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Wednesday, May 17, 2017

Nifty chart: a midweek technical update (May 17 ‘17)

Both FIIs and DIIs were net buyers of equity - worth Rs 3.6 Billion and Rs 1.5 Billion respectively - during the first three days of trading this week. Nifty rose to close above the 9500 mark for the first time ever.

Interestingly, FIIs turned net sellers today after two days of net buying while DIIs were net buyers today after two days of net selling. Reminds me of an African proverb: When two elephants fight the grass gets trampled. 

India's exports grew nearly 20% in Apr '17, but imports grew 49% due to a sharp jump in gold and oil imports. As a result, the trade deficit grew to a 29-months high of US $13.2 Billion against $4.8 Billion in Apr '16.


Strong FII buying propelled the daily bar chart pattern of Nifty to a close above the 9500 level for the first time ever on Tue. May 16. Though the index touched new intra-day and closing highs today, it was on the back of DII buying as FIIs were in profit-booking mode.

All three daily technical indicators are looking overbought. The index is trading above its three rising EMAs in a bull market, but the distance between the index and its 200 day EMA is in excess of 800 points - which is another sign of overbought conditions.

Nifty's TTM P/E has crossed above 24 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has dropped back inside its overbought zone after attempting to emerge from it.

An index can remain overbought for long periods. That doesn't mean it will be a one-way rise to new highs every day. 

If FIIs continue to book profits, a sharp correction can follow. Such a correction, if and when it occurs, will improve the technical 'health' of the chart and provide an entry opportunity.

Till then, stay invested with a trailing stop-loss and enjoy the bull ride.

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