Sunday, April 8, 2018

Sensex, Nifty charts (Apr 06, 2018): bulls fight back

FIIs have turned bears again. Their net selling during the first week of trading in FY 18-19 was worth Rs 13.6 Billion. DIIs were net buyers of equity worth Rs 26.6 Billion, as per provisional figures.

Both Sensex and Nifty broke out above downward-sloping channels within which they were correcting during the previous 6 weeks. Sensex gained 2% and Nifty gained 2.1% on a weekly closing basis.

Nikkei India's Services PMI improved from 47.8 in Feb '18 to 50.3 in Mar '18. The Composite PMI (Manufacturing + Services) rose from 49.7 in Feb '18 to 50.8 in Mar '18. A number >50 indicates expansion.

BSE Sensex index chart pattern

After a failed attempt to cross above the upper edge of the downward-sloping channel, followed by a drop to seek support from the 200 day EMA on Wed. Apr 4, the daily bar chart pattern of Sensex overcame resistance from its 20 day EMA and broke out above the channel on Thu. Apr 5.

RBI's status quo on interest rates helped the bullish cause, but there is no need to celebrate just yet, as resistance from the 50 day EMA plus proximity to the upper edge of 'Support/Resistance zone 1' (at 33800) prevented the index from rallying further. 

By crossing above the downward-sloping channel, Sensex is trying to retrace the 3960 points fall from the Jan 29 top of 36444 to the Mar 23 low of 32484. Fibonacci retracement levels of 38.2% and 50% means near-term upward index targets of about 34000 to 34450.

Both those retracement levels are below the 'gap' formed on Feb 5. Bears will remain in control as long as Sensex trades below the 'gap'.

Daily technical indicators are turning bullish - hinting at some more index upside. MACD has crossed above its signal line in bearish zone. ROC has entered bullish zone after crossing above its 10 day MA. RSI is again facing resistance from its 50% level. Slow stochastic is rising towards its overbought zone.

With Q4 (Mar '18) results season upon us, small investors should select their 'buy list' carefully from the better performers. Even during the correction, some stocks out-performed the Sensex by correcting less or rising higher.

NSE Nifty index chart pattern

Good support from the 50 week EMA and oversold weekly ROC and Slow stochastic indicators triggered a breakout above the downward-sloping channel within which the weekly bar chart pattern of Nifty had been correcting for the previous 6 weeks.

The index is facing resistance from its 20 week EMA. Above it is the longer-term 'support/resistance' level of 10490.

The index may be retracing the 1220 points fall from the lifetime Jan '18 high of 11172 to the Mar '18 low of 9952. Fibonacci retracement levels of 38.2% and 50% means near-term upward index targets of about 10400 to 10550.

Both those retracement levels are below the 'gap' formed on Feb 5. Bears will continue to dominate as long as Nifty trades below the 'gap'.

Weekly technical indicators have stopped falling and are trying to turn up - hinting at some more index upside. But the correction is not over yet.

Nifty's TTM P/E has moved up to 25.65 - which is well above its long-term average. The breadth indicator NSE TRIN (not shown) has started falling in oversold zone, and can lead to some more index upside. 

Bottomline? Sensex and Nifty charts have broken out above downward-sloping channels, but it is too soon for bulls to celebrate. Several recent IPOs have diverted liquidity from the secondary market. Some more correction and/or consolidation is likely. Await Q4 (Mar '18) results before rushing in to buy/sell.

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