditions. MACD is forming a small 'rounding bottom' pattern below its falling signal line in bearish zone. ROC, RSI and Slow stochastic have emerged from their respective oversold zones, but remain in bearish zones. Some more near-term index upside is likely. 

The Indian stock market appears to be on tenterhooks regarding results of the general election on May 23. A likely return of the NDA for a second term should provide a temporary spike to the index. India Inc's muted Q4 (Mar '19) results may not sustain a long rally.

An unlikely upset victory of the combined opposition would accentuate bearish sentiment. A test, and breach, of the (blue) down trend line and the 200 day EMA should be kept in the realm of possibilities.

NSE Nifty index chart pattern



The following comment appeared in last week's post on the weekly bar chart pattern of Nifty: "As long as the index trades above its 50 week EMA, the bull market will remain in force."

Nifty dropped to test support from the lower edge of the 'support zone' (between 11230 and 11100) and bounced up to close above its 20 week EMA with a 1.1% weekly gain.

Further Nifty upside may face resistance from the 11750 level, which corresponds to the right apex of the 'diamond' reversal pattern.

Weekly technical indicators are in bullish zones after correcting overbought conditions. MACD is falling towards its rising signal line. ROC has crossed below its 10 week MA. RSI is moving sideways below its overbought zone. Slow stochastic is falling below its overbought zone. Some more correction or consolidation is possible. 

Nifty's TTM P/E has moved up to 28.44, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is rising inside its oversold zone, and can trigger near-term index upside.

Bottomline? Sensex and Nifty charts are pulling back from support zones after sharp break outs below 'diamond' patterns. Stay invested, and await election results on May 23 before jumping in to buy or sell.

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