Wednesday, April 26, 2017

Nifty chart: a midweek technical update (Apr 26 ‘17)

FIIs were net sellers of equity worth Rs 5.9 Billion during the first three days of trading in F&O expiry week. DIIs were net buyers of equity worth a huge Rs 29.9 Billion, as per provisional figures.

The combination of reduced selling by FIIs and increased buying by DIIs sent Nifty soaring to lifetime intra-day (9367) and closing (9352) highs. 

Q4 (Mar '17) results declared so far have been better than expectations. An appreciating Rupee will help reduce India's trade deficit.

The daily bar chart pattern of Nifty crossed above its previous (Apr 5) top of 9274 with good volume support, and closed above 9350 for the first time ever. The bearish 'head and shoulders' pattern that was developing on the chart has been negated.

(The Sensex closed above 30000 for the first time ever. The event was celebrated with exchange participants cutting a 30 kg cake.)

Investors should not get swayed by bullish euphoria. There are a few dark clouds on the horizon.

All three daily indicators are in bullish zones, but showing negative divergences by touching lower tops while the index rose higher. 

Nifty's TTM P/E has touched 23.75 - much above its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its overbought zone.

The index is trading above its three EMAs in a bull market. However, the distance between the index and its rising 200 day EMA is more than 700 points. That indicates overbought conditions (as per empirical observations).

The upside appears limited. Think about partial profit booking and re-balancing of asset allocation.

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