Sensex, Nifty charts (Dec 18, 2020): rising higher but showing some signs of fatigue

FIIs continued with their strong buying during the week. They were net buyers of equity worth Rs 118.06 Billion. DIIs tried their best to match them. They were net sellers of equity worth Rs 110.25 Billion. Sensex and Nifty both gained around 1.8% on a weekly closing basis.

India's CPI-based retail inflation eased marginally to 6.93% in Nov '20 from a six and a half year high of 7.61% in Oct '20 - thanks to easing of vegetable prices. WPI-based wholesale inflation rose for the fourth consecutive month to a nine months' high of 1.55%. 

In Nov '20, India's exports declined 8.74% to US $23.52 Billion while imports declined 13.32% to $33.39 Billion. The trade deficit hit a 10 months' high of $9.87 Billion. During Apr-Nov '20, exports dropped 17.76% to $173.66 Billion while imports dropped 33.55% to $215.69 Billion - leaving a trade deficit of $42 Billion.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex again touched new intra-day (47026) and closing (46961) highs during the week. FIIs continued with their strong buying while ignoring stretched index valuation. A falling US Dollar index may have motivated them to do so.

Sensex is trading well above its three rising EMAs in a long-term bull market. It has been rising within a nine months long upward-sloping channel, and is testing resistance from the upper edge of the trading channel. There is a possibility of some correction or consolidation prior to the Christmas holidays.

Daily technical indicators are in bullish zones, and looking overbought. MACD is moving sideways after merging with its signal line. ROC is moving sideways along with its 10 day MA. RSI is rising higher inside its overbought zone. Slow stochastic is rising gradually inside its overbought zone.

The farmers' agitation is being allowed to fester by an adamant government. Instead of solving the problem, farmers are being vilified and forced to hunker down in the open in extremely cold weather. The negative effects are beginning to be felt in industry, food prices and movement of goods.

Macroeconomic fundamentals have taken a back seat as the index is rising on the back of a flood of FII money. Enjoy the bull ride while it lasts, but maintain trailing stop-losses to protect profits.  

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose for the seventh straight week to close at a new high of 13760. A falling US Dollar index has resulted in strong buying by FIIs - pushing the index higher into extremely stretched valuation zone. 

The index has been rising within an upward-sloping channel for almost 9 months, and is trading well above its three rising weekly EMAs in a long-term bull market. FII buying has sustained the long rally, but there is possibility of some profit booking before Christmas holidays.

Weekly technical indicators are inside their respective overbought zones. MACD is rising above its signal line. ROC has dipped towards its rising 10 week MA. RSI and Slow stochastic are rising slowly. 

Nifty's TTM P/E has touched a new high of 37.84 - which is far above its long-term average and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) has climbed sharply from its overbought zone, and can trigger some near-term index consolidation or correction.

 

Bottomline? Sensex and Nifty charts are rising to newer highs on the back of strong buying by FIIs. Year-end profit booking by foreign fund houses is a distinct possibility. This is not a good time to look for new stock ideas. Hold existing positions with trailing stop-losses.