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Saturday, February 25, 2017

Sensex, Nifty charts (Feb 23, 2017): bulls relentlessly charge ahead

In a holiday-shortened trading week, FIIs were net sellers of equity worth Rs 17.4 Billion, as per provisional figures. DIIs were net buyers of equity worth Rs 28.4 Billion - thanks to continuous inflows into domestic mutual funds.

As mentioned in the concluding comment of last week's post, both indices touched new highs. Nifty touched a new 52 week high and Sensex touched a 5 months high (falling just short of its Sep 8 '16 top).

According to D&B's latest economic forecast, India's IIP will remain muted between 0-0.5% in Jan '17. FDI in 2016 grew by 18% to US $46 Billion from $39.3 Billion in 2015.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex closed higher on all four trading days of the week - touching an intra-day high of 29065 on Thu. Feb 23 and testing its previous top of 29077 (touched on Sep 8 '16).

However, the index closed near its lowest level for the day, forming a 'shooting star' candlestick pattern. That can trigger a correction or consolidation. Any dip towards the blue up trend line will provide an adding opportunity.

Daily technical indicators are looking overbought. All four are showing negative divergences by failing to touch new highs with the index. Some correction or consolidation will improve the technical 'health' of the chart, and enable Sensex to touch a new lifetime high.

Bulls are clearly in control. That doesn't mean you should throw caution to the wind. Be very selective in your picks if you do decide to add during the next likely dip.

Some selling can be expected near a previous index top. If you are sitting on good profits - particularly in small-cap or mid-cap stocks, which are still rising and looking strong on the charts - now may be a good time to take some of the profits off the table.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty not only touched a new 52 week intra-week high but closed at a lifetime high level of 8939.50. The index is trading well above its two rising weekly EMAs in a bull market.

Weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index.

An index can remain overbought for long periods during bull rallies. However, sliding volumes during last week's rally and negative divergences on technical indicators may be hinting at a pullback towards 8750.

Nifty's TTM P/E remains well above its long-term average at 23.36. The breadth indicator NSE TRIN (not shown) has resumed its fall inside its overbought zone.

Upside risk appears to be increasing by the day. Despite a not-so-strong economy, domestic liquidity flows are sustaining the market in the near term. 

Bottomline? Bulls are clearly in control of Sensex and Nifty charts. The best time to book partial profits is when experts are only recommending 'buy' calls and everyone is feeling happy counting their 'paper profits'.

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