Sunday, July 15, 2018

Sensex, Nifty charts (Jul 13, 2018): bulls overcome bear resistance

FIIs were net sellers of equity on four out of five trading days last week. Their total net selling was worth Rs 18 Billion. DIIs were net buyers of equity on all five days. Their total net buying was worth Rs 22.9 Billion, as per provisional figures.

In twin setbacks for India's economy, CPI inflation increased to 5% in Jun '18 from 4.87% in May '18 while IIP moderated to a 7 months low of 3.2% in May '18 from 4.7% in Apr '18.

India's trade deficit widened to a 5 year high of US $16.6 Billion in Jun '18 from US $14.6 Billion in May '18 due to a surge in oil prices and a weaker Rupee against the US Dollar. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex shows that bulls have successfully overcome the resistance of bears - thanks to sustained buying by DIIs. The down trend line that dominated the chart for more than 5 months has been comprehensively breached.

The index touched a new lifetime high of 36740 on Fri. Jul 13, but closed a shade lower to form a small 'reversal day' bar that can lead to a pullback towards the breached down trend line. That may be an opportunity for entry for those who missed buying on the break out.

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone; RSI has entered its overbought zone. Both are showing negative divergences by failing to touch new highs with the index. ROC and Slow stochastic have started to move down inside their respective overbought zones.

Sensex is trading well above its three rising EMAs in a bull market. However, just a handful of index stocks have been mainly responsible for the rally from the Mar '18 low. The broader market - particularly mid-cap and small-cap stocks - have not participated in the rally so far.

That can change if Q1 (Jun '18) results of India Inc. start to show earnings improvement. Stock picking skills will get tested at a market top. It is better to err on the side of caution. Use the SIP approach. Avoid impulsive buying in bulk. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty finally breached the down trend line that had dominated the chart for the previous 23 weeks. Note that the surge in volumes that technically validates an upward breakout was missing. A pullback towards the trend line is a possibility.

The index is trading well above its two rising weekly EMAs in a bull market. Any pullback towards the trend line can be a buying opportunity.

Weekly technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. ROC is about to cross above its 10 week MA and enter its overbought zone. RSI and Slow stochastic are moving sideways inside their respective overbought zones, and showing negative divergences by failing to rise higher with the index.

Nifty's TTM P/E has moved up to 27.38 - which is well above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) has dropped towards its overbought zone, hinting at some correction or consolidation.

Bottomline? Bulls have overcome four straight weeks of strong bear resistance by triggering a break out above down trend lines on Sensex and Nifty chartsSome  consolidation or correction will improve the technical 'health' of the charts. No need to feel euphoric yet, as only a few large-cap stocks have been responsible for the rallies from the lows of Mar '18.

(NoteThere are always opportunities in the stock market if you know where to look. Learn how to choose fundamentally strong mid-cap and small-cap stocks. Become a paid subscriber of my Monthly Investment Newsletter today. A limited number of new subscriptions are being offered till Jul. 21, 2018. Contact me for details: 

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