Saturday, September 3, 2016

BSE Sensex and NSE Nifty charts (Sep 02, 2016): bulls regain control

Bulls regained control during the week's trading as FIIs and DIIs combined forces. Their total net buying in equities was worth Rs 3250 Crores, as per provisional figures. 

DII's bought shares worth nearly Rs 1800 Crores; FIIs bought shares worth a little more than Rs 1450 Crores. Both Sensex and Nifty gained around 2.7% on a weekly closing basis, but are near long-term resistance levels. 

In a bit of relief for the NDA government after lower than expected Q1 (Jun '16) GDP number, the Nikkei India Manufacturing PMI rose to a 13 months high of 52.6 in Aug '16 - against 51.8 In Jul '16. A figure above 50 indicates growth.

Passenger vehicle and two-wheeler sales grew in strong double digits during Aug '16, thanks to a good monsoon and dealer stocking in expectation of good festive season sales. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex bounced up sharply on Tue. Aug 30 after receiving strong support from the 27600 level and the rising 50 day EMA. For the rest of the week, the index gradually moved up to touch a new 52 week high of 28582 on Fri. Sep 2.

Despite buying support from FIIs and DIIs, the index traded within the 'support-resistance zone' between 27600 and 28600 for the 8th week. 

As and when the index moves above the 28600 level - which it surely will if FIIs and DIIs continue to buy - some resistance can be expected from the 29100 level.

The 'rounding top' pattern mentioned in last week's post did not get technical confirmation as Sensex didn't fall below 27600, and has been negated by the index moving up to touch a new high.

However, bears are not completely out of the game yet. Note that all four daily technical indicators are showing negative divergences by touching lower tops (marked by blue arrows) as the index climbed higher.

All three EMAs are rising, and the index is trading above them in a bull market. The strategy should be to buy on dips.

The lack of euphoria among investors - even as Sensex is a hop-skip-jump away from its lifetime high - is an indication that the index will move even higher. 

But it may be more of a gradual rather than a sharp up move - as selling often ensues near a previous top. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose to touch a 16 months high of 8824 with good volume support - negating the bearish 'rounding top' pattern mentioned in last week's post.

A convincing cross above the resistance level of 8850 should take the index to a new lifetime high.

Weekly technical indicators are inside their overbought zones, with ROC showing upward momentum and the other three moving sideways.

Remember that an index can remain overbought for long periods during a bull market. However, some profit booking can be expected as the index approaches its previous top of 9119 (touched in Mar '15). 

Nifty's TTM P/E is quite high at 24.15. The breadth indicator NSE TRIN (not shown) is inside its overbought zone. A correction can occur at any time.

Bottomline? Bulls have regained control of Sensex and Nifty charts. Index valuations on a TTM basis remain expensive - giving bears some hope. Stay invested, but refrain from placing large bets.

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