Sunday, November 5, 2017

Sensex, Nifty charts (Nov 03, 2017): bulls continue their domination

For the month of Oct '17, FIIs were net sellers of equity worth Rs 78.3 Billion while DIIs were net buyers of equity worth Rs 100.9 Billion, as per provisional figures.

During the first three trading days in Nov '17, both FIIs and DIIs were net sellers of equity - worth Rs 76.2 Billion and Rs 10.9 Billion respectively. Interestingly, FIIs were net buyers of equity on Nov 1 & 2 but were net sellers worth a huge Rs 96.9 Billion on Nov 3. 

Nikkei India Manufacturing PMI slipped to 50.3 in Oct '17 from 51.2 in Sep '17, indicating stagnation in the growth of India's manufacturing sector. The Services PMI rose to 51.7 in Oct '17 - its highest level since Jun '17 - from 50.7 in Sep '17, due to higher demand despite price pressures.

BSE Sensex index chart pattern

Heavy selling by FIIs on Fri. Nov 3 failed to deter bulls. The daily bar chart pattern of Sensex rose to touch new intra-day (33734) and closing (33686) highs. All three EMAs are rising, and the index is trading above them in a bull market.

Daily technical indicators are inside their respective overbought zones. MACD touched a new high, but ROC, RSI and Slow stochastic are showing negative divergences by failing to touch new highs.

An index can remain technically overbought for long periods. However, negative divergences in three of the four indicators should be treated as a warning sign. A pullback towards the top of the sideways consolidation channel is a possibility.

Q2 (Sep '17) results of India Inc. declared so far have been as per analysts' expectations. Earnings growth remains tepid. The stock market appears to be betting on a pickup in earnings from Q3 (Dec '17) onwards due to a low base effect.

Stay invested, maintain a trailing stop-loss for long positions, and ride the bull wave. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched new intra-week (10462) and closing (10452) highs, and continues to trade above its rising weekly EMAs in a long-term bull market.

Weekly MACD, ROC and Slow stochastic are in their respective overbought zones. RSI is moving sideways in bullish zone. All four are showing negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E has moved up to 26.87 - well above its long-term average. The breadth indicator NSE TRIN (not shown) has plunged deep inside its overbought zone, and may trigger a correction.

A Morgan Stanley analyst has proffered a view that the index may appear overvalued from the high P/E ratio but is looking reasonably valued from the P/BV ratio. Such justifications of high index levels usually appear near market tops.

Experienced investors may remember the 'replacement cost' justification of Harshad Mehta before the 1992 crash and the 'gaining eyeballs' justification before the 2000 crash. 

A market crash may or may not be in the offing. But investors should remain wary of an over-valued market, till earnings show definite signs of catching up. 

Bottomline? Sensex and Nifty charts have risen to touch new highs again. Bulls are continuing to dominate. Avoid getting caught up in the euphoria. Use any corrections as adding opportunities. 

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