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Sunday, May 28, 2017

Sensex, Nifty charts (May 26, 2017): touch new highs as bulls overrun bears

FIIs were net sellers of equity worth Rs 3.25 Billion during the week, as per provisional figures. But they were net buyers on Wed.(May 24) and Thu.(May 25). DIIs were net buyers of equity worth Rs 25.8 Billion, but were net sellers on Thu.

Sensex and Nifty broke out of sideways consolidations to touch lifetime highs. Market experts have started talking about much higher index targets - and that should be a signal for extreme caution.

India has retained its No. 1 position as world's top greenfield FDI investment destination for the second straight year - ahead of China and USA. FDI by capital investment rose 2% to US $62.3 Billion in 809 projects during 2016.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex was in consolidation mode till mid-week. A sudden spate of buying by FIIs on Thu. May 25 launched the index above its trading range. 

DIIs picked up the buyers' mantle on Fri. - propelling the index above the 31000 level for the first time ever.

'Fan line 3' and the 20 day EMA have provided good support to the index during the month. All three EMAs are rising, and the index is trading above them in a bull market.

Any sense of euphoria should be tempered with caution. Daily technical indicators are looking overbought. Three of them - MACD, ROC, Slow stochastic - are showing negative divergences by failing to touch new highs with the index.

An index can remain overbought for long periods during a bull market. But the negative divergences can lead to some correction or consolidation.

Stay invested. Maintain SIPs. Remember that wealth creation is comparatively easier. Wealth preservation is more difficult. Judicious profit booking is better than impulsive buying near an index top.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new high of 9605 on Fri. May 26 but closed 10 points lower. It was the first time ever that the index managed to cross above 9600.

Both the weekly EMAs are rising, and the index is trading above them in a bull market - with no known resistances. In such situations, the index often stalls near a round figure.

(The index had crossed above 9100 for the first time ever in Mar '15 - but had failed to close above 9100 till two years later. The same pattern may not get repeated. But it is good to learn from history - so that mistakes are not repeated.)

Weekly technical indicators have been looking overbought for the past 4 months. However, ROC, RSI and Slow stochastic are showing negative divergences by failing to touch new highs with the index. Some consolidation or correction may follow.

Nifty's TTM P/E is at 24.32 - a bit lower than last week but much above its long-term average. The breadth indicator NSE TRIN (not shown) is rising inside its neutral zone, hinting at some more upside.

Bottomline? Sensex and Nifty charts are touching new highs on a regular basis. Both indices are looking overbought. Corporate earnings have not caught up with index valuations yet. Liquidity flow is keeping the stock market buoyant. Stay invested but maintain a trailing stop-loss.  

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