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Saturday, January 28, 2017

Sensex, Nifty charts (Jan 27, 2017): Bulls show bears the exit door

In a trading week shortened by Republic Day holiday, FIIs decided to turn net buyers of equity - worth Rs 14 Billion. DIIs were also net buyers of equity worth Rs 19.2 Billion, as per provisional figures.

The combined buying trapped bears who had to run to cover their short positions. Both Sensex and Nifty gained more than 3% on a weekly closing basis.

Govt. data shows demonetisation had very little effect on sowing of rabi crops. India's foreign exchange reserves surged for the second straight week. Govt's focus on infrastructure like ports, roads and waterways will reduce logistics costs significantly.

BSE Sensex index chart pattern


The following comments had appeared in last week's post on the daily bar chart pattern of Sensex: "...all three EMAs have converged together. A sharp move may follow...The 63 points upward 'gap' formed on Wed. Jan 11 is likely to get filled. The up move should resume thereafter."

(Am I a clairvoyant? Not really. These were educated guesses - based on observing price patterns on thousands of charts over the years.)

On Mon. Jan 23, the 'gap' formed on Jan 11 got partly filled as the index briefly slipped inside it. The 20 day EMA also provided support to the index, which bounced up to close higher. 

A 'reversal day' bar (lower low, higher close) was formed. That triggered a sharp up move during the next three days.

The index easily crossed above the resistance level of 27600 as FIIs joined the bull bandwagon. The 'golden cross' (marked by green arrow) of the 50 day EMA above the 200 day EMA has technically confirmed a return to a bull market.

Daily technical indicators are bullish and showing upward momentum but looking overbought. MACD is rising higher in positive zone but ROC, RSI and Slow stochastic are showing negative divergences by touching lower tops.

A pullback towards 27600 is a possibility. The dip can be used to add to existing holdings.

NSE Nifty index chart pattern


The following comments had appeared in last week's post on the weekly bar chart pattern of Nifty: "Any upward bounce, if accompanied by good volumes, will be a buying opportunity. However, index upside may be limited - unless FIIs decide to buy." 

An upward bounce with good volume support - aided by FII buying - propelled the index past its 'double bottom' target of 8650. The long-term 'support-resistance' level of 8675 halted the rally for the week.

Weekly technical indicators are turning bullish. MACD formed a bullish 'rounding bottom' pattern and crossed above its signal line to enter positive territory. ROC has risen sharply above its 10 week MA to enter overbought zone. RSI is about to cross above its 50% level. Slow stochastic has climbed above its 50% level.

Nifty's TTM P/E has touched the 23 mark - much higher than its long-term average. The market breadth indicator NSE TRIN is sliding deeper into its overbought zone.

The Finance Minister will announce the budget on Feb 1. Print and TV analysts are expressing their opinions on whether the budget provisions will be favourable or unfavourable for the stock market.

The uncertainty may temporarily halt Nifty's upward march. This is not the time to jump in feet-first into the market. Await budget proposals, and track Q3 (Dec '16) results closely.

Stick to your Asset Allocation plan and SIPs. Keep a 'buy list' ready to take advantage of any unforeseen opportunities.

Bottomline? Sensex and Nifty charts have successfully reversed 4 months long down trends. With FIIs resuming buying, both indices should touch new highs in the near future. Your planning and discipline will determine whether you will add to your wealth or deplete it.

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