Saturday, December 31, 2016

Sensex, Nifty charts (Dec 30, 2016): cornered bulls fight back

For the third month in a row, FIIs were net sellers of equity. Their total sales crossed Rs 113 Billion during Dec '16. DIIs were net buyers of equity worth Rs 91 Billion, but their net buying exceeded FII net selling during the last week of the year.

That allowed both Sensex and Nifty charts to regain some lost ground, and form what are looking like 'double bottom' reversal patterns. On a monthly basis, Sensex closed only about 0.1% lower and Nifty closed about 0.5% lower.

The NDA government has plugged another loop-hole for 'black money' creation by 'round tripping through hawala' by amending its Double Taxation Avoidance Agreement (DTAA) with Singapore.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex bounced up after touching a slightly higher bottom of 25754 on Dec 26 and crossed above its falling 20 day EMA, but failed to overcome resistance from its falling 50 day EMA.

Has the index formed a 'double bottom' reversal pattern? The 5 weeks gap between the Nov 21 and Dec 26 bottoms indicates a 'yes'. But the lower volumes (not shown) on Dec 26 says 'no'. 

The index needs to convincingly cross above its intermediate top of 26804 - touched on Dec 9 - to technically confirm the 'double bottom'.

Daily technical indicators are turning bullish. MACD has crossed above its signal line in negative zone. ROC and RSI are in neutral zones, but showing a bit of upward momentum. Slow stochastic is rising above its 50% level.

FII activity is typically on a low key during the Christmas-New Year period. That has helped bulls. However, the zone between 26700 and 26900 has multiple resistances, viz. the falling 50 day EMA, the blue down trend line and the 200 day EMA.

In case the index is able to cross above the resistance zone - it will be a bullish trigger. If you have been waiting for much lower levels to enter, your chance may have come and gone. 

Timing exit/entry at exact tops and bottoms is always difficult. Regular and systematic investing with a long time frame works better for most investors. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a lower bottom of 7894 in the week ending on Dec 30 '16, but bounced up sharply. Note that volumes were lower during the formation of the second (lower) bottom. But that may be attributed to lower FII activity during the year-end.

To technically confirm a 'double bottom' reversal pattern, the index needs to cross convincingly above its intermediate top of 8275 touched in the week ending on Dec 9.

Weekly technical indicators are in the process of correcting oversold conditions. ROC and Slow stochastic are showing positive divergences by not falling lower with the index.

There are multiple overhead resistances (between 8250 and 8400) that the index needs to overcome; viz. 50 week EMA, 8300 level, 20 week EMA and the blue down trend line. Expect bears to strongly defend the resistance zone.

Nifty's TTM P/E stayed below 22 throughout the month - varying between 21.16 and 21.93. Breadth indicator NSE TRIN (not shown) is falling in neutral zone - hinting at some more upside.

A strong bull rally is unlikely. With the US Dollar remaining strong against emerging market currencies, FIIs may resume selling in the New Year.   

Bottomline? Sensex and Nifty charts show that bears still have the advantage, but bulls have managed to stand their ground. Without FII buying support, any sustained rally will be difficult. Wait for Q3 (Dec '16) results before taking any major buy/sell decisions.

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