Wednesday, January 3, 2018

Nifty chart: a midweek technical update (Jan 03 ‘18)

During the first three days of trading in 2018, FIIs were net buyers of equity worth Rs 9.4 Billion. DIIs were net sellers of equity worth Rs 15 Billion, as per provisional figures. Nifty lost 88 points (0.8%), and is back where it was in the beginning of Nov '17.

Nikkei India's Manufacturing PMI rose to a 5 years high of 54.7 in Dec '17 against 52.6 in Nov '17. (A figure above 50 indicates expansion.) The stock market remained unmoved by the positive news, which is a bearish sign.

Dec '17 auto sales showed good YoY growth, albeit on a lower base due to demonetisation. Ashok Leyland (79%), Tata Motors (52%), Hero Moto (43%), TVS Motors (39%), Bajaj Auto (30%) showed excellent growth. Eicher (17%), Escorts (13%), Maruti (10%), Hyundai (10%), M&M (8%) showed decent growth. 

After breaking out above a bullish 'flag' pattern and touching a lifetime high of 10552 on Dec 27, the daily bar chart pattern of Nifty had formed a 'reversal day' bar.

That triggered a pullback towards the top of the 'flag' - a possibility mentioned in last week's post. The index has bounced up after receiving support from its rising 20 day EMA.

Daily technical indicators are in bullish zones, but not showing any upward momentum. MACD and Slow stochastic are correcting overbought conditions. RSI is moving sideways above its 50% level.

Some more correction towards the top of the 'flag' and the rising 50 day EMA is likely. The dip can be used to add to existing holdings.

Nifty's TTM P/E has eased a bit to 26.7 but remains much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has bounced up from deep inside its overbought zone - hinting at some more correction.

Q3 (Dec '17) corporate results are expected to be announced from next week. A low base effect due to demonetisation can lead to improved earnings growth. 

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