Sunday, December 17, 2017

Sensex, Nifty charts (Dec 15, 2017): poised to breakout above 'flag' patterns

FIIs and DIIs were both net sellers of equity in the week gone by. FII net selling was worth Rs 6.1 Billion. DII net selling was worth Rs 6 Billion.

Incidentally,  FIIs were net buyers on Tue. & Thu. while DIIs were net buyers on Mon. & Fri. Sensex and Nifty gained 0.6% on a weekly closing basis while consolidating sideways within bullish 'flag' patterns.

India's WPI inflation rose to an 8 months high of 3.93% in Nov '17, against 3.59% in Oct '17 and 1.82% in Nov '16 - on the back of higher food and oil prices.

Exports were up 30.6% while imports were up 19.6% YoY in Nov '17. Exports were worth $ 26.2 Billion against imports of $ 40 Billion - leaving a trade deficit of $ 13.8 Billion (higher than $ 13.4 Billion in Nov '16 but lower than $ 14 Billion in Oct '17).

BSE Sensex index chart pattern

Note the following remarks in last week's post on the daily bar chart pattern of Sensex: "The index needs to cross convincingly above its previous (Nov 28) top of 33770 for bulls to wrest control. Bears may try to prevent that from happening - at least till Gujarat state election results are announced."

Exit polls on Thu. Dec 14 predicted comfortable victories for NDA in Gujarat and Himachal Pradesh state elections. Bulls celebrated. The index formed an upward 'gap' on Fri., but stopped short of the upper edge of the 'flag' pattern and the Nov 28 top of 33770.

It seems bulls and bears were uncertain about the actual election results (to be announced on Mon. Dec 18). That uncertainty was reflected in the formation of a 'shooting star' candlestick pattern on Fri. Dec 15.

Daily technical indicators are looking bullish, even though RSI is still in bearish zone. ROC is showing strong upward momentum, the others are not.

The index is trading above its three EMAs in a bull market. An upward breakout above the 'flag' pattern appears inevitable. Whether the breakout will be followed by a pullback to the top of the 'flag' or not may depend on the margin of NDA's victory in the two states.

Remember that to be technically valid, any upward breakout should be accompanied by a significant increase in volumes.

NSE Nifty index chart pattern

For the past 6 weeks, the weekly bar chart pattern of Nifty has been consolidating within a 'flag' pattern, from which an upward breakout is likely. 

Despite exit poll predictions of comfortable NDA victories in recently concluded Gujarat and Himachal state elections, the index failed to breakout above the 'flag' last week.

Weekly technical indicators are in bullish zones. Only RSI is showing some upward momentum. MACD, RSI and Slow stochastic are showing downward momentum.

Nifty's TTM P/E has increased to 26.46 - well above its long-term average. A few experts on business TV channels have been proffering clever arguments to justify the high index valuation. Ignore them. Once election results are out of the way, market focus will shift to continued meagre earnings of India Inc.

The breadth indicator NSE TRIN (not shown) has fallen sharply in neutral zone and is hinting at some more index upside. With FIIs in selling mood, don't expect a runaway rally.

Bottomline? Sensex and Nifty charts have been consolidating within bullish 'flag' patterns for the past 6 weeks. Upward breakouts from 'flag' patterns are likely. Breakouts - and any subsequent pullbacks - can be used to add to existing holdings.


Anand said...

Namaskar Subhankar ji,

Learnt from you earlier that Panic bottoms seldom hold.

Please comment on the status after yesterday's panic bottom.

Many thanks

Subhankar said...

Good question, Anand.

Let me re-direct you to my post on 'Panic Bottom':

Two 'rules' for a 'panic bottom' are:
1. It occurs in the middle (or second) stage of a bear market
2. It seldom holds.

What happened when trading opened on Dec 18, 2017 morning - when initial results showed Congress leading BJP in the Gujarat state elections - was panic selling by those who were holding long positions in anticipation of a resounding BJP victory.

Did that form a 'panic bottom'? It may have appeared so. But the important thing to note here is that Sensex and Nifty are in bull markets. What looked like 'panic bottoms' were actually tests of support from two recent previous bottoms.

Also, the Dec 18 intra-day lows on both indices occurred within their 'flag' patterns. Upward breakouts from the 'flag' patterns remain the logical outcomes.