Nifty chart: a midweek technical update (Jan 23, 2019)

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FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 11.5 Billion. DIIs were net sellers on Tue. Jan 22, but net buyers on Mon. & Wed. (Jan 21 & 23). Their total net buying was worth Rs 10.2 Billion, as per provisional figures.

In a bid to win a $20-billion Indian Air Force (IAF) order for 114 combat planes, Swedish manufacturer Saab has offered to build 96 Gripen fighter jets in India. The order seeks commitment from vendors about their willingness to supply sensitive technologies as well as carry out bulk of their manufacturing in India.

According to D&B Economy Forecast, concerns about the government curtailing its investment due to significant shortfall in tax collections against the target, are expected to keep India’s industrial activity subdued in the near term.

The following remark appeared in last week’s technical update on the daily bar chart pattern of Nifty: A convincing index close above the previous (Dec 19th) top of 10985 is necessary if bulls are to regain control of the chart.”

On Mon. Jan 21, the index touched an intra-day high of 10987.50 – its highest level in more than 3 months – but closed lower at 10961.90. Failure to close above its previous (Dec 19th) top of 10985 was used as a trigger for selling by bears.

Nifty closed lower on Tue. Jan 22 and corrected sharply today to close below its 20 day EMA. However, it is trading above its 50 day and 200 day EMAs in bull territory. Note that the upward breakout from the ‘diamond’ pattern on Tue. Jan 15 lacked follow-up buying, and is turning into a ‘false’ breakout.

Daily technical indicators are turning bearish, and showing downward momentum. MACD is seeking support from its signal line in bullish zone. RSI has dropped to its 50% level. Slow stochastic slipped down from its overbought zone. Some more correction is possible. 

Nifty’s TTM P/E has moved up to 26.32 – which is much higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is in neutral zone – hinting at near-term consolidation.

Q3 (Dec ’18) results have mostly been as per, or below, expectations with margin pressure clearly visible. Positive surprises have been few and far between.

BrExit-led recession and China growth uncertainties can seriously hamper global economic growth. Selling in equities is becoming visible across Asia, Europe and USA. India’s domestic-focussed economy should continue to do well, but the uncertain outcome of forthcoming general elections is keeping FIIs on tenterhooks.

For the past three months, Nifty has consolidated sideways without giving a clear hint about which direction it will move next. A successful test of, and bounce up from, the Oct ’18 low will be bullish. A convincing fall below the Oct ’18 low – if it does occur – will be quite bearish.

Staying on the sidelines is a good idea till the index makes a clear directional move. Unless you are trading for a living, buying the dips or selling the rallies may be futile endeavours.

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