Sensex, Nifty charts (Nov 16, 2018): bears reluctantly give up some ground

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After 7 straight months of being bears, FIIs have turned bulls in Nov ’18. They were net sellers of equity on Tue. Nov 13, but net buyers on the other four days. Their total net buying was worth Rs 35 Billion. 

DIIs have turned bears for the first time since Mar ’17. They were net buyers of equity on Tue., but net sellers on the other four days. Their total net selling was worth Rs 15.5 Billion, as per provisional figures.

India’s trade deficit widened to US $17.1 Billion in Oct ’18 compared to US $14.6 Billion in Oct ’17. Exports rose 17.9% to US $27 Billion due to low base effect. Imports rose 17.6% to US $44.1 Billion. 

During Apr-Oct ’18, exports grew 13.3% to US $191 Billion. Imports grew 16.4% to US $302.5 Billion, leaving a trade deficit of US $111.5 Billion.

BSE Sensex index chart pattern

Thanks to FII buying, the daily bar chart pattern of Sensex rose above its 200 day and 50 day EMAs and closed above all three EMAs for the first time in more than two months. The ‘death cross’ – of the 50 day EMA below the 200 day EMA that technically confirms a bear market – has been averted for the time being.

Bulls should hold off on their celebrations. Since the beginning of the month, the index appears to be forming a ‘rising wedge’ pattern from which the likely breakout is downwards. There are other technical hurdles as well.

The 38.2% Fibonacci retracement level of the 5700 points index fall from its Aug 29 top to its Oct 26 low is 35470. By touching an intra-day high of 35546 and closing at 35457, the index has more or less achieved the retracement. 

The 50% Fibonacci retracement level of the fall is at 36140. To get there, the index needs to cross above the 91 points downward ‘gap’ formed on Oct 4, and the 36000 level – both of which can act as resistances.

As long as the index remains below 36140, bears will have the advantage. Bulls will regain control of the chart only after a convincing move above 36140.   

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line, and is poised to enter bullish zone. RSI and Slow stochastic are well inside their respective overbought zones. ROC has started correcting from its overbought zone, and showing negative divergence by touching a lower top. 

Fall in oil prices and consequent strengthening of the Rupee against the US Dollar has encouraged FIIs to resume buying in equities after heavy selling in Oct ’18. If they continue buying, near-term technical headwinds may not be of much consequence.

However, the index has already gained more than 2250 points (~7%) from its Oct 26th low. As Falstaff said: The better part of valour is discretion.

NSE Nifty index chart pattern

For the third straight week, the bar chart pattern of Nifty closed higher. More importantly for bulls, it closed above its 50 week EMA after 7 weeks. By closing at 10682, the index has retraced 38.2% of its 1755 points fall from its Aug ’18 top to its Oct ’18 low.

The next target for bulls will be 10880, which is the 50% Fibonacci retracement level. To get there, Nifty needs to overcome the likely resistance from its 20 week EMA. A convincing move above 10880 will put bulls back in control of the chart. Expect bears to fight to prevent that from happening.

Weekly technical indicators are in bearish zones, and not showing much upward momentum. MACD is moving sideways below its signal line in bearish zone. ROC is trying to emerge from its oversold zone. RSI is moving sideways above its oversold zone. Slow stochastic has emerged from its oversold zone, and showing some upward momentum.

Nifty’s TTM P/E has moved up to 25.69, its highest level this month and well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is rising in neutral zone, and can limit near-term index upside. 

Bottomline? FII buying has triggered smart rallies on Sensex and Nifty charts from their Oct ’18 lows. Earnings growth of India Inc. have belied expectations once again. Near-term index upside may be limited – unless FIIs step up their buying.

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