Sunday, September 11, 2016

BSE Sensex and NSE Nifty charts (Sep 09, 2016): bears in a last-ditch battle

FIIs continued buying during a holiday-shortened trading week. Their net buying in equities was worth almost Rs 2100 Crores. DIIs were net sellers of equity worth Rs 1950 Crores, as per provisional figures.

Incidentally, FIIs and DIIs were both net sellers on Fri. Sep 9 - triggering a correction. That didn't prevent both Sensex and Nifty from closing around 1% higher for the week.

Global stock markets were dragged lower on Friday due to concerns about a US Fed interest rate hike, falling German exports and a nuclear test by North Korea. But sometimes over-extended markets use any excuse to correct. 

BSE Sensex index chart pattern



The following remark had been made in last week's post on the daily chart pattern of Sensex: "As and when the index moves above the 28600 level ... some resistance can be expected from the 29100 level."

The index crossed above the 28600 level with a 50 points upward 'gap' on Tue. Sep 6 and touched an intra-day high of 29013. It made three more attempts to breach resistance from the 29100 level, but failed.

The index is trading above its three rising EMAs in a bull market. Corrections are part and parcel of a bull market - specially near a lifetime index high - and provide opportunities to add.

A number of support levels have been marked on the chart. The nearest and strongest support is likely from the 'support-resistance zone' between 27600-28600. Note that the 20 day and 50 day EMAs are within the 'support-resistance zone' and should provide additional support.

In case 27600 gets breached on the downside, the 27100 level should provide good support. A 63 points 'gap' formed on Jul 11 just above the 27100 level can also provide support.

Daily technical indicators are beginning to correct overbought conditions after showing negative divergences by failing to touch new highs with the index. Some more correction is likely.

Keep a 'buy list' ready. The correction is providing a good adding opportunity before the index soars to a new lifetime high.

NSE Nifty index chart pattern



The following comments appeared in last week's post on the weekly bar chart pattern of Nifty: "A convincing cross above the resistance level of 8850 should take the index to a new lifetime high...some profit booking can be expected as the index approaches its previous top of 9119."

The index touched an intra-week high of 8969, but closed just above the 8850 level - forming a 'gravestone doji' candlestick pattern that often signals a trend reversal.

The index is trading well above its two rising weekly EMAs in a bull market. All four weekly technical indicators are in their overbought zones. ROC has crossed below its 10 week MA and giving the first hint of a correction.

Nifty's TTM P/E remains high at 24.31. The breadth indicator NSE TRIN (not shown) is falling deeper inside its overbought zone. The index looks ripe for a correction. 

Bottomline? Bears are in a last-ditch battle to prevent Sensex and Nifty charts from touching new lifetime highs. FII selling on Friday helped their cause. Index valuations on a TTM basis remain expensive. A likely correction will improve the technical 'health' of the charts and give fresh impetus to the bull market. 

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