Sunday, March 12, 2017

Sensex, Nifty charts (Mar 10, 2017): look poised for corrective moves

As per provisional figures, FIIs were net buyers of equity worth Rs 59.6 Billion last week. DIIs were net sellers of equity worth Rs 32.9 Billion. 

Both Sensex and Nifty made weekly gains, but could not convincingly move above their respective Sep '16 tops.

The IIP number was 2.7% in Jan '17 against -0.1% in Dec '16, indicating that demonetisation woes are behind us. However, for the Apr '16 to Jan '17 period, cumulative IIP was only 0.6% against 2.7% a year ago. 

Car sales rose 9% in Feb '17 while 2-wheeler sales remained flat. Direct tax collections grew 10.7% YoY - thanks to RBI allowing payment of taxes in old demonetised currency.

BSE Sensex index chart pattern

The following remarks appeared in last week's post on the daily bar chart pattern of Sensex: "Some more consolidation or correction can be expected before Sensex attempts to cross above its Mar '15 lifetime high."

On Mon Mar 6, the index closed above the 29000 level for the first time since Sep 8 '16. Next day, the index touched a higher top of 29098 but closed exactly on the 29000 level - forming a small 'reversal day' bar. 

On Wed Mar 8, Sensex breached the blue up trend line and closed below it. On Fri. Mar 10, the index pulled back to the blue up trend line, where it faced strong resistance and dropped to close below 28950.

Throughout the week, the index consolidated sideways within a 300 points range and traded above its three EMAs in bull territory. However, the breach of a trend line is a red flag.

Daily technical indicators are beginning to look bearish. Three of them - MACD, RSI, Slow stochastic - are in bullish zones but showing downward momentum. ROC has dropped to seek support from its '0' line in neutral zone.

The US Fed is likely to hike interest rates again - which should propel the US Dollar index higher. That won't be good news for emerging markets, including India. 

BJP's stunning wins in UP and Uttarakhand elections and decent performance in Manipur may lead to an upward 'gap' when trading resumes on Tue. Mar 14 after Holi. That can be a good opportunity to take some profits home.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed 0.4% higher for the week, but with lower volume support. For the third week in a row, the index failed to close above the 8950 level.

Weekly technical indicators are looking overbought. MACD is rising above its signal line in bullish zone. RSI and Slow stochastic are moving sideways inside their overbought zone. ROC is above its rising 10 week MA but has started correcting inside its overbought zone.

The index is trading well above its two rising weekly EMAs in a bull market. Nifty's TTM P/E is above 23 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone.

News of BJP's election victory in UP and Uttarakhand may lead to an upward bounce and a possible test of the lifetime high of 9119 touched two years ago. But remember the old market adage: "Buy the rumour, sell the news."

Bottomline? Bulls are in control of Sensex and Nifty charts. But bears are expectedly putting up a fight to defend the previous (Sep '16) tops. A likely upward bounce due to BJP's good performance in recent state elections may provide the trigger for corrective moves in both indices.

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