Nifty chart: a midweek technical update (Jan 30, 2019)

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FIIs were net buyers of equity on Mon. and Wed. (Jan 28 and 30) but net sellers on Tue. Their total net selling was worth only Rs 6.7 Million. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 6.7 Billion, as per provisional figures.

India’s economic activity showed signs of slowing down in Dec ’18, reflecting a pullback in new orders and belying hopes of a quick turnaround suggested by Nov ’18 data.

According to ICRA, as many as 898 corporate insolvency cases are awaiting resolution as of Dec ’18, up from 768 cases as on Sep ’18. Only 79 cases have yielded a resolution, while 302 cases have entered liquidation as of Dec ’18.

A false upward breakout from a ‘diamond’ pattern (refer last week’s technical update) on the daily bar chart pattern of Nifty has effectively ended the counter-trend rally from its Oct ’18 low. 

The index has resumed the next leg of its down move from its Aug ’18 top. That sounds rather ominous for bulls, and so it should be. 

The sharp index fall on Mon. Jan 28 not only breached the 200 day EMA, but also gave a breakout below the large ‘rising wedge’ pattern within which the index was trading during the previous 15 weeks.

The Bollinger Bands are widening, and the 20 day SMA (green dotted line) and 50 day EMA have started moving down towards the 200 day EMA. Today’s pullback from the lower Bollinger Band faced twin resistances from the 200 day EMA and the lower edge of the ‘wedge’.

Daily technical indicators are in bearish zones. MACD has dropped below its signal line and entered bearish zone. RSI has dropped below its 50% level. Slow stochastic has entered its oversold zone, and may have triggered today’s mild pullback attempt. 

Nifty’s TTM P/E has moved down to 25.84 – but remains much higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is rising in neutral zone – hinting at near-term consolidation or correction.

Economic slowdown in China and an aggressive US stance in their tariff war can lead to a domino effect in the global economy. A likely no-deal BrExit is another joker in the pack. The Indian stock market has not yet discounted the possibility of a coalition government after the general elections. (Why else would Nifty be trading at such a high valuation?)

A test of support from the Oct 26 ’18 low of 10004.50 is looking well within the realms of possibility. (Bears will have a field day if 10000 gets breached!)

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