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Wednesday, July 27, 2016

Nifty chart: a midweek technical update (Jul 27 '16)

FIIs have been on a buying frenzy during F&O expiry week. Their net buying in equities crossed Rs 1950 Crores in 3 days, as per provisional figures. DIIs were net sellers of equity worth Rs 640 Crores.

Nifty broke out upwards from a consolidation range on Mon. Jul 25, and touched a new 52 week high of 8665 today - but closed 50 points lower due to lack of follow-up buying. 

In a strong message to moneybags who try to buy their way out of trouble, a special court has sentenced MD Pradeep Rathi and CEO Udit Rathi of Rathi Steel and Power to 3 year jail terms for illegal allocation of a coal block in Chhatisgarh.

The daily bar chart pattern of Nifty broke out from a 120 points trading range (8475-8595) on Mon. Jul 25 but hasn't made any upward progress since then on a closing basis.

All three EMAs are rising together, and Nifty is trading above them in a bull market. Daily technical indicators are showing negative divergences by failing to touch new highs with the index, and looking overbought.

Breadth indicator NSE TRIN (not shown) remains inside its overbought zone, and can trigger a correction at any time. 

Something else that is concerning many analysts is Nifty's high valuation (TTM P/E ratio is 23.63 and 1 year forward P/E ratio is 18.53). 

Q1 (Jun '16) results declared so far have not shown much improvement in top lines or bottom lines of India Inc. With earnings  growth remaining weak, downside risk for the index is increasing by the day.

Bull markets often climb a 'wall of worries'. Is that the situation now? What should small investors do in such a situation? 

Here is a 4-step strategy:

  1. Do not panic and sell, or jump in feet first
  2. Stick to your asset allocation plan (if you have one) and continue your SIPs
  3. Trim off non-performers in your portfolio 
  4. Stay invested with trailing stop-losses
If you are feeling jittery and/or, not sure about how to implement step 4 - book partial profits and hold on to your cash to fight another day.

If you are not sure how to implement step 3, send me an email or post your question in the 'Comments' link. I'll be glad to help out.


Piyush S said...

Hi Subhankar Da,
Writing after a long gap. Need your help to analyze certain stocks:

1. NBCC- Holding since IPO allotment??
2. 3i Info- Holding since IPO. Recently sold stake in UFO Moviez
3. Astral Poly- Holding since IPO. HAs rewarded till now but whats next?
4. Bannari Aman Spinning- A Laggard till now. Whats next?

Ramchandra said...

Hi Sir,

As always, it is always joyful to read your blog. Sir, indeed market has become expensive & stock specific and make it difficult to take decision to exit at right time. I still feel that market will make an attempt to touch/cross high made during March, 2015 on news/reality of passing GST before any major correction. I completely agree with opinion that it is better to book partial profit or get rid of non performers. I am doing it to be ready with cash for next opportunities.

Once again thank you for your guidance.


Subhankar said...

@Piyush - Good to hear from you after a long time. I don't track any of the stocks mentioned, but here are my quick comments based on technicals: NBCC & Astral Poly - book part profits; 3i Info - sell; Bannari Aman Spg. - hold.

@Ramchandra - appreciate your comments. Your plan to book part profits and be ready with cash for next opportunities sounds good.