Sunday, October 15, 2017

Sensex, Nifty charts (Oct 13, 2017): two week long rallies facing resistances

During the week, FIIs were net sellers of equity worth Rs 34.5 Billion. DIIs were net buyers of equity worth Rs 31.5 Billion, as per provisional figures.

Both Sensex and Nifty are facing resistances from trend lines connecting their Aug '17 and Sep '17 tops. While Nifty touched new intra-week (10192) and closing (10167) highs, Sensex fell short of its Sep '17 top.

There was some much-needed good news on the economy front. The IIP rose to a nine months high of 4.3% in Aug '17 against a downward revised 0.9% in Jul '17 - thanks to re-stocking after GST implementation. CPI inflation remained steady at 3.28% in Sep '17 - the same as in Aug '17 - due to a dip in food inflation.

Exports climbed 25.7% in Sep '17 while imports rose 18.1%. The trade deficit was marginally lower at $8.98 Billion against $9.07 Billion in Sep '16.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex has been consolidating sideways within a slightly downward-sloping channel for the past ten weeks - after touching a lifetime high of 32686 on Aug 2 '17.

The index is facing resistance from the upper edge of the channel for the third time in three months. In the two previous months, the index had retreated to the lower edge of the channel. Will the pattern repeat, or will the index breakout above the channel?

Daily technical indicators are in bullish zones, and showing upward momentum. ROC is showing positive divergence by moving above its Sep '17 top. But it is well inside its overbought zone. Slow stochastic is about to enter its overbought zone. 

On Fri. Oct 13, the number of declining stocks exceeded the number of advancing stocks - which is a bearish sign. So, a correction can't be ruled out.

The Dollex 30 (Sensex in US Dollars) chart - not shown - is about 125 points below its lifetime high of 4227 touched way back in Dec '07. A convincing breakout above 4227 will have serious bullish implications. With FIIs in selling mood, such a breakout appears unlikely in the near term.

DIIs may use Diwali as an excuse to engineer a breakout above the downward-sloping channel. Investors would be wise to book some profits near a market top. Any dip to the lower edge of the channel can be used to buy.

NSE Nifty index chart pattern

The following remark was made in last week's post on the weekly bar chart pattern of Nifty: "In case the index continues its rally, the 'rising wedge' will get negated, and resistance can be expected from the 10200 level."

The index faced resistance from a trend line connecting its Aug '17 and Sep '17 tops, and closed about 12 points lower than its Sep '17 top. The two weekly EMAs are rising, and the index is trading above them in a bull market.

Weekly technical indicators are in bullish zones, and showing some upward momentum. However, all four are showing negative divergences by failing to touch new highs with the index.

Similar negative divergences occurred when the index touched its Sep '17 top, which was slightly higher than its Aug '17 top. A corrective move had ensued.

Nifty's TTM P/E has moved up to 26.41 from 25.92 in the previous week, which is well above its long-term average. The breadth indicator NSE TRIN (not shown) has dived headlong into its overbought zone, and can limit further index upside.

Bottomline? Sensex and Nifty charts have reached resistance levels from where they had corrected twice before. DII buying matched by FII selling have kept both indices in sideways consolidations for 10 weeks. Await Q2 (Sep '17) results before deciding on next course of action. Be stock specific.

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