Sunday, June 23, 2019

Sensex, Nifty charts (Jun 21, 2019): consolidating, but showing bearish reversal signs

FIIs were net buyers of equity on Tue. (Jun 18), but net sellers on the other four days. Their total net selling was worth Rs 15.7 Billion. DIIs were net sellers of equity on Wed. (Jun 19), but net buyers on the other four days. Their total net buying was worth Rs 30.2 Billion, as per provisional figures.

USA has warned that it would be compelled to take some "additional action" against India over "unfair" trade practices as the two countries have made "no headway" on these issues.

Sovereign Wealth funds and State Pension funds are piling into India, buying stakes in everything from airports to renewable energy, attracted by political stability, reforms and a growing middle class.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex consolidated sideways during the week - getting good support from its 50 day EMA - but lost about 250 points (0.6%) on a weekly closing basis. The index is trading well above its rising 200 day EMA in a bull market.

However, on the closing (line) chart (see below), the index had broken out below a small 'head and shoulders' reversal pattern (with purple neckline), followed by a pullback towards the purple neckline - and may be forming a larger complicated 'head and shoulders' pattern with a green neckline.



Why complicated? Because the 'head' of the larger 'head and shoulders' pattern is itself a 'head and shoulders' pattern. Note that the green neckline has not been breached yet. Bulls can be expected to put up a strong defense here.

What if the green neckline gets breached? The larger complicated 'head and shoulders' pattern will get technically confirmed. Sensex can then be expected to move down to test support from its rising 200 day EMA.  

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. ROC faced resistance from its '0' line and dropped back into bearish zone. RSI is below its 50% level. Slow stochastic has emerged weakly from its oversold zone. 

Some more correction, and a part or complete filling of 'Gap 2' (formed on May 20) may be on the cards.

Formation of a reversal pattern - specially one occurring near a lifetime high - should be treated with respect and caution. The up trend from the Oct '18 low and the bull market are intact. So, there is no need to sell in a panic. But buying can be restricted for the time being.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty closed lower for the third week in a row as it dropped down to test support from the upward 'gap' formed on May 20. The index closed above its weekly EMAs in a bull market, but has formed a 'rounding top' reversal pattern.

Weekly technical indicators are looking bearish. MACD is about to fall from its overbought zone. ROC is below its 10 week MA and has fallen to its neutral zone. RSI and Slow stochastic have dropped from their respective overbought zonesSome more consolidation or correction is possible. 

After touching a high of 29.90 on Mon. Jun 3, Nifty's TTM P/E has moved down to 28.99, which is still well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has dropped sharply inside its oversold zone. Some near-term index upside or consolidation is likely.

Bottomline? Sensex and Nifty charts are consolidating after touching lifetime highs, but showing some bearish reversal signs. Any pre-budget rally can be used to book profits. Avoid the urge to do bottom fishing among small/mid caps.

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