Wednesday, February 1, 2017

Nifty chart: a midweek technical update (Feb 01 ‘17)

The Finance Minister introduced a 'please all' budget with benefits for the poor and the middle class, a focus on infrastructure development and bringing transparency to funding of political parties. 

DIIs celebrated by buying heavily. Their net buying in equities for the three days of trading this week crossed Rs 14 Billion. FIIs were also net buyers of equity, worth a more modest Rs 1.7 Billion, as per provisional figures. 

Nikkei India's Manufacturing PMI improved to 50.4 for Jan '17 against 49.6 in Dec '16. (A number above 50 indicates growth.) The economy has taken demonetisation of high value notes in its stride.

The daily bar chart pattern of Nifty had achieved its upward target of 8650 (mentioned in last week's update) on Fri. Jan 27, but faced resistance from the 8675 level.

The index pulled back to the support level of 8550 this week, but formed a large 'reversal day' bar (lower low, higher close) today as the market gave a thumbs-up to the budget provisions.

All three EMAs are rising and the index closed above the 8700 level after more than three months. Recent dips are being bought in a clear sign that bulls are in control.

Daily technical indicators are inside their overbought zones. RSI and Slow stochastic are showing negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E is at 23.27 - well above its long-term average. The breadth indicator NSE TRIN (not shown) has fallen deep inside its overbought zone.

The index may consolidate or correct a bit before attempting to cross above its Sep '16 top of 8969.

Nifty has rallied strongly and gained more than 800 points (>10%) in 5 weeks. Upside risk is increasing. Be very selective if you decide to buy.

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