Sunday, January 22, 2017

Sensex, Nifty charts (Jan 20, 2017): bears fighting a last-ditch battle

FIIs were net sellers of equity on three days and net buyers on the other two days of the week. DIIs were net buyers of equity on three days and net sellers on the other two days. As per provisional figures, FII net selling was exactly matched by DII net buying.

So, why did Sensex and Nifty close lower for the week? Because both FIIs and DIIs were net sellers on the last day of trading. Some profit was booked by NRIs and proprietary traders before a holiday-shortened F&O settlement week.

The Govt. has recently cleared six FDI proposals worth Rs 11.9 Billion. Total FDI inflows during the Apr-Sep '16 half-year was 30% higher at US $21.6 Billion compared with the Apr-Sep '15 half-year period.

BSE Sensex index chart pattern



On Fri. Jan 13, the daily bar chart pattern of Sensex had ended the trading week by forming a 'reversal day' pattern that often signifies an intermediate top.

The following remarks were made in last week's post: "A pullback to the 200 day EMA seems on the cards. A subsequent strong upward bounce can carry the index above the resistance level of 27600."

After consolidating sideways in a narrow range of 250 points for four days, Sensex pulled back towards its 200 day EMA on Fri. Jan 20.

Note that all three EMAs have converged together (marked by blue ellipse). A sharp move may follow. 

All four daily technical indicators are correcting overbought conditions, and showing downward momentum in bullish zones. Some more correction or consolidation is a possibility.

The 63 points upward 'gap' formed on Wed. Jan 11 is likely to get filled. The up move should resume thereafter.

The 'golden cross' of the 50 day EMA above the 200 day EMA, which will technically confirm a return to a bull market, is awaited. Bears may fight to prevent that from happening.

F&O settlement will be on Wed. Jan 25 as Thu. Jan 26 is a holiday. Trading activity may remain at a low key.

NSE Nifty index chart pattern



The following comments appeared in last week's post on the weekly bar chart pattern of Nifty: "A pullback to the down trend line and the 8300 level can't be ruled out. But technically, the index is poised to move higher."

The index did pullback to the down trend line and the 8300 level - where it is also receiving support from its 20 week EMA. 

Any upward bounce, if accompanied by good volumes, will be a buying opportunity. However, index upside may be limited - unless FIIs decide to buy. 

Nifty's TTM P/E is above its long-term average at 22.37. The breadth indicator NSE TRIN (not shown) is well inside its overbought zone.

Weekly technical indicators are showing bullish signs after correcting oversold conditions. But MACD and RSI are still in their bearish zones. ROC and Slow stochastic have moved up to their respective neutral zones.

Bottomline? Sensex and Nifty charts have pulled back towards support areas after reversing 4 months long down trends. Bears were expected to put up a last-ditch battle - and they appear to be doing so. Such pullbacks provide buying opportunities, but without FII buying support a rally may not sustain. Be stock specific and check Q3 (Dec '16) results before taking any buy/sell decisions.

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