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Sunday, May 14, 2017

Sensex, Nifty charts (May 12, 2017): touch new highs on the back of FII buying

In a surprising change of strategy near a market top, FIIs turned net buyers of equity - worth Rs 28.3 Billion. DIIs turned net sellers of equity worth Rs 13.0 Billion.

Sensex and Nifty touched new highs during the week, and closed at their highest ever weekly closing levels.

Calculated according to new series (base year shifted to 2011-12 from 2004-05), IIP rose 2.7% in Mar '17 against 1.9% in Feb '17; WPI inflation declined to a 4 months low of 3.85% in Apr '17 against 5.29% in Mar '17; CPI inflation declined to 2.99% in Apr '17 against 3.81% in Mar '17.

For FY 2016-17, IIP grew 5% against 3.4% in FY 2015-16. However, as per old series, IIP growth was a dismal 0.7% in FY 2016-17 against 2.5% in FY 2015-16.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex received good support from 'fan line 3' and its 20 day EMA during the week. It rose to touch a new high of 30366 on Thu. May 11 but corrected a little by the end of the week.

All three EMAs are rising, and the index is trading above them in a bull market. However, the bullish structure is looking a bit shaky as any downward breach of 'fan line 3' can bring bears to the fore.

Daily technical indicators are in bullish zones, but giving conflicting signals. MACD and ROC are showing negative divergences by failing to touch new highs with the index. RSI and Slow stochastic are looking overbought. Of the four indicators, only Slow stochastic is showing upward momentum.

Bulls may feel encouraged that FIIs have resumed buying. But DII selling is likely to act as a brake to the Sensex rally.

Stay invested and carry on with your SIPs.  

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new intra-week high of 9451 and closed just above 9400 for the first time ever.

The index is trading well above its two rising weekly EMAs in a bull market.

Weekly technical indicators are looking overbought. Three of them - ROC, RSI, Slow stochastic - are showing negative divergences by failing to touch new highs with the index.

With FIIs resuming their buying, liquidity inflow may push the index even higher. But the higher the index climbs, the sharper will be the subsequent correction.

Nifty's TTM P/E is at 23.88 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising inside its overbought zone - hinting at some correction or consolidation.

Bottomline? Sensex and Nifty charts touched new highs during the week. Both indices are looking overbought. Earnings are yet to catch up with growth expectations. With FIIs and DIIs at cross purposes, upside for both indices may be limited. Stay invested but avoid any impulsive buying.  

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