Wednesday, July 24, 2019

Nifty chart: a midweek technical update (Jul 24, 2019)

FIIs have stepped-up their selling. Their total net selling of equity during all three trading days this week was worth Rs 59.2 Billion. DIIs were net buyers of equity on all three days. Their total net buying more than matched FII selling, and was worth Rs 65.9 Billion, as per provisional figures.

Vehicle sales have continued to plummet for the past several months, as per Auto Component Manufacturers Association (ACMA) President. The current 15-20% production cut has led to a crisis-like situation, and about 1 Million employees may be laid off if the down trend continues.

The IMF lowered India's GDP growth estimate by 30 bps (0.3%) to 7% in 2019 and 7.2% in 2020 due to weaker-than-expected outlook for domestic demand. Despite the downward revision, India's growth rate will be the highest in the world.

Note the following remarks in last week's technical update on the daily chart pattern of Nifty: "After touching a lifetime high of 12103 on Jun 3, Nifty has formed a bearish pattern of 'lower tops, lower bottoms'. If the pattern continues to play out, further upside ought to be limited. The next leg of the down move should follow."

The expected down move turned out to be a vertical fall, as FIIs voted with their feet. Twin supports from the up trend line and the 200 day EMA (marked by grey oval) have been breached. 

The previous occasion (in Feb '19) when Nifty fell below its 200 day EMA, the up trend line had provided support - allowing the index to bounce up. This time, the up trend line was breached first. As per 'trend line theory', a trend remains in force till it gets breached.

Today's breach of the 200 day EMA has not been a convincing one. The index recovered 40 points from its intra-day low - probably due to short-covering. That may give a faint ray of hope for bulls. However, the chart structure has turned bearish in the near-term as the 20 day EMA has crossed below the 50 day EMA and both EMAs are falling. 

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line and has slipped inside its oversold zone. RSI has dropped to the edge of its oversold zone. Slow stochastic has fallen deep inside its oversold zone, and may trigger a pullback towards the breached up trend line. 

Nifty's TTM P/E has moved down to 27.62, but remains well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone - hinting at some near-term index downside.

Is Nifty falling into a bear market? Breach of the up trend line and the 200 day EMA is definitely a warning bell. A pullback above the up trend line (and the 11400 level) may keep bears at bay for a while. 

However, bullish sentiment has taken a huge knock as realisation dawns on investors that this government neither cares about the state of the stock market, nor does it seem to have the knowledge or experience to turn around the slide in the economy.

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