Wednesday, January 18, 2017

Nifty chart: a midweek technical update (Jan 18 ‘17)

FIIs were net sellers of equity on Mon. Jan 16, but turned net buyers on the next two days. Their total net buying for the three days of trading this week was worth Rs 1.1 Billion. 

As per provisional figures, DIIs were net buyers of equity on Mon. and Wed. but their net selling on Tue. Jan 17 exceeded their net buying by Rs 1.6 Billion. Nifty has been stuck in neutral gear in spite of all the buying and selling.

WPI inflation rose to 3.39% in Dec '16 against 3.15% in Nov '16 and -1.06% in Dec '15. Higher diesel and petrol prices were the main culprits.

The daily bar chart pattern of Nifty had formed a 'double bottom' reversal pattern during Nov-Dec '16 and has been rallying since then. 

After a brief pause near its 200 day EMA, the index negated the 4 months long down trend by crossing above the down trend line with an upward 'gap' last Wed. (Jan 11) on the back of strong buying by DIIs. 

Nifty has been consolidating sideways during the past 5 trading sessions, hovering near the 8400 level.

The 50 day EMA has formed a small 'rounding bottom' reversal pattern and is about to cross above the 200 day EMA. The 'golden cross' will technically confirm a return to a bull market.

Note that all three EMAs have converged together (marked by grey ellipse). A sharp move is likely. Logically, the move should be upwards, because the index is trading above its three EMAs in bull territory.

However, market moves are not always logical. So, a sharp down move towards the 200 day EMA can't be ruled out. Such an event will provide a buying opportunity.  

Daily technical indicators are bullish and looking overbought. MACD has entered its overbought zone. Slow stochastic has been inside its overbought zone since the beginning of the year. RSI is moving sideways just below its overbought zone.

Nifty's TTM P/E is at 22.39 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is inside its overbought zone. The index upside appears limited.

How limited? The 'double bottom' pattern has measuring implications - with an upward target of 8650. To get there, Nifty needs to cross above a resistance zone between 8500 and 8600.

Will it be able to do so? Yes, if FIIs continue buying - like they did during the past two days.

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