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Wednesday, June 7, 2017

Nifty chart: a midweek technical update (Jun 07 ‘17)

FIIs were net buyers of equity on all three days of trading this week. Their total net buying was worth Rs 6.1 Billion. 

DIIs were net sellers of equity worth Rs 3.6 Billion on Tue, but were net buyers worth Rs 1.8 Billion on Mon. and Wed. as per provisional figures.

RBI's monetary policy announcement today came as no surprise. Status quo was maintained for repo and reverse repo rates. CRR was also unchanged, but SLR was reduced by 50 bps (0.5%) to 20%.


The daily bar chart pattern of Nifty rose to touch a new high of 9709 on Tue. Jun 6, but closed near the low point of the day at 9637 - forming a 'reversal day' bar (higher high, lower close) that often marks an intermediate top.

All three EMAs are rising, and the index is trading above them in a bull market. However, overbought technical indicators that are showing negative divergences by failing to touch new highs with the index may be triggering a correction.

The rally from the Dec 26 '16 low features several corrective moves towards the rising 20 day EMA that has kept the chart technically 'healthy'. Another correction towards the 20 day EMA will provide Nifty the technical strength to move convincingly above 9700.

Nifty's TTM P/E is at 24.48, which is well above its long-term average. The breadth indicator NSE TRIN (not shown) has reversed direction from the edge of its oversold zone and dropped sharply into neutral zone - hinting at some more index upside.

With FIIs turning buyers again, any correction is likely to be a shallow one. 

The Indian Meteorological Dept has reconfirmed a normal monsoon this year. That should give a boost to rural consumption. 

Implementation of GST from July 1 should benefit the economy over the long term, but there may be a temporary slowdown due to teething problems. SME companies may not be ready yet with their systems and processes.

Stay invested, and think long-term. 

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