Wednesday, March 8, 2017

Nifty chart: a midweek technical update (Mar 08 ‘17)

FIIs were net buyers of equity worth Rs 50.6 Billion during the three days of trading this week. DIIs were net sellers of equity worth Rs 32.9 Billion, as per provisional figures.

Steel exports in Feb '17 (at 0.75 MT) was up by 150% over Feb '16, but declined by 15% over Jan '17. Imports in Feb '17 (0.49 MT) was down by 46% over Feb '16 and by 19% over Jan '17.

The government is talking to almost 300 Indian and foreign companies for proposed investments of US $62 Billion, of which nearly half is expected from Chinese companies.


The daily closing chart pattern of Nifty is clearly hesitating near its previous (Sep 8 '16) top of 8953. Proximity to the psychological level of 9000 and uncertainty about the upcoming state election results on Mar 11 have kept bulls in check.

All three EMAs are rising, and the index is trading well above them in a bull market. However, for the past two weeks, the index has touched higher tops while the three daily technical indicators have touched lower tops.

The combined negative divergences can lead to some correction or consolidation. A sharp correction (4-5%) can occur if the BJP does not fare well at the polls - particularly in UP.

Nifty's TTM P/E continues to hover above 23 - well above its long term average. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone. Index upside appears limited.

(A friend - to whom I had recommended a textile exporting company back in Nov '16 - called me yesterday to say that the stock has gained 40% and asked whether it would be OK to buy at the current price. Such queries often indicate an intermediate top!)

If you are ready to jump into the market feet first, take another look at the chart. The index has gained 1100 points (~14%) in less than 3 months. This is a time for cautious optimism and partial profit booking, not euphoria.

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