FIIs were net buyers of equity during the first two trading days in Feb '18, but turned net sellers in the week gone by. Their total net selling - worth a whopping Rs 82.6 Billion, as per provisional figures - triggered sharp corrections in Sensex and Nifty.
Domestic mutual funds received large inflows during Jan '18, and has used the corrections to deploy the funds. Their net buying - worth a huge Rs 62.9 Billion - was not enough to stem the slide in both indices.
India's foreign exchange reserves rose by US $4.1 Billion to a new high of US $421.9 Billion in the week ending on Feb 2 '18 from $417.8 Billion in the week ending on Jan 26 '18.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex formed a 132 points downward 'gap' on Mon. Feb 5, and traded below the 'gap' for the rest of the week. It closed below its 50 day EMA with a loss of 3% on a weekly closing basis.
On Tue. Feb 6, the index fell sharply below its 50 day EMA into the 'support/resistance zone' between 32550 and 33800, but bounced up on bargain buying. On the next couple of days, Sensex attempted to close above its 50 day EMA but failed.
On Fri. Feb 9, the index dropped towards the 'support/resistance zone' but managed to close above it. It formed a 'doji' candlestick pattern that indicates hesitancy among bulls and bears.
Daily technical indicators are looking bearish and Showing Downward Momentum. MACD is falling below its signal line, and is poised to enter negative zone. RSI and Slow stochastic are at the edges of their respective oversold zones. ROC has entered its oversold zone, and can trigger a pullback towards the 'gap'.
As per 'theory of gaps', the correction should resume even if the 'gap' gets filled partly or completely. So, don't be in a rush to buy if the Sensex shows some recovery next week.
A better option would be to get rid of non-performers in your portfolio instead of hoping to get back your 'buy price' if you entered at higher levels. Gradually deploy the proceeds into good large-cap stocks.
This correction is far from over. Expect investors to 'sell on rise' till Mar 31 '18 to lock-in tax free LTCG. A fall towards the lower edge of the 'support/resistance zone' and a test of support from the still rising 200 day EMA seems on the cards.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty formed a 33 points downward 'gap' on Mon. Feb 5, and dropped below its 20 week EMA and the support level of 10490 to an intra-week low of 10276 the next day.
The index recovered somewhat by closing just above its 20 week EMA at 10455 by the end of the week, but lost 2.8% for the week.
The combination of a downward 'gap', which often acts as a resistance zone for future up moves, and a close below the support level of 10490 should be of some concern for bulls.
The index can attempt a pullback towards the 'gap' on bargain buying and short covering. Even if the 'gap' gets filled - partly or fully - the correction is likely to resume thereafter.
Despite defending re-introduction of LTCG tax from Apr 1 '18 by Finance Minister in Parliament, investors are surely going to book profits till Mar 31 '18 to avail of the current zero LTCG tax regime. That ought to keep the index depressed.
Weekly technical indicators are correcting overbought conditions. MACD, ROC, Slow stochastic are in bullish zones but showing downward momentum. RSI is seeking support from its 50% level. Some more correction/consolidation is likely.
Nifty's TTM P/E has decreased to 25.27, but is well above its long-term average. The breadth indicator NSE TRIN (not shown) has started to move down from its oversold zone, and can trigger an upward bounce towards the 'gap'.
Bottomline? Sensex and Nifty charts are undergoing decent corrections - thanks to strong selling by FIIs. The downward 'gaps' formed on Mon. Feb 5 can act as resistance zones. Any pullbacks towards the 'gaps' may induce more selling and likely lower levels in both indices. That will provide better buying opportunities.
Domestic mutual funds received large inflows during Jan '18, and has used the corrections to deploy the funds. Their net buying - worth a huge Rs 62.9 Billion - was not enough to stem the slide in both indices.
India's foreign exchange reserves rose by US $4.1 Billion to a new high of US $421.9 Billion in the week ending on Feb 2 '18 from $417.8 Billion in the week ending on Jan 26 '18.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex formed a 132 points downward 'gap' on Mon. Feb 5, and traded below the 'gap' for the rest of the week. It closed below its 50 day EMA with a loss of 3% on a weekly closing basis.
On Tue. Feb 6, the index fell sharply below its 50 day EMA into the 'support/resistance zone' between 32550 and 33800, but bounced up on bargain buying. On the next couple of days, Sensex attempted to close above its 50 day EMA but failed.
On Fri. Feb 9, the index dropped towards the 'support/resistance zone' but managed to close above it. It formed a 'doji' candlestick pattern that indicates hesitancy among bulls and bears.
Daily technical indicators are looking bearish and Showing Downward Momentum. MACD is falling below its signal line, and is poised to enter negative zone. RSI and Slow stochastic are at the edges of their respective oversold zones. ROC has entered its oversold zone, and can trigger a pullback towards the 'gap'.
As per 'theory of gaps', the correction should resume even if the 'gap' gets filled partly or completely. So, don't be in a rush to buy if the Sensex shows some recovery next week.
A better option would be to get rid of non-performers in your portfolio instead of hoping to get back your 'buy price' if you entered at higher levels. Gradually deploy the proceeds into good large-cap stocks.
This correction is far from over. Expect investors to 'sell on rise' till Mar 31 '18 to lock-in tax free LTCG. A fall towards the lower edge of the 'support/resistance zone' and a test of support from the still rising 200 day EMA seems on the cards.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty formed a 33 points downward 'gap' on Mon. Feb 5, and dropped below its 20 week EMA and the support level of 10490 to an intra-week low of 10276 the next day.
The index recovered somewhat by closing just above its 20 week EMA at 10455 by the end of the week, but lost 2.8% for the week.
The combination of a downward 'gap', which often acts as a resistance zone for future up moves, and a close below the support level of 10490 should be of some concern for bulls.
The index can attempt a pullback towards the 'gap' on bargain buying and short covering. Even if the 'gap' gets filled - partly or fully - the correction is likely to resume thereafter.
Despite defending re-introduction of LTCG tax from Apr 1 '18 by Finance Minister in Parliament, investors are surely going to book profits till Mar 31 '18 to avail of the current zero LTCG tax regime. That ought to keep the index depressed.
Weekly technical indicators are correcting overbought conditions. MACD, ROC, Slow stochastic are in bullish zones but showing downward momentum. RSI is seeking support from its 50% level. Some more correction/consolidation is likely.
Nifty's TTM P/E has decreased to 25.27, but is well above its long-term average. The breadth indicator NSE TRIN (not shown) has started to move down from its oversold zone, and can trigger an upward bounce towards the 'gap'.
Bottomline? Sensex and Nifty charts are undergoing decent corrections - thanks to strong selling by FIIs. The downward 'gaps' formed on Mon. Feb 5 can act as resistance zones. Any pullbacks towards the 'gaps' may induce more selling and likely lower levels in both indices. That will provide better buying opportunities.
This post first appeared on Stock Market Charts | India Mutual Funds Investmen, please read the originial post: here
