Sunday, March 19, 2017

Sensex, Nifty charts (Mar 17, 2017): FII buying propels both indices to new highs

The US Fed increased interest rate by 25 bps (0.25%) last week, but hinted at only one or two more hikes this year. The dovish stance caused a dip in the US Dollar index. FIIs made merry and piled into emerging market stocks.

In a truncated trading week, FII net buying in equities crossed Rs 81.2 Billion. DIIs were net sellers of equity worth Rs 21.9 Billion, as per provisional figures.

Both Sensex and Nifty opened trading with big upward 'gaps' on Tue Mar 14, and continued to trade above the 'gaps' for the rest of the week.

After BJP's big wins in UP and Uttarakhand state elections, the government has stepped up economic reform activities, and is considering relaxation of rules for FDI in multi-brand retail

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex formed a 280 points upward 'gap' on Tue. Mar 14 (Mon. Mar 13 was a holiday) on the back of heavy FII buying that took the index above the blue up trend line.

The index continued its upward march for the rest of the week, touching a new 52 week high of 29825 on Fri Mar 17, but fell 200 points short of its lifetime intra-day high of 30025 (touched on Mar 4 '15). 

The index ended the week at a lifetime closing high of 29649, gaining nearly 2.5% for the week. Time to celebrate for bulls?

Not yet. The index has closed at a lifetime high. That means it is likely to move even higher. However, technical indicators are hinting at a pause in the rally. All four are looking overbought, and showing negative divergences by touching lower tops. A correction or consolidation is likely.

The index is trading 2200 points above its 200 day EMA. The last time the index was trading so far above its 200 day EMA was on Sep 8 '16. Technical indicators had shown negative divergences then, and a sharp correction had followed.

FII buying may take the index even higher. But some times one needs to choose between capital appreciation and capital preservation. 

Bravehearts can maintain a trailing stop-loss and enjoy the ride. Conservative investors can book partial profits.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty formed a rare weekly upward 'gap' (of 82 points) and rose to touch a new lifetime intra-day high of 9218. The index closed at a lifetime high of 9160 - gaining more than 2.5% for the week. 

Nifty is trading more than 700 points above its rising 50 week EMA. The last time it did that - in the week ending on Sep 9 '16 - a sharp correction had followed.  

Weekly technical indicators are overbought and showing negative divergences by failing to touch new highs with the index. Nifty's TTM P/E is almost at 23.8 - way higher than its long-term average. The breadth indicator NSE TRIN (not shown) has dived back inside its overbought zone. 

An overbought market can remain overbought for long periods - specially with FIIs buying heavily. Sometimes you need to turn your paper profits into cash. This may be such a time. 

Bottomline? Bulls are in complete control of Sensex and Nifty charts. Bears have been brushed aside in an avalanche of liquidity flows. Both indices are looking quite overbought. That doesn't mean they can't move even higher. But as Falstaff had said: "The better part of valour is discretion..."


Maha Chou said...

Sir, i m regularly visiting ur blog n because of which gained lot of knowledge. On daily n weekly chart nifty closed above all time high ( 9119.20, formed in march 15) can we consider this as technical bullish breakout. At the same time nifty P/E is 23.77 so valuation wise market looks expensive. What should be your advice for long term investor in this scenario.
Please reply.

Subhankar said...

@MC - thanks for visiting my blog.

Your question was anticipated and has already been answered twice in the post! Please re-read the last paragraphs of the Sensex and Nifty analysis.

Maha Chou said...

As a newbee to stock market just thought to confirm, somewhat confused bcause of longterm upper trendline break on weekly chart.

Subhankar said...

@MC - Often the reason for confusion arises from not follow a plan. Investing is a very long journey - not a short bus ride. A lot of thinking and planning needs to be done beforehand.

Once you have a financial plan and an asset allocation plan in place, then your investments are done according to the plans. Breach of a trend line or a support level is short-term 'noise' for a long-term investor.