Sunday, November 26, 2017

Sensex, Nifty charts (Nov 24, 2017): bears down but refusing to get counted out

FIIs were net sellers of equity worth Rs 18.7 Billion during the week. DIIs were net buyers of equity worth Rs 29.3 Billion, as per provisional figures. Both Sensex and Nifty gained 1% on a weekly closing basis.

The government has amended the Insolvency & Bankruptcy Code (IBC). Wilful defaulters and entities whose accounts have been classified as NPAs will now be barred from bidding for assets under IBC.

On Fri. Nov 24, global rating agency S&P retained India's sovereign rating at BBB- with a stable outlook. This is the lowest of all investment-grade sovereign ratings. [The possibility that S&P may not follow Moody's in upgrading India's sovereign rating was mentioned in this post.]

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex has resumed its rally and is trading above its three rising EMAs in a bull market. The Nov 7 top of 33866 is within handshaking distance. A new high appears just around the corner.

Bears are trying their level best to make life difficult for bulls. A look at the daily technical indicators will explain why.

MACD is about to cross above its falling signal line in bullish zone, but isn't showing much upward momentum. ROC has crossed above its 10 day MA into bullish zone, but isn't showing much upward momentum either. RSI is meandering along its 50% level. Slow stochastic is about to enter its overbought zone.

Refusal to upgrade India's sovereign rating by S&P may spur FIIs to increase their selling. F&O settlement on Thu. Nov 30 may restrain DII buying. Expect bears to make a last-ditch stand to prevent bulls from regaining complete control.

Continuous domestic liquidity flow into MF accounts is propelling the index higher even though earnings of India Inc. haven't improved much. Index valuation is increasingly looking stretched.

This is not the time to get excited and place huge bets. The time to do that was back in Dec '16. Be circumspect and very choosy about what you buy near a market top. Quality should take precedence over quantity.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty continued to rally after bouncing up from the support level of 10100 in the previous week. The Nov '17 top of 10490 remains a hurdle that needs to be crossed convincingly if bulls are to regain complete control of the chart.

Weekly technical indicators are looking overbought, and showing negative divergences by moving lower when the index moved higher. MACD is about to slip below its signal line. ROC is ready to cross below its 10 week MA. RSI and Slow stochastic are at the edges of their respective overbought zones.

Some consolidation or correction can be expected during F&O expiry week. The index is trading above its three rising EMAs in a bull market. "Buy the dips" tactics can be used to add to existing holdings.

Nifty's TTM P/E has increased to 26.59 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is rising in neutral zone and can limit index upside.

Bottomline? Sensex and Nifty charts have resumed their rallies after bouncing up from important support levels. Bulls are regaining control. Index valuations are looking stretched. Look for opportunities in individual stocks with good fundamentals that are recovering after recent corrections.

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