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Sunday, September 3, 2017

Sensex, Nifty charts (Sep 01, 2017): Are the corrections over? Or, will bears strike again?

FIIs were net sellers of equity worth Rs 160 Billion during the month of Aug '17. It was their highest amount of monthly selling since Nov '16. DIIs more than matched them with net buying of equity worth Rs 162 Billion during Aug '17.

The GDP growth figure for Q1 (Jun '17) was at a 3 year low of 5.7%, against 7.9% for Q1 (Jun '16) and 6.1% for Q4 (Mar '17). It was the fifth straight quarter of GDP decline - thanks to demonetisation, de-stocking prior to GST implementation and a rising trade deficit.

Passenger vehicle sales showed decent growth during Aug '17. Maruti and Honda had double-digit growth over Aug '16. M&M, Hyundai and Tata Motors had single-digit growth. However, Ford and Toyota showed decline in growth. 

BSE Sensex index chart pattern



There are bullish and bearish scenarios developing on the daily closing chart pattern of Sensex.

First, the bullish scenario. The index broke out above the (blue) down trend line (refer last week's post), and closed above its 20 day and 50 day EMAs.

Daily technical indicators are looking bullish. MACD has just crossed above its falling signal line. ROC and RSI have entered bullish zones. Slow stochastic has risen sharply towards its overbought zone.

Now, the bearish scenario. The index had corrected sharply below its 20 day and 50 day EMAs after forming a small head-and-shoulders reversal pattern. It has been consolidating sideways within an upward-sloping 'flag' pattern for the past three weeks.

Since a 'flag' is usually a continuation pattern, and the index entered the 'flag' after a corrective move, the chance of a break out below the 'flag' is greater.

Daily MACD is still in bearish zone. ROC is showing negative divergence by failing to rise higher with the index. Slow stochastic is looking overbought, and can trigger a corrective move. 

There seems to be no respite from selling by FIIs. A test of support from the 200 day EMA may be on the cards. If such a dip occurs, use it to add to existing holdings.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty managed to move above the (blue) down trend line (refer last week's post), but appears to be consolidating within a 'flag' or a 'falling wedge' pattern. The likely break out from either pattern is downwards.

The index is trading above the support level of 9700, and its 20 week and 50 week EMAs in a bull market. Any further dip will be a good opportunity to add to existing holdings.

Weekly technical indicators are in bullish zones, but only ROC and Slow stochastic are showing upward momentum. MACD and RSI are showing negative divergences by failing to rise with the index. Some more consolidation is likely.

Nifty's TTM P/E is at 25.99 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is oscillating in neutral zone, and may limit index upside.

Consequences of a good monsoon have already been discounted by the index. The demonetisation flop show has dented NaMo's image. Quite a few IPOs are in the pipeline. The near-term outlook for the index is not looking bullish.

Bottomline? Sensex and Nifty charts appear to be consolidating within 'flag' patterns for the past three weeks. FIIs continue to sell heavily. DII buying has protected the downside so far. Both indices are trading in bull markets, but stagnant earnings growth of India Inc. and the shocking GDP number can trigger a deeper correction. So, don't be in a rush to buy.

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