Sunday, April 2, 2017

Sensex, Nifty charts (Mar 31, 2017): in consolidation mode before Q4 results

FIIs were net buyers of equity worth a huge Rs 264.7 Billion during the month of Mar '17 - may be their largest ever monthly net buying. DIIs were net sellers of equity worth Rs 43.9 Billion during the month, but were net buyers during the past week.

Sensex gained 3% and Nifty gained 3.3% during Mar '17. For the financial year Apr '16 to Mar '17, Sensex gained 16.9% and Nifty gained 18.5%. 

Car makers sold more than 3 million units during FY 16-17 against 2.78 million units in FY 15-16. Supreme Court's recent strictures against sales of BS III vehicles from Apr 1 '17 and liquor sales within 500 metres of highways have cast a pall of gloom on commercial vehicle and liquor manufacturers.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex has managed to stay above up trend line '2' - after breaching up trend line '1' in the previous week. All three EMAs are rising, and the index is trading above them in a bull market. 

However, despite strong FII buying, the index is struggling to cross above its Mar '17 top of 29825, and is still 400 points short of its lifetime Mar '15 top of 30025. 

Daily technical indicators are not looking all that bullish, and showing negative divergences by touching lower tops while the index rose higher last week. So, don't count the bears out. 

MACD is moving sideways below its falling signal line in positive zone. ROC is below its falling 10 day MA and about to slip into negative zone. RSI is facing resistance from the edge of its overbought zone. Slow stochastic is rising towards its overbought zone.

Announcement of FY 16-17 corporate results is expected to start in about two weeks. Some hesitation among bulls is only to be expected till then. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed at a new lifetime high of 9174, but continued to face strong resistance from the 9200 level for the third week in a row.

Weekly technical indicators are looking quite overbought. MACD and RSI are showing upward momentum, but ROC and Slow stochastic are moving sideways. 

Remember that an index can stay overbought for long periods. But the longer it stays overbought, the greater becomes the possibility of a sharp correction.

Nifty's TTM P/E remained above 23 throughout Mar '17 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is rising in neutral zone - hinting at some consolidation or correction.

What should small investors do in such a situation? Control the urge to jump into the market feet first. Think about reallocation of your portfolio through part profit booking - or, stay invested with a trailing stop-loss.

Bottomline? Both Sensex and Nifty charts are consolidating after touching new highs. Corporate earnings have to catch up as both indices are looking overvalued. Downside risk appears high. Remain cautiously optimistic and avoid 'cheap' shares.

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