Saturday, October 21, 2017

Sensex, Nifty charts (Oct 20, 2017): bull rallies pause after touching new highs

In a trading week shortened by Diwali holidays, FIIs were net sellers of equity worth Rs 18.1 Billion. DIIs were net buyers of equity worth Rs 20.3 Billion, as per provisional figures.

'Muhurat' trading on Thu. Oct 19 was used to lighten positions by traders before a long weekend. Sensex and Nifty closed slightly lower on a weekly basis - by 43 points and 20 points respectively.

WPI inflation in Sep '17 was 2.6% - lower than 3.24% in Aug '17 but higher than 1.36% in Sep '16 - mainly because of lower food prices.

BSE Sensex index chart pattern

The following concluding remarks were made in last week's post on the daily bar chart pattern of Sensex: "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." 

The index broke out above the downward-sloping channel and touched a new high of 32700 on Tue. Oct 17. Profit booking triggered a pullback towards the channel.

By closing below the upper edge of the channel on Thu. Oct 19, the upward breakout may turn out to be a 'false' one - keeping the door open for more correction next week (which also happens to be F&O expiry week).

Daily technical indicators are in bullish zones, but showing signs of reversing directions. The index is trading above its three rising EMAs in a bull market - so dips can be used to buy.

Q2 (Sep '17) results declared so far have been more or less as per (reduced) expectations. Anecdotal evidence indicates Dhanteras and Diwali festivals failed to energise consumer spending - thanks to the lingering effects of demonetisation and GST.

In case Sensex falls below the downward-sloping channel, expect strong support from the zone between 30700 and 30500.

With FIIs continuing to sell, Sensex has been in 'pause mode' for the past three months. Remain cautiously optimistic instead of being gung-ho bullish or bearish.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched new high of 10252, and is trading above its three rising weekly EMAs in a long-term bull market.

Weekly technical indicators are in bullish zones and showing upward momentum. However, all three are showing negative divergences by touching lower tops while Nifty touched a new high.

Nifty's TTM P/E has slipped a little to 26.28, but is well above its long-term average. The breadth indicator NSE TRIN (not shown) has moved up sharply from its overbought zone.

Some correction or consolidation is likely. Any fall towards the support level of 9700 can be a buying opportunity. In case 9700 gets breached, expect support from 9450.

Bottomline? Sensex and Nifty charts are hesitating after touching new highs. Profit booking at new highs are to be expected. Bull markets are intact. That means corrections should be welcomed as buying opportunities. But this is not the time to be greedy.

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