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Saturday, February 4, 2017

Sensex, Nifty charts (Feb 03, 2017): bulls back on top

For the second week in a row, both FIIs and DIIs were net buyers of equity. FII net buying was worth Rs 6.3 Billion; DII net buying totalled Rs 12.6 Billion, as per provisional figures. Both Sensex and Nifty gained more than 1% on a weekly closing basis.

Expected increase in service tax and re-introduction of long-term capital gains tax had been discounted by the market. When these provisions were not announced in the budget, bulls decided to celebrate.

Nikkei India's Services PMI came in at 48.7 in Jan '17 against 46.8 in Dec '16 - showing contraction (i.e. a number below 50) for the third straight month. The Composite PMI (including manufacturing) was 49.4 in Jan '17 against 47.6 in Dec '16.

BSE Sensex index chart pattern


The concluding remarks in last week's post on the daily bar chart pattern of Sensex were: "A pullback towards 27600 is a possibility. The dip can be used to add to existing holdings."

The index pulled back to 27600 on Jan 31 and even slipped slightly lower on Feb 1, before shooting up like a rocket after the Finance Minister's budget speech - forming a 'reversal day' bar (lower low, higher close).

On the next two days the index faced resistance from the 28250 level and consolidated with a slight upward bias, as the market tried to digest the budget provisions and DIIs resorted to some profit booking.

All three EMAs are rising again and the index is trading above them. 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 looking overbought. MACD is rising along with the index but ROC, RSI and Slow stochastic are showing negative divergences (marked by blue arrows) by failing to move higher.

Some more consolidation or some correction is likely before the index makes an attempt to cross above its Sep '16 top of 29077.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty surged past the resistance level of 8675 with strong volume support after the Finance Minister's budget speech on Feb 1 but is facing resistance from the 8750 level.

Both weekly EMAs are rising and the index is trading above them in a bull market. The next target for bulls will be the Sep '16 top of 8969.

Weekly technical indicators are looking bullish. MACD has formed a bullish 'rounding bottom' pattern and crossed above its signal line into positive territory. ROC has entered its overbought zone after crossing above its 10 week MA. RSI has moved above its 50% level. Slow stochastic is poised to enter its overbought zone.

Sunny days are here again for bulls? It surely appears that way. However, Nifty's TTM P/E remains well above its long-term average at 23.29. The breadth indicator NSE TRIN (not shown) is deep inside its overbought zone.

Expect some correction or consolidation. The chart needs to improve its technical 'health' before it can rise to a new 52 week high.

Bottomline? Sensex and Nifty charts show that bulls are regaining control. The economy is shrugging off adverse effects of demonetisation. With FIIs buying again, both indices should touch new highs in the near future. POTUS remains a wild card that can trump the best laid plans of bulls.

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