Sunday, April 22, 2018

Sensex, Nifty charts (Apr 20, 2018): counter trend rallies pause at resistance zones

FIIs were net sellers of equity on all five trading days. Their total net selling during the week was worth Rs 28.2 Billion. DIIs were net buyers of equity on four out of the five trading days. Their net buying was worth Rs 21.2 Billion.

Sensex and Nifty are in the midst of counter-trend rallies that have paused after retracing 50% of their entire falls from their Jan '18 tops to their Mar '18 lows. Sensex gained 0.65% and Nifty gained 0.8% on a weekly closing basis.

As per a report by the PHD Chamber of Commerce, after-effects of demonetisation and delays in GST refunds curtailed India's exports in FY 2017-18 amid a revival in global demand. A moderate 10% growth in exports led to a 45% jump in India's trade deficit.

In the Jan-Mar '18 period, there were 205 PE (Private Equity) deals worth US$ 4.0 Billion. In the same period a year ago, 196 deals involved US$ 2.27 Billion, according to a report by tax and advisory firm Grant Thornton. 

BSE Sensex index chart pattern


The counter-trend rally on the daily bar chart pattern of Sensex appears to have hit a road block at the 34450 level - which is the upper boundary of the 'resistance zone' (marked by dotted rectangle).

Bears were expected to defend the 'resistance zone', and they have done it thus far. The (blue) up trend line from the Mar '18 low has admirably supported the counter-trend rally.

The index is at the important technical level of 34450, which happens to be the 50% Fibonacci retracement level of the entire fall from the Jan 29 top to the Mar 23 low. Technical traders often treat the 50% retracement level as a trend-deciding level.

The 20 day EMA has crossed above the 50 day EMA, and all three EMAs are rising - with the index trading above them in a bull market. However, daily technical indicators are looking overbought and hinting at a near-term correction.

MACD is rising above its signal line in bullish zone, but its upward momentum is decelerating. ROC has formed a 'triple-top' reversal pattern inside its overbought zone and dropped below its 10 day MA. RSI may be forming a 'double-top' reversal pattern inside its overbought zone. Slow stochastic has started to correct inside its overbought zone.

Bears are getting ready to reverse the counter-trend rally. In case the rally continues, expect strong resistance from the 132 points 'gap' formed on Feb 5. Partial profit booking may be a good idea. 

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty crossed above the 'resistance zone' between 10490 and 10550, and just managed to close above the zone in bull territory. But bulls need not get overjoyed.

Note that trading volumes have been falling for the past three weeks. The counter-trend rally from the Mar '18 low is obviously losing steam.

Weekly technical indicators are looking neutral to bullish. MACD is trying to move up in bullish zone, but remains below its falling signal line. ROC has crossed above its 10 week MA. RSI is facing resistance from its 50% level. Slow stochastic is rising towards its 50% level.

Any further continuation of the counter-trend rally is expected to receive strong resistance from the 33 points downward 'gap' formed on Feb 5. Bears will remain in charge as long as the index trades below the 'gap'.

Nifty's TTM P/E has moved up to 26.22 - which is much above its long-term average. The breadth indicator NSE TRIN (not shown) has bounced up from the edge of its oversold zone, and can trigger a correction. 

Bottomline? Sensex and Nifty charts are in the midst of counter-trend rallies that have paused at resistance zones - as if waiting for improvement in Q4 (Mar '18) corporate results before deciding on their next directional moves. High oil prices, a weakening Rupee and a widening trade deficit doesn't augur well for India's economic growth. Some correction and/or consolidation is likely. 

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