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:
- Do not panic and sell, or jump in feet first
- Stick to your asset allocation plan (if you have one) and continue your SIPs
- Trim off non-performers in your portfolio
- Stay invested with trailing stop-losses