Wednesday, July 20, 2016

Nifty chart: a midweek update (Jul 20 '16)

Road construction companies have reasons to rejoice. NHAI Chairman announced yesterday that 10,000 KM of roads and national highways projects will be awarded for physical construction during FY 2016-17.

Government's capital infusion of Rs 23,000 Crores for 13 PSU banks will cause dilution of book value per share for banks with larger capital allocation relative to their Tier 1 capital, as per investment bank Jefferies.

FIIs have been net buyers of equity worth Rs 1350 Crores this week, as per provisional figures. DIIs were net sellers of equity worth Rs 850 Crores. Nifty gained just 22 points in the three days of trading.  



The daily bar chart pattern of Nifty has been consolidating sideways for the past 7 trading sessions in a 120 points range (between 8475 and 8595).

All three EMAs are rising, and the index is trading above them in a bull market. Periodic corrections and consolidations have kept the chart technically 'healthy', allowing the index to move higher.

Daily technical indicators are looking overbought. MACD and Slow stochastic are inside their overbought zones. RSI is about to re-enter its overbought zone.

Indicators can remain overbought for long periods during bull rallies. That doesn't mean one should throw caution to the winds. 

The breadth indicator, NSE TRIN (not shown), is inside its overbought zone - hinting at some more consolidation or correction.

FIIs are buying on dips. That is preventing the index from correcting sharply despite overbought conditions. 

Index valuation is quite high (rising from a P/E of 18.9 on Feb 29 '16 to 23.49 today) - limiting index upside. It may be better to look for value among individual stocks from companies declaring good Q1 (Jun '16) results.

[Have you missed the bull rally? Want to learn which mid-cap and small-cap stocks to pick for long-term returns? Subscribe to my Monthly Investment Newsletter today. Subscriptions will remain open for one more day - till July 21, 2016.]

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