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Wednesday, June 28, 2017

Nifty chart: a midweek technical update (Jun 28 ‘17)

After Monday's Eid holiday, FIIs were net buyers of equity on Tuesday but net sellers today. DIIs were net sellers of equity on Tuesday but net buyers today.

As per provisional figures, FII were net sellers of equity worth Rs 1.77 Billion and DIIs were net buyers of equity worth Rs 0.2 Billion during the two days of trading this week.

According to a Nomura report, India's GDP growth is expected to improve gradually from Q1 (Jun '17) onwards as consumption has recovered from the demonetisation shock.


The daily bar chart pattern of Nifty, which had been consolidating sideways within a 'rectangle' pattern (shaded in grey) for 4 weeks, broke out below the 'rectangle' on Tue. Jun 27.

The possibility of such a downward breakout, with a target of 9390, was mentioned in last week's updateThe index is seeking support from its 50 day EMA, but the support may not hold. 

Daily technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in bullish zone. RSI has fallen below its 50% level. Slow stochastic has entered its oversold zone and can trigger a pullback towards the 'rectangle'. 

All three indicators are showing negative divergences by falling below their respective Apr '17 lows. 

Nifty's TTM P/E has slipped a bit to 24.15, which is still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is deep inside its overbought zone - hinting at some more correction.

Concerns about GST implementation from July 1, plus F&O expiry on Jun 29 has turned market participants cautious.

Mid-cap and small-cap stocks are facing strong selling pressure. Those with clean balance sheets and earnings visibility should be added to one's 'buy list' for acquisition after the correction plays out. 

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