Wednesday, June 12, 2019

Nifty chart: a midweek technical update (Jun 12, 2019)

FIIs were net buyers of equity on Mon. and Tue. (Jun 10 and 11), but were net sellers today. Their total net selling was worth Rs 7.4 Billion. DIIs were net sellers of equity on Tue., but were net buyers on Mon. and today. Their total net buying was worth Rs 2.9 Billion, as per provisional figures.

Reigniting the debate on the accuracy of India's GDP growth numbers, the former Chief Economic Advisor, Arvind Subramanian mentioned in a research paper that analyses data on 17 different economic indicators that India's real GDP growth was only 3.5-5.5% during FY 2012-2017.

The Prime Minister's Economic Advisory Council has refuted the claims made by the former CEA in his research paper. However, the jobless economic growth on the ground may be confirming - rather than refuting - Mr Subramanian's findings.

The daily bar chart pattern of Nifty had touched a new high of 12103 on Jun 3. The index corrected sharply and tested support from its rising 20 day EMA on Jun 7. It has been consolidating since then, and touched a lower top of 12000 on Jun 11.

All three EMAs are rising, and the index is trading above them in a bull market. The index should rise to a new high soon. However, the 165 points upward 'gap' formed on May 20 remains a concern.

Charts don't 'like' unfilled gaps. Most gaps get filled sooner than later - though some gaps may never get filled. A part or complete filling of the May 20 'gap' will make the chart technically 'healthy', enabling the index to rise higher.

Daily technical indicators are in bullish zones, but not showing any upward momentum. MACD is seeking support from its signal line in overbought zone. RSI is moving sideways above its 50% level. Slow stochastic is moving sideways above its 50% level after falling from its overbought zone

All three indicators showed negative divergences by failing to touch new highs when the index touched its lifetime high on Jun 3. Some more consolidation or correction may follow.

After touching a high of 29.90 on Jun 3, Nifty's TTM P/E has moved down to 29.45, which is in overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone, hinting at some near-term consolidation.

The debt crisis in the NBFC/HFC segment seems to be getting worse, and is having a negative spill-over effect on the banking sector. With the financial system in turmoil, how will economic growth get funded?

The consumption sector that is dependent on loans from banks/NBFCs - like automobiles, real estate - is in doldrums. It will be too much to expect the new Finance Minister to perform a miracle in her first budget and restore the economy back on the growth track.

Stay invested, but stay nimble. Book profits where available, and invest it in bank FDs to protect capital before interest rates fall further. 

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