Saturday, January 20, 2018

Sensex, Nifty charts (Jan 19, 2018): rising higher on the back of FII buying

FIIs have turned bulls again. (This post may explain why.) Their net buying in equities was worth Rs 42.3 Billion, as per provisional figures. DIIs were net sellers of equity worth Rs 7 Billion during the week, but were net buyers on Fri. Jan 19.

Sensex (35511) and Nifty (10895) closed the week at lifetime highs. Nifty crossed the 10900 level intra-week for the first time ever.

India's forex reserves rose by US $2.7 Billion to touch a lifetime high of $413.8 Billion in the week ending on Jan 12 '18.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex rose to touch new intra-day and closing highs on the back of strong buying by FIIs. DIIs joined the bull party on Wed. & Fri. (Jan 17 & 19), but were sellers on the other three days.

All three EMAs are rising, and the index is trading above them in a bull market. Sensex closed more than 3500 points above its 200 day EMA, and is looking quite overbought.

All four daily technical indicators are well inside their respective overbought zones. Slow stochastic is showing negative divergence by failing to move higher with the index.

The index looks ripe for a correction. If and when it occurs - it usually does when you least expect it - the technical 'health' of the chart will improve, enabling it to move higher.

Don't get too encouraged by India Inc. declaring good results for Q3 (Dec '17) because the growth is occurring from a lower base due to the adverse effect of demonetisation in Nov '16.

Look for companies declaring disappointing Q3 results. Those are the ones to trim from portfolios. Tata Steel has announced a large Rs 128 Billion rights issue in Feb '18, which will suck out a lot of cash from the secondary market.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty climbed to a new high on Fri. Jan 19 on the back of combined buying by FIIs and DIIs.

The index is trading well above its rising weekly EMAs in a bull market. Weekly technical indicators are inside their respective overbought zones. RSI and Slow stochastic are showing negative divergence by moving sideways.

Note the sliding volume bars during the past two weeks. That doesn't augur well for bulls. Don't sell in a panic. But some partial profit booking can be a good idea.

Nifty's TTM P/E has increased to 27.44 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is bouncing around inside its overbought zone, and can limit index upside

Bottomline? Sensex and Nifty charts have closed at new highs once again. Q3 (Dec '17) results of India Inc. are showing earnings improvement mainly due to lower base effect. Avoid aggressive buying at a market top.

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