Wednesday, July 10, 2019

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

FIIs were net sellers of equity during the first three trading days of the week. Their total net selling was worth Rs 16.8 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 17.0 Billion, as per provisional figures.

The Finance Minister defended her decision to impose higher Income Tax surcharge on incomes above Rs 20 Million and Rs 50 Million per year that will affect about 40% of FIIs who do not have a corporate structure.

The Union Cabinet seeks to approve a bill that seeks to merge 13 central labour laws into a single code that would apply to all establishments employing 10 or more workers.

The following comments appeared in last week's technical update on the daily bar chart pattern of Nifty: "The 165 points upward 'gap' (formed on May 20) has remained unfilled. At some point, the index is likely to fall to partly or completely fill the 'gap'." 

The budget on Jul 5 provided just the opportunity for bears to fill the 'gap'. The increased surcharge on Income Tax for people in higher income brackets - including some categories of FIIs - dampened bullish sentiment.

Nifty is trading above its rising 200 day EMA in a bull market. However, it has formed a bearish pattern of 'lower tops, lower bottoms' and is in a down trend (marked by green down trend line).

A complete filling of the 'gap' (it has been partly filled) and a test of support from the 200 day EMA is now a definite possibility - specially if FIIs keep selling.

Daily technical indicators have turned bearish. MACD is falling below its signal line in bearish zone. RSI has dropped below its 50% level. Slow stochastic has fallen sharply to enter its oversold zone, and can trigger a pullback towards the 50 day EMA.  

Nifty's TTM P/E has moved down to 28.20, which is well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone. Some near-term index consolidation is possible.

Bulls will be looking for some cheer from Q1 (Jun '19) results that have started hitting the market. Chances are they will find little to cheer about. Get ready for trying times if you entered the market to quickly double your money. 

Wealth building is a process that requires patience, discipline and diligence. Your investment mettle will be sorely tested during the next few months.

1 comment:

Subhankar said...

UBS pegs down GDP growth to 6.7%, rules out revival this year