Sunday, July 29, 2018

Sensex, Nifty charts (Jul 27, 2018): bulls finally on top after 6 months

FIIs decided to join the bull bandwagon, and were net buyers of equity on four out of five trading days last week. Their total net buying was worth Rs 23.6 Billion. DIIs were also net buyers of equity on four out of five trading days. But their net selling on Thu. Jul 26 exceeded their total net buying by Rs 15.7 Billion, as per provisional figures.

India's gold imports, which has an adverse impact on Current Account Deficit (CAD), increased 22.3% to US $33.65 Billion in FY 2017-18 against US $27.51 Billion in FY 2016-17 and US $31.7 Billion in FY 2015-16. 

FDI in the food processing sector rose 24% to US $0.9 Billion in FY 2017-18 against US $0.73 Billion in FY 2016-17 and US $0.5 Billion in FY 2015-16.

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 combined FII and DII buying. Though led by large-cap stocks, there were signs of beaten up mid-cap and small-cap stocks joining the rally.

The up trend line drawn through Mar '18 and Jun '18 lows should act as near-term support for the index rally. All three EMAs are rising, and Sensex is trading above them in a bull market.

Bears have been routed, and it is time for bulls to celebrate. However, daily technical indicators are looking overbought. ROC is showing negative divergence by touching a lower top.

An index can remain overbought for long periods. That doesn't mean investors should throw caution to the wind and jump in with both feet. Euphoria at an all-time high can cause wealth destruction if stocks are not picked very carefully.

Large-cap stocks that have led the rally so far may undergo rotation. (TCS and HUL stocks have been correcting of late.) Mid-cap and small-cap stocks will attempt to play catch-up, but are likely to face profit booking from those stuck at higher levels.

NSE Nifty index chart pattern



After struggling for 6 months, Nifty has finally managed to move above its previous top of 11172 and closed at 11278. An up trend line drawn through the Mar '18 and Jun '18 lows should act as near-term support to Nifty's rally.

The index is trading above its two weekly EMAs in a long-term bull market, and should rise higher. Don't expect a one-way rally, as profit booking is inevitable at a new high.

Weekly technical indicators are looking overbought and showing upward momentum. MACD is rising above its signal line in bullish zone. ROC, RSI and Slow stochastic are inside their respective overbought zones. RSI is showing negative divergence by not rising higher with the index. 

Remember that an index can remain overbought for long periods. If you have missed the rally by not holding large-cap stocks in your portfolio, don't go 'all in' now. Enter in SIP mode, or wait for dips to enter/add. 

Nifty's TTM P/E is 28.02 - which is well above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone, and can limit near-term index upside.

Bottomline? Bulls have finally broken out of bear grips on Sensex and Nifty chartsSome profit booking can be expected at new highs. Bear markets in Midcap and Smallcap indices remain worrying signs.

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