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Wednesday, July 12, 2017

Nifty chart: a midweek technical update (Jul 12 ‘17)

In a change of strategy, FIIs turned net buyers of equity on all three days of this trading week. As per provisional figures, their total net buying was worth Rs 6.5 Billion.

DIIs were also net buyers of equity on the first two days of trading this week, which exceeded their net selling today. Their total net buying was worth Rs 9 Billion. The index closed today above the 9800 level for the first time ever.

CPI inflation declined to 1.54% in Jun '17 - its lowest level in 5 years - against 2.1% in May '17, on the back of lower food prices. The IIP number for May '17 slipped to 1.7% against a downwardly revised 2.7% in Apr '17 - raising hopes that RBI may reduce interest rates to give a boost to the shrinking industrial sector.

The following remarks appeared in last week's technical update on the daily bar chart pattern of Nifty: "Nifty may be forming an 'ascending triangle' pattern from which the likely breakout is upwards. Some more consolidation within the 'triangle' is likely before the index can rise to a new high."

Combined FII and DII buying triggered the upward breakout from the 'ascending triangle' pattern on Mon. Jul 10. However, a technical glitch at NSE considerably reduced trading hours that led to much lower trading volumes.

The index touched a lifetime intra-day high of 9830 on Tue. Jul 11 and a lifetime closing high of 9816 today. Note that all three daily technical indicators failed to touch new highs with the index. 

The negative divergences can lead to a pullback to the top of the 'triangle'. It will provide an entry opportunity to those who may have missed buying on the breakout.

The index is trading above its three rising EMAs in a bull market, but it is more than 800 points above its 200 day EMA - which indicates overbought condition as per empirical observations.

Daily technical indicators have entered their respective overbought zones. Nifty's TTM P/E is almost at 25 - way higher than its long-term average. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone but showing a bit of downward momentum in neutral zone.

With FIIs back in buying mode, the index may move higher despite overbought technical conditions. Stay invested. Check Q1 (Jun '17) results to identify the better performing companies. Use the rally to get rid of non-performers in your portfolios. 

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