Sunday, January 15, 2017

Sensex, Nifty charts (Jan 13, 2017): game over for bears?

FIIs were net sellers of equity worth Rs 11 Billion, as per provisional figures. DIIs were net buyers of equity worth Rs 8.8 Billion. However, both Sensex and Nifty gained nearly 2% during the week.

There was some cheer on the economic front. The IIP number for Nov '16 was a surprising 5.7% against -1.8% in Oct '16 and -3.4% in Nov '15. Any adverse effect of demonetisation may become apparent from the Dec '16 number.

CPI inflation in Dec '16 slipped to 3.41% against 3.63% in Nov '16 and 5.61% in Dec '15 due to weak consumer demand. 

Exports rose for the 4th straight month to 5.72% in Dec '16. Imports rose only 0.46%, thanks to lower gold imports, leaving a lower trade deficit of $10.4 Billion.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex slid down the slope of the down trend line on Mon. Jan 9 before bouncing up and closing above its three EMAs in bull territory for the next four days.

On Fri. Jan 13, the index rose to test resistance from the 27600 level but fell short. It closed slightly lower to form a 'reversal day' bar (higher high, lower close) - giving some encouragement to bears.

Note that the three EMAs are converging, which is often a prelude to a sharp move. But in which direction?

Daily technical indicators are giving some clues. All four are in bullish zones. MACD is rising above its signal line in positive territory. But RSI and Slow stochastic are looking quite overbought. ROC faced strong resistance from the edge of its overbought zone and is about to cross below its rising 10 day MA.

A pullback to the 200 day EMA seems on the cards. A subsequent strong upward bounce can carry the index above the resistance level of 27600. 

Be aware that both FIIs and DIIs were net sellers on Thu. and Fri. If they don't resume buying, the index may consolidate sideways within the 'support-resistance' zone between 25900 and 27600 for a while.

Stock picking skills will get tested. Avoid 'cheap' stocks.

NSE Nifty index chart pattern

The inevitable happened. The weekly bar chart pattern of Nifty followed the example of Sensex and crossed above the resistance level of 8300 and the blue down trend line that had dominated the chart for 18 weeks.

Good volume support technically validated the 'double bottom' reversal pattern and the break out above the down trend line.

All four weekly technical indicators are still in bearish zones, but turning bullish by showing upward momentum.

A pullback to the down trend line and the 8300 level can't be ruled out. But technically, the index is poised to move higher.

Nifty's TTM P/E has moved towards 22.50 - higher than its long-term average. The breadth indicator NSE TRIN (not shown) is inside its overbought zone. Some correction or consolidation is likely. 

Bottomline? Sensex and Nifty charts have finally reversed 4 months long down trends after forming 'double bottom' reversal patterns. Bears are losing the war, but may put up a last-ditch battle. FII buying support is required for a sustained rally. Check Q3 (Dec '16) results before taking any major buy/sell decisions.

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