Amazon deals

Sunday, April 16, 2017

Sensex, Nifty charts (Apr 13, 2017): forming reversal patterns?

FIIs turned net sellers of equity worth Rs 24.5 Billion in another holiday-shortened trading week. DIIs were net buyers of equity worth Rs 17.9 Billion. Sensex and Nifty closed lower for the week.

Exports jumped 27.6% in Mar '17. However, trade deficit rose to a 4 month high of $10.43 Billion - thanks to surge in imports (particularly of gold). Has black money turned into white and then to yellow?

Infosys Q4 results were below expectations. Despite announcing a Rs 130 Billion bonanza for investors through dividends and buyback, the stock tanked and pulled down other IT stocks and the market with it. 

BSE Sensex index chart pattern

After touching a 52 week high of 30007 on Apr 5 (just short of its lifetime high of 30025 touched in Mar '15), the daily bar chart pattern of Sensex has formed a bearish pattern of 'lower tops, lower bottoms'. 

The index closed below up trend line '2' on Apr 10, followed by a pullback to the trend line on the next two days - giving another selling opportunity. It dropped to close below its 20 day EMA by the end of the week.

Breach of trend line '2' is a clear warning that the bull rally has stalled. But it is too early to call a trend reversal. Why? 

As per theory of 'fan lines', breach of a third up trend line (which has not been drawn yet) will technically confirm the beginning of a down trend.

The index may be in the midst of forming a 'head and shoulders' reversal pattern. A bit more correction may be followed by a rally that can go on to form the right 'shoulder' - and provide a profit-booking opportunity.

If the 'head and shoulders' pattern plays out - and there are no guarantees that it will - Sensex may correct down to 28300. 

All four daily technical indicators are looking bearish and showing downward momentum. MACD has crossed below its signal line in bullish zone. ROC has crossed below its 10 day MA and seeking support from its '0' line. RSI and Slow stochastic have dropped close to their respective 50% levels.

The index is trading well above its rising 200 day EMA in a bull market. So, no need to panic and sell. Short-term players can hold with a stop-loss at 29000. Long-term investors can use any fall below 29000 as a buying opportunity.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty failed to close above the psychological level of 9200 for the 5th week in a row. The index is trading within a small 'rising wedge' pattern from which the likely break out is downwards.

All four weekly technical indicators are showing signs of correcting overbought conditions. MACD's upward momentum has stalled. ROC is falling below its 10 week MA. RSI and Slow stochastic have started sliding down inside their respective overbought zones.

Nifty's TTM P/E remains well above its long-term average at 23.2. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone. Some more correction is likely.

Keep a close watch on Q4 (Mar '17) results. Stock picking skills will be tested. Use any rallies to rebalance your portfolio by getting rid of non-performers.

Bottomline? Sensex and Nifty charts may be forming reversal patterns after sharp rallies on hopes of better corporate earnings. Both indices are looking overvalued. Stay invested and continue your SIPs. Don't jump in to buy (or sell). 

No comments: