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Sunday, June 18, 2017

Sensex, Nifty charts (Jun 16, 2017): bears stop charging bulls

FIIs were net sellers of equity worth a huge Rs 20.5 Billion for the week. DIIs more than matched them with their net buying of equity worth Rs 20.6 Billion, as per provisional figures.

Both Sensex and Nifty closed lower for the week - Sensex by about 0.7% and Nifty by 0.8%.

The NDA government has initiated two long awaited banking sector reforms. 12 corporate entities with huge outstanding debts from PSU banks are being wound up. Several smaller PSU banks are going to get merged with larger PSU banks.

BSE Sensex index chart pattern

The following comments appeared in last week's post on the daily bar chart pattern of Sensex: "It is important that the index receives support from 'fan line 3' if the correction continues. In case 'fan line 3' is breached, a deeper correction towards 30000 may ensue."

On Fri.Jun 16, the index closed just below 'fan line 3'. Technically, it is not a convincing breach because of the 3% 'whipsaw' rule. Also, the index is receiving good support from its 20 day EMA, and can bounce up from here.

Note what happened back on Mar 8, when 'fan line 1' was initially breached. The index recovered and moved back above 'fan line 1', but subsequently breached 'fan line 1' more convincingly on Mar 21.

Any breach of a trend line - even if unconvincing at first - should be treated with caution. It is a warning about things to come. In other words, don't jump in to buy the dip just yet.

Daily technical indicators are looking bearish and hinting at some more correction. MACD is sliding down below its signal line in bullish zone. ROC, RSI and Slow stochastic have dropped inside their respective bearish zones, and showing downward momentum.

Sensex continues to trade above its three EMAs in a bull market. Stay invested. Let the correction play out.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty broke its 7 week stretch of touching higher tops. Last week's 'doji' candlestick pattern may have marked an intermediate top.

The index is trading well above its two rising weekly EMAs in a bull market. Some more correction will improve the technical 'health' of the chart.

Weekly technical indicators are inside their respective overbought zones, but showing downward momentum.

Nifty's TTM P/E is at 24 - lower than last week but much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has bounced up a bit after dropping sharply into its overbought zone.

The correction may continue a bit longer - specially with FIIs in sell mode.

Bottomline? Sensex and Nifty charts have started to correct after touching new highs in the previous week. The corrections will enable the indices to gather strength to climb to new highs. Stay invested. Wait for the correction to play out before buying.

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