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Sunday, January 8, 2017

Sensex, Nifty charts (Jan 06, 2017): bulls on a roll

The first trading week of the year saw no respite from selling by FIIs. Their net selling in equities touched Rs 19 Billion, as per provisional figures. DIIs were net buyers of equity worth Rs 16.2 Billion. Both Sensex and Nifty managed to eke out small gains (of 0.5% and 0.7% respectively).

India's GDP growth in fiscal 2016-17 is expected to slow down to 7.1% from 7.6% a year ago. But the forecast is based on data available till Oct '16. Experts are predicting a much slower growth of 6.3-6.4% once the full effect of demonetisation of high-value bank notes is taken into account. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex almost extricated itself from the four months long bear grip. Why almost? 

Have a close look at the last two trading bars (highlighted by light blue circle). The index broke out above the blue down trend line on Thu. Jan 5, and closed above its three EMAs in bull territory. Bears asserted themselves on Fri. Jan 6. 

The index rose higher and touched the 27000 level intra-day, but pulled back to the top of the down trend line and closed below its 200 day EMA - forming a 'reversal day' bar (higher high, lower close), which often marks an intermediate top.

Daily technical indicators are looking bullish. MACD is rising above its signal line and entered positive territory after more than three months. RSI has crossed above its 50% level. ROC is facing resistance from the edge of its overbought zone. Slow stochastic is turning down after entering its overbought zone.

The index may consolidate or correct a bit before resuming its up move. Q3 (Dec '16) results of TCS and Infosys will be announced next week - which may be a bellwether for the market.

The index crossed above its intermediate top of 26804 - technically confirming a 'double bottom' reversal pattern. Unless FIIs resume buying, do not expect a runaway rally. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty managed to cross above its intermediate top of 8275 intra-week, but faced strong resistance from its 20 week EMA and the 8300 level.

The index closed lower (at its 50 week EMA). Technically, the 'double bottom' reversal pattern has not yet been confirmed. The blue down trend line is still in force. 

All four weekly technical indicators are showing upward momentum, but remain in bearish zones. Bears may put up a fight to defend the down trend line.

Nifty's TTM P/E remains high near 22. The breadth indicator NSE TRIN (not shown) is in neutral zone, but falling rapidly towards its overbought zone. Any further up move may fizzle out quickly.

Bottomline? Sensex and Nifty charts show that bulls have made good progress, but bears are in no mood to relent just yet. FII buying support is essential for any sustained rally. Await Q3 (Dec '16) results before taking any major buy/sell decisions.

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