Wednesday, November 15, 2017

Nifty chart: a midweek technical update (Nov 15 ‘17)

FIIs and DIIs were both net buyers of equity during the first three days of trading this week - worth Rs 19.6 Billion and Rs 6 Billion respectively as per provisional figures. Still Nifty lost 204 points (almost 2%).

Interestingly, FIIs were net sellers on Mon. (Nov 13) & Wed. (Nov 15), while DIIs were net sellers on Mon. & Tue. (Nov 14).

Inflation is inching up again because of higher food and fuel prices. CPI rose to 3.58% - a 7 months high - in Oct '17 against 3.28% in Sep '17. WPI rose to 3.59% - a 6 months high - in Oct '17 against 2.6% in Sep '17. RBI is likely to maintain status quo on interest rates.

Exports declined 1.12% to US $23 Billion while imports grew 7.6% to US $37.1 Billion in Oct '17. The trade deficit widened to $14.1 Billion from $11.1 Billion in Oct '16.

The daily bar chart pattern of Nifty continued its correction from the Nov 6 top of 10490. The index has fallen below its 20 day and 50 day EMAs and is near the lower edge of the 'support/resistance zone' between 10100 & 10200.

Bullish hopes of an intermediate bottom formation have been raised because the index touched an intra-day low of 10094 today - retracing almost 50% of its entire 802 points rally from the Sep 28 low of 9688. (The 50% Fibonacci retracement level is treated by many technical traders as a trend deciding level.)

The facts that two small upward 'gaps' formed on Oct 13 & 25 have been filled and the 10100 level wasn't breached on a closing basis have improved the chances of a recovery by the index.

Daily technical indicators are looking bearish and showing strong downward momentum. MACD is falling below its signal line in bullish zone. RSI is falling below its 50% level. Slow stochastic is well inside its oversold zone, and may trigger a pullback.

Nifty's TTM P/E has moved down to 25.72 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply in its neutral zone and looks ready to enter its oversold zone. That may limit index downside.

The index is trading well above its rising 200 day EMA in a bull market, and has corrected less than 4% from its Nov 6 top. Many fundamentally sound stocks have corrected much more because their Q2 (Sep '17) results disappointed the market. Those are the ones to put on a 'buy list'.

Investors would do well to remain circumspect. If the 10100 level gets breached - and the possibility can't be ruled out entirely - the index can fall another 100 points, where support from the 61.8% Fibonacci retracement level may kick in. A fall below 10000 can drop the index to 9700 (its previous support level in Aug '17 & Sep '17).

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