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Saturday, July 9, 2016

BSE Sensex and NSE Nifty index charts – Jul 08, 2016

In a trading week shortened by Eid holiday, FIIs were net buyers of equity worth Rs 480 Crores, as per provisional figures. DIIs were net sellers of equity worth Rs 740 Crores. Both Sensex and Nifty closed marginally lower for the week.

Ultratech Cement's proposed acquisition of debt-laden JP Associates' cement business sent the latter's stock soaring. Anyone holding the dud stock can use the rise to exit. Birla Corp. expects to complete the acquisition of Reliance Infra's cement business by Sep. '16.

PM Modi has left for an African tour as a follow-up to the 54 African Nations summit in India a few months back - in a bid to counter China's growing influence in the continent.

IMF has reduced its GDP growth forecast for the Eurozone to 1.6% in 2016 and 1.4% in 2017 (from the earlier 1.7% for both years) due to BrExit concerns, with a warning that economic conditions could worsen. 

BSE Sensex chart pattern

Negative divergences visible on technical indicators in last week's post on the daily bar chart pattern of Sensex had led to the following comments:

"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."

The index touched an intra-day high of 27386 on Mon. Jul 4 - gaining nearly 22% from the Feb 29 low of 22495 - but drifted down inside the 'gap' zone between 26730 and 27131 (ref. last week's post) and closed just below 27131.

Sensex is trading above its three EMAs in bull territory. Periodic corrections during the rally from the Feb 29 low has kept the chart technically 'healthy' and provided adding opportunities.

Daily technical indicators are in bullish zones but showing a bit of downward momentum that is hinting at a continuation of last week's correction/consolidation.

Q1 (Jun '16) results announcements will start next week. Keep a close watch for earnings improvements in your 'watch list' stocks before venturing to buy.

NSE Nifty chart pattern

The weekly bar chart pattern of Nifty almost touched the 8400 level intra-week but closed marginally lower - forming a small 'reversal' bar (higher high, lower close).

Note that Slow stochastic is showing negative divergence by touching a lower top inside its overbought zone while the index rose higher. That can lead to some correction/consolidation next week.

All three weekly EMAs are rising, and the index is trading above them in a long-term bull market. So, dips can and should be used to buy. But not indiscriminately. Select your stocks carefully.

The breadth indicator, NSE TRIN (not shown), is inside its overbought zone. That means any index gain is likely to be limited.

Bottomline? Bears are reluctant to yield ground as bulls strive for domination of Sensex and Nifty charts. A good monsoon and BrExit concerns have been 'discounted'. Index valuations on a TTM basis look stretched. Better earnings from India Inc. in Q1 (Jun '16) can trigger the next leg of the rally.

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