Sunday, March 5, 2017

Sensex, Nifty charts (Mar 03, 2017): consolidating after touching 52 week highs

During the first three trading days of Mar '17, FIIs were net buyers of equity worth Rs 14.5 Billion. For the month of Feb '17, FIIs were net buyers of equity (worth Rs 87 Billion) after four months of net selling.

DIIs were net sellers of equity worth Rs 5.7 Billion during Mar 1-3, '17 as per provisional figures. Sensex and Nifty touched 52 week highs, but closed lower for the week.

Nikkei India Services PMI rose to 50.3 in Feb '17 against 48.7 in Jan '17. That helped the Composite PMI (Manufacturing + Services) to move above 50, indicating growth.

BSE Sensex index chart pattern

A 'shooting star' candlestick pattern, observed in last week's post on the daily bar chart pattern of Sensex, had hinted at a correction/consolidation and a test of support from the blue up trend line.

The index consolidated sideways and touched a 52 week high of 29146 on Mar 2, but closed much lower to form a 'reversal day' bar (higher high, lower close). 

On Fri. Mar 3, the index bounced up after testing support from the up trend line but closed about 60 points lower for the week. All three EMAs are rising, and the index closed above them in a bull market.

Daily technical indicators have corrected overbought conditions, but remain in bullish zones. All four are showing negative divergences by failing to touch new highs with the index.

Some more consolidation or correction can be expected before Sensex attempts to cross above its Mar '15 lifetime high.

(The entire trading from Sep '16 onwards has formed a 'cup'-like pattern. Any corrective move that breaches the blue up trend line may form the 'handle' of a 'cup-and-handle' pattern, and drop the index to the 27500-28250 zone.

Should such a pattern get formed - and there are no indications as yet that it will - the subsequent rally can be explosive and propel the index above 32000.)

If you are sitting on gains in small-cap stocks, this can be a good time to book partial profits.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new 52 week high of 8992.50, but closed lower for the week after 5 straight weeks of higher closes. 

In the process, it formed a 'reversal week' bar (higher high, lower close) that can trigger some more correction or consolidation.

Weekly technical indicators are looking overbought. RSI and Slow stochastic are showing signs of correcting from their overbought zones.

Nifty's TTM P/E is above the 23 mark - well above its long-term average. The breadth indicator NSE TRIN (not shown) is inside its overbought zone.

The Q3 (Dec '16) GDP figure came as a positive surprise for the stock market, but the veracity of the calculation is under question due to a rather convenient downward adjustment to the Q3 (Dec '15) GDP number.

Despite the improvement in the Manufacturing and Services PMI numbers, the economy is still struggling to recover from the demonetisation shock. The government hasn't helped matters by keeping mum on the extent of 'black money' recovered by the demonetisation process.

Bottomline? Bulls are in control of Sensex and Nifty charts. However, bears might put up a fight before surrendering. Any strong correction - should it come - may be the last opportunity to buy before bulls run away with this market.

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