Wednesday, July 31, 2019

Nifty chart: a midweek technical update (Jul 31, 2019)

Except Jul 1, FIIs have been net sellers every single day during Jul '19. Their total net selling of equity during the month was worth Rs 198.70 Billion. Except Jul 1, DIIs have been net buyers every single day during Jul '19. Their total net buying of equity during the month was worth Rs 203.90 Billion, as per provisional figures. 

The government's fiscal deficit during Apr-Jun '19 touched Rs 4.32 Trillion, which is 61.4% of the budget estimate of Rs 7.03 Trillion for FY 2019-20. During Apr-Jun '18, the fiscal deficit was 68.7% of the budget estimate. Revenue receipts during Apr-Jun '19 was 14.4% of the budget estimate against 15.5% during Apr-Jun '18.

The sad episode of the Cafe Coffee Day founder has been a blow to the coffee sector, and brought 'ease of doing business' - or the lack of it - to the fore. Entrepreneurs take huge risks to set up businesses, and provide jobs to many, but tax terrorism can push the honest ones over the edge. The dishonest flout every rule and get away with it.

The daily bar chart pattern of Nifty is teetering on the brink of a bear market. On Jul 8, 9 and 10 the index had breached the lower Bollinger Band. The subsequent technical bounce faced strong resistance from the middle Bollinger Band (i.e. 20 day SMA - dotted green line) on Jul 17.

Nifty dropped sharply to the lower Bollinger Band on Jul 19. Since then, the index has been sliding down along the lower Bollinger Band - breaching technical supports in quick succession on the back of selling by FIIs. 

Two important technical points to note are: (1) a fall below the 200 day EMA (in blue) into bear territory on Jul 24-25, followed by a pullback on Jul 26; (2) a fall below the 200 day SMA (in red) and the previous (May 14) low of 11108 on Jul 30, followed by a pullback today.

Daily technical indicators are looking oversold. MACD is below its signal line and is falling inside its oversold zone. RSI is trying to emerge from its oversold zone. Slow stochastic is moving sideways well inside its oversold zone. Nifty may try to move up to the 11300-11400 zone. Expect bears to 'sell on rise'.

Nifty's TTM P/E has moved down to 27.42, but remains well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen high inside its oversold zone - hinting at some near-term index upside.

The breaches of the 200 day EMA and 200 day SMA are clear indications that Nifty is ready to fall into a bear market. The technical confirmation of a bear market will be provided by the 'death cross' of the 50 day EMA below the 200 day EMA.

Though the 50 day EMA is falling towards the 200 day EMA, it is still 260 points above the long-term moving average. That gives bulls a bit of wiggle room. But avoid bottom fishing. Use any near-term upside to book profits.

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