Wednesday, August 8, 2018

Nifty chart: a midweek technical update (Aug 08, 2018)

FIIs were net buyers of equity on all three trading days this week. Their total net buying was worth Rs 11.3 Billion. DIIs were net buyers of equity on Mon. and today, but net sellers on Tue. Aug 7. Their total net selling was worth Rs 0.7 Billion, as per provisional figures.

According to an IMF report, RBI will need to gradually tighten monetary policy further due to rising inflation driven by higher oil prices, a falling Rupee, a pick-up in domestic demand and a recent hike in procurement prices of major crops by the government.

IMF also described GST as a "milestone reform" in India's tax policy but suggested a simplified dual rate structure as the multiple rates could lead to higher costs of compliance and administration.


The daily bar chart pattern of Nifty touched new highs on all three days this week as bulls have taken complete control. All three EMAs are rising, and the index is trading above them in a bull market.

Note that the 900 points rally from the Jun 28 low of 10558 is looking eerily similar to the 1100 points rally from the Dec 6 '17 low of 10033. The index had moved further and further above its rising 20 day EMA followed by a 1200 points correction.

Such sharp rallies are unsustainable for long. Keep a close watch on the (purple) up trend line drawn from the Jun 28 low. A downward breach of the trend line can trigger serious profit booking. 

Daily technical indicators are inside their respective overbought zones. MACD is rising above its signal line. RSI and Slow stochastic are rising inside their respective overbought zones, but showing negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E has moved up to 28.23 - which is much higher than its long-term average and in overbought zone. The breadth indicator NSE TRIN (not shown) is moving down in neutral zone, and hinting at some more index upside. 

A few large-cap stocks are continuing to lead the rally. Mid-cap and small-cap stocks have undergone corrections but are still trading at elevated values. More than 1500 stocks are trading below their 200 day EMAs, which is an extremely worrying sign.

No need to sell off in panic. Let your asset allocation plan guide you. Continue with monthly SIPs. But control your impulses to hunt for 'multibagger' stocks at a lifetime index high.

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