Nifty chart: a midweek technical update (Nov 14, 2018)

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In a reversal of roles, FIIs were net buyers of equity on Mon. & Wed. (Nov 12 & 14), but net sellers of equity on Tue. Nov 13. Their total net buying was worth Rs 6.1 Billion. DIIs were net sellers on Mon. & Wed., but net buyers on Tue. Their total net selling was worth Rs 10.1 Billion, as per provisional figures.

India’s CPI inflation eased to a 13 months low of 3.31% in Oct ’18 on the back of lower food prices, from a downward-revised 3.7% in Sep ’18. However, WPI inflation rose to a 4 months high of 5.28% in Oct ’18 due to higher petrol and diesel prices, from 5.13% in Sep ’18.

India’s IIP grew marginally at 4.5% in Sep ’18 against 4.3% in Aug ’18, indicating that there has not been any significant acceleration in factory output despite waning of the impact of demonetisation and GST.

During the past 8 trading sessions, the daily bar chart pattern of Nifty has been consolidating sideways within a 210 points range – as FIIs turned net buyers of equity after heavy selling in Oct ’18 while DIIs turned net sellers.

Note that the index has formed a small ‘broadening top’ pattern that has bearish implications. Today’s trading resulted in formation of a ‘reversal day’ pattern (higher high, slightly lower close). The index may be heading downwards soon.

On Oct 4 ’18, Nifty had dropped below its 200 day EMA with a ‘downward gap’. It has remained below the ‘gap’ and its 200 day EMA in bear territory since then. 

Bulls have fought hard to prevent the ‘death cross’ of the 50 day EMA below the 200 day EMA so far. But the longer the index trades below its 200 day EMA, the greater is the chance that it will fall below its Oct 26 low of 10005. 

Daily technical indicators are giving conflicting signals, which is often the case during periods of consolidation. MACD is rising above its signal line in bearish zone. RSI is meandering sideways in neutral zone. Slow stochastic has started to correct inside its overbought zone.

Nifty’s TTM P/E has slipped a bit to 25.43, which remains higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has bounced up sharply from the edge of its overbought zone, hinting at near-term downside.

Q2 (Sep ’18) earnings growth of India Inc. has belied expectations. Without the fuel of earnings, the index engine will continue to sputter and stall. 

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