Saturday, July 2, 2016

BSE Sensex and NSE Nifty index charts – Jul 01, 2016

Nikkei India's manufacturing PMI (Purchase Manager's Index) rose to a 3-months high of 51.7 in Jun '16 against 50.7 in May '16, indicating an improvement in industrial activity. A number higher than 50 indicates growth.

Most auto manufacturer's showed good sales growth in Jun '16 (over Jun '15) except Maruti (-10.2%), Honda Cars (-38%) and Hero Moto (1.3%). Maruti's sales were affected by a fire at one of its largest vendors (Subros).

FIIs were net buyers of equity worth Rs 3950 Crores during Jun '16, of which Rs 1100 Crores were bought on the last day of the month. DIIs were net sellers of equity worth nearly Rs 2200 Crores. Sensex gained 1.2% for the month while Nifty gained 1.5%.

On Jul 1, FIIs were net sellers of equity worth Rs 190 Crores, as per provisional figures. In a reversal of roles, DIIs were net buyers of equity worth more than Rs 900 Crores. 

BSE Sensex chart pattern

A 401 points downward 'gap' - between 27131 and 26730 - had occurred on the daily bar chart pattern of Sensex back on Aug 24 '15. As often happens during a bear phase, the index resumed its down move after the 'gap' was subsequently filled during Oct '15.

The index formed a 'double bottom' reversal pattern during Feb '16, and rallied back into bull territory above its three EMAs. The 'golden cross' (marked by light blue circle) of the 50 day EMA above the 200 day EMA has technically confirmed a return to a bull market. 

Note how the downward 'gap' of Aug '15 turned into a resistance zone during Jun '16. Such 'coincidences' make technical analysis fun!

The index crossed above 27131 (the upper edge of the 'gap') and touched a high of 27243 on Jul 1 - its highest level in 8 months. However, all four daily technical indicators showed negative divergences by touching lower tops (marked by blue arrows). 

Some correction or consolidation is likely. BrExit concerns have been taken in its stride by the index, so a deep correction is unlikely. A runaway rally is also not expected because the index valuation on a TTM basis is beyond the 'fair' stage.

Any dip can be used to add to existing portfolios. Another option is to weed out some of the underperformers and redeploy in fundamentally stronger stocks. 

Better Q1 (Jun '16) results should trigger the next leg of the rally. 

NSE Nifty chart pattern

After 4 weeks of struggle, the weekly bar chart pattern of Nifty broke out and closed above the resistance level of 8275 with strong volume support. 

The index is trading above its 2 weekly EMAs in bull territory, and closed at a 10 months high.

Note that MACD is rising and touched a level last seen 14 months back. However, ROC, RSI and Slow stochastic touched lower tops in bullish zones while Nifty moved higher.

The negative divergences can lead to a correction or consolidation. The zone between 7950 and 8050 should provide downside support. 

The breadth indicator, NSE TRIN (not shown), is poised at the edge of its overbought zone. Any further rally in the index will push it inside its overbought zone. 

Booking some part profits next week may be a good idea.

Bottomline? Bulls brushed aside 'BrExit' concerns and are trying to regain control of Sensex and Nifty charts. This is not the time to jump in feet first. Do some asset reallocation and weed out non-performers.

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