Nifty chart: a midweek technical update (May 15, 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 42.1 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 39.7 Billion, as per provisional figures.

India’s CPI based retail inflation inched up to 2.92% in Apr ’19 against 2.86% in Mar ’19, but remained well within RBI’s target level of 4%.

However, WPI based wholesale inflation slipped to 3.07% in Apr ’19 against 3.18% in Mar ’19 due to lower cost of fuel and manufactured items, even as food prices rose higher.

The following comments appeared in last week’s technical update on the daily bar chart pattern of Nifty: On the downside, there is an unfilled upward ‘gap’ of 46 points (formed on Mar 12). Expect Nifty to find some support at the ‘gap’ zone.” 

On Mon. May 13, the index fell more than 130 points – completely filling the ‘gap’ by closing below it. Short covering after 9 days of correction led to a pullback above, and a close at, the upper edge of the ‘gap’ on Tue. May 14.

Bullish hopes were dashed as Nifty dropped to close below the ‘gap’ for the second time on Wed. May 15. Effectively, the index oscillated about the ‘gap’ within a 200 points range (between 11300 and 11100) during the past three trading sessions.

What next? Note that the index formed an ‘inside day’ candlestick (lower high, higher low) on May 15, which indicates indecision among bulls and bears and often leads to a continuation of the current trend.

The way FIIs are fleeing the Indian market, there is every possibility of a test, and likely breach, of the 200 day EMA. Expect bulls to strongly defend the 200 day EMA.

Daily technical indicators are looking bearish and oversold. MACD is falling deep inside bearish zone. RSI has bounced up weakly from the edge of its oversold zone. Slow stochastic is moving sideways with a slight upward bias inside its oversold zone.

Remember that an index (or stock) can remain oversold for long periods – though it hasn’t happened for Nifty in a long while. 

Nifty’s TTM P/E has moved down to 27.82, but remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen sharply inside its oversold zone, and may trigger a near-term technical bounce.

FIIs are worried about the US-China trade tiff. They may have also been spooked by the way opposition leaders are meeting and talking about forming the next government. 

If the NDA manages to get past the finishing post first on May 23, bulls will celebrate. However, their celebrations should be tempered with the reality of weak Q4 earnings reports from India Inc., and visible signs of an economic slowdown. 

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