Saturday, December 30, 2017

Sensex, Nifty charts (Dec 29, 2017): close the year at lifetime highs

FIIs were net sellers of equity worth Rs 64.1 Billion for the month of Dec '17. It was their 5th straight month of net selling. They were net sellers in 9 of the previous 12 months.

DIIs were net buyers of equity worth Rs 81.4 Billion during Dec '17, as per provisional figures. They were net buyers of equity in 11 of the past 12 months. Sensex gained 7430 points (27.9%) and Nifty gained 2345 points (28.6%) during calendar year 2017.

India's fiscal deficit during Apr-Nov 2017 was Rs 6120 Billion, which touched 112% of the budget estimate for the period Apr 2017-Mar 2018. During Apr-Nov 2016, the fiscal deficit was 85.8% of the budget estimate. Lower GST collections and higher expenditure inflated the deficit.

BSE Sensex index chart pattern

The following remark was made in last week's post on the daily bar chart pattern of Sensex: "Sensex is trading above its three rising EMAs in a bull market, and should continue to move higher on the back of liquidity inflows into domestic mutual funds."

In F&O settlement trading week truncated by Christmas holiday on Mon., the index touched a new intra-day high of 34138 on Wed. Dec 27 and ended the week, month and year at a new closing high of 34057 on Fri. Dec 29.

Daily technical indicators are looking bullish. MACD is rising above its signal line in bullish zones. ROC, RSI and Slow stochastic are in the process of correcting overbought conditions.

The index is trading above its three rising EMAs in a bull market. However, the move above the 'flag' has been more of a sideways consolidation with an upward bias rather than a full-fledged rally.

Festive season considerations and uncertainty about forthcoming Q3 (Dec '17) corporate results kept bulls in check. Earnings growth of India Inc. may show improvement because Q3 (Dec '16) corporate results were badly affected by demonetisation of high value currency.

Any pullback towards the top of the 'flag' can be used to add to existing holdings. But there is no point in waiting for such a pullback because it may not happen. So, keep investing according to your asset allocation plans.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose to touch new intra-week (10552) and closing (10531) highs during the last week of trading in 2017. The index is trading above its three rising weekly EMAs in a bull market.

Is it time for bears to go into hibernation? Not yet. The index formed a 'doji star' weekly candlestick with a volume surge, which can be a sign of a 'buying climax'. A pullback towards the top of the 'flag' may be in the offing.

Note that a 'buying climax' is often followed by a correction, but seldom occurs at a market top. It is usually followed by a move to new highs. (Note the index behaviour following the previous 'buying climax' in the last week of Jul '17 - marked by red arrow.)

Nifty's TTM P/E has increased to 26.92 - well above its long-term average. The breadth indicator NSE TRIN (not shown) has fallen deep inside its overbought zone, and can trigger a correction. (Coincidentally, the previous occasion when TRIN looked so overbought was in the last week of Jul '17.)

Bottomline? Sensex and Nifty charts have closed at lifetime highs after breaking out above bullish 'flag' patterns in the previous week. Both indices appear to be hesitating before Q3 (Dec '17) results season. Lower base effect can lead to some earnings growth in Q3. Any pullbacks towards the top of the 'flag' patterns can be used to add to existing holdings.

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