Saturday, January 13, 2018

Sensex, Nifty charts (Jan 12, 2018): touch new highs again despite selling by FIIs

FIIs have gone back to their bearish ways. Their net selling in equities during the week was worth Rs 9.6 Billion. DIIs' net buying in equities was much higher at Rs 23.8 Billion, as per provisional figures. Sensex and Nifty touched new highs once again.

The Index of Industrial Production (IIP) rose to 8.4% in Nov '17 against 2.2% in Oct '17 - thanks to a lower base effect. The cumulative Apr-Nov '17 YoY growth figure was 3.2%.

Retail (CPI) inflation accelerated to 5.2% in Dec '17 against 4.9% in Nov '17. Rising food and fuel prices can lead to an interest rate hike by RBI. That will not be good news for the stock market.

BSE Sensex index chart pattern

Combined net buying in equities by FIIs and DIIs on Mon. Jan 8 buoyed the daily bar chart pattern of Sensex to a smart breakout above the small 'rectangle' within which it was consolidating for the previous three weeks.

Though FIIs turned net sellers of equity for the rest of the week, heavy buying by DIIs propelled the Sensex to new intra-day (34638) and closing (34592) highs on Fri. Jan 12. 

Note that the index formed a 'dragonfly doji' candlestick pattern on Fri., indicating hesitation among bulls and bears.

Daily technical indicators are in bullish zones, but only MACD is showing upward momentum. All four indicators failed to touch new highs with the index. The negative divergences can lead to some consolidation or correction.

Sensex is trading above its three rising EMAs in a bull market. That means dips can be used to add to existing holdings. Aggressive buying should be avoided because the index is at an all-time high and Q3 (Dec '17) results season has just begun.

NSE Nifty index chart pattern

After breaking out above a 'flag' pattern, the weekly bar chart pattern of Nifty had pulled back towards the top of the 'flag' before recovering to close above 10490 (its Nov '17 top) in the previous week.

Bulls took the opportunity to take charge. The index opened with a 23 points upward 'gap' on Mon. Jan 8, and then rose to touch intra-week (10690) and closing (10681) highs on Fri. Jan 12.

Weekly technical indicators are in bullish zones but not showing much upward momentum. MACD has crossed above its signal line to enter its overbought zone. ROC is moving sideways below its 10 week MA. RSI and Slow stochastic are also moving sideways inside their respective overbought zones.

Nifty's TTM P/E has increased to 27.28 - well above its long-term average. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone, and is rising inside neutral zone - hinting at a correction or consolidation. 

Bottomline? Sensex and Nifty charts have closed at new highs again. Bulls are expecting Q3 (Dec '17) results to show earnings improvement due to lower base effect. Use dips to add to existing holdings, but avoid aggressive buying close to a market top.

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