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Wednesday, July 19, 2017

Nifty chart: a midweek technical update (Jul 19 ‘17)

FIIs were net buyers of equity worth Rs 16.9 Billion during the first three days of trading this week. DIIs were net sellers of equity worth Rs 14.3 Billion, as per provisional figures.

The index closed above the 9900 level for the first time on Mon. Jul 17. But bulls were stopped in their tracks as the GST Council raised the cess on cigarettes.

Nifty lost more than 120 points on Tuesday as bears battered the stock of ITC - which has a large weightage on the index.

The daily bar chart pattern of Nifty has been consolidating sideways within a 150 points range (between 9780 and 9930) after breaking out above a bullish 'ascending triangle' pattern on Mon. Jul 10.

All three EMAs are rising, and the index is trading above them in a bull market. The distance between the index and its 200 day EMA is more than 850 points, which indicates overbought condition as per empirical observations.

Daily technical indicators are also looking overbought. Nifty's TTM P/E is at 25.28 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has fallen deep inside its overbought zone.

With all these technical signals flashing red, what should small investors do? Remember that indices (and stocks) can remain overbought for long periods. That doesn't mean it will be a straight-line rise to new highs.

Leo Puri, MD of UTI Asset Management, said in a recent TV interview: "There is a large space between the two extremes of greed and fear." Learn to become comfortable in that space.

If you have spent the time and effort in creating a good financial plan and an Asset Allocation plan, then there is nothing to worry about. Just stick to the plans regardless of index gyrations.

If you have been buying and selling willy-nilly based on tips or friendly advice, you may be in big trouble already. The best way to get out of trouble is not to 'average' but to get out of losing positions.

Avoid taking large positions on the long or the short side. Remember the story of the hare and the tortoise. Investing is a marathon, not a sprint. You need to have a plan and pace yourself along the way.

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