Wednesday, August 21, 2019

Nifty chart: a midweek technical update (Aug 21, 2019)

FIIs were net sellers of equity on Mon. and Wed. (Aug 19 and 21) but net buyers on Tue. this week. Their total net selling was worth Rs 7.0 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 10.4 Billion, as per provisional figures.

According to the RBI Governor, moderation in CPI inflation including food, fuel and contraction in merchandise imports is actually reflecting a slowdown in domestic demand. This raises hopes that RBI may cut interest rates more rapidly.

SEBI has decided to simplify and rationalise the existing regulatory framework for FIIs by easing operational constraints and compliance requirements. FIIs will now be recategorised into two classes instead of three.

The daily bar chart pattern of Nifty has broken out below a bearish 'rising wedge' pattern and is poised to fall further. Note that the index had fallen below bearish 'rising wedge' and 'flag' patterns in July '19.

The falling middle Bollinger Band (20 day SMA, marked by green dotted line) provided strong resistance to the index, just as it had done last month during formation of the 'flag' pattern.

The 50 day EMA is falling towards the 200 day EMA, and the space between the two EMAs is decreasing rapidly. A 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a bear market.

Daily technical indicators are in bearish zones. MACD is moving sideways above its signal line. RSI is falling below its 50% level. Slow stochastic has started to fall after facing resistance from its 50% level. Nifty's previous (Aug 5) low of 10783 may get tested, and breached.

Nifty's TTM P/E is at 27.01, which is inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising further inside its oversold zone, hinting at some more near-term index down side.

Piecemeal 'packages' being announced by various clueless government departments are unlikely to change the bearish sentiment prevailing in the stock market.

Demonetisation had broken the back of rural and unorganised sectors. Tax terrorism is now taking a toll on the organised sector. Analysts who are calling a bottom of the economic cycle are just trying to 'talk up' the market.

Small investors should stay on the sidelines, concentrate on wealth protection and start preparing a 'buy list'.

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