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Wednesday, August 9, 2017

Nifty chart: a midweek technical update (Aug 09 ‘17)

FIIs were net sellers of equity on Mon. & Wed., but their net buying on Tue. exceeded their net selling by Rs 5 Billion. DIIs were net buyers of equity on all three days - worth Rs 16.6 Billion.

Despite all the buying, Nifty corrected 245 points (2.4%) from its Aug 2 top of 10138 before managing to close just above the 9900 level.

After a strong bull rally in Jul '17, the index became technically overbought and was poised for a correction. SEBI's strictures on 331 'shell' companies provided just the trigger bears wanted.


The following remark was made in last week's update on the daily bar chart pattern of Nifty: "Aug '17 may well turn out to be a month of correction or consolidation." 

The index has dropped and closed below its 20 day EMA after 5 weeks, but is trading well above its rising 200 day EMA in a bull market.

Daily technical indicators are showing downward momentum after correcting overbought conditions. MACD is falling below its signal line in bullish zone. RSI and Slow stochastic have slipped into their respective bearish zones.

Nifty's TTM P/E has reduced a bit to 25.31, but remains much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is about to emerge from its overbought zone.

Some more correction is possible. Expect support from the 50 day EMA (at 9780), and stronger support from the 9700 level. A fall below 9700 seems unlikely as both FIIs and DIIs are buying.

Remain cautious. No need to jump into the market yet. Keep a watch on good mid-cap and small-cap stocks, which tend to correct more than the index during corrections. Some value-buys may become available. 

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