Friday, October 27, 2017

Sensex, Nifty charts (Oct 27, 2017): bulls dominating again

Both DIIs and FIIs were net buyers of equity during F&O expiry week. DIIs were net buyers on 3 days and net sellers on 2 days. Their total net buying was worth Rs 2.8 Billion, as per provisional figures. 

FIIs were net buyers worth Rs 11.8 Billion. On Wed. Oct 25, they bought equity worth a huge Rs 35.8 Billion - probably due to short-covering of PSU bank stocks - following the recapitalisation announcement by the Finance Minister. They were net sellers on the other 4 days.

Sensex gained 2.4% while Nifty gained 1.7% on weekly closing basis. Both indices touched new highs.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex had been consolidating sideways along the upper edge of the downward-sloping channel since an unconvincing upward breakout on Oct 16. 

On Wed. Oct 25, Sensex broke out with an upward 'gap' above the narrow consolidation zone on the back of heavy FII buying, and rose to touch new intra-day (33287) and closing (33157) highs on Fri. Oct 27. 

All three EMAs are rising, and the index is trading above them in a bull market. However, daily technical indicators are looking overbought, which can trigger a pullback towards the downward-sloping channel. 

Note that ROC, RSI and Slow stochastic are not only showing negative divergences by failing to touch new highs with the index, but may also be forming bearish 'double top' reversal patterns inside their respective overbought zones.

The index recently completed a 10 weeks long sideways consolidation. So, there is no reason to expect a deep correction. The economy is in the process of recovery from the stresses caused by demonetisation and GST implementation.

Nevertheless, caution is advised near a market top. If you are ready to jump in due to a 'left-out' feeling - don't. The 'low-hanging fruits' have already been picked. Stock selection skills will separate the men from the boys.

If you have savings that need to be invested, follow your asset allocation plan and a gradual accumulation process rather than buying in a lump-sum.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty touched new intra-week (10366) and closing (10323) highs, and continues to trade above its rising weekly EMAs in a long-term bull market.

Weekly technical indicators are in bullish zones, and looking a bit overbought. All four are showing negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E has moved up to 26.67 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is trying to move up inside its overbought zone, which can limit index upside.

Q2 (Sep '17) results of India Inc. declared so far have shown some top line growth, but bottom line growth is still weak. Without earnings growth, index valuation will remain high. That is one of the main reasons why FIIs have been selling Indian equity.

Bottomline? Sensex and Nifty charts have risen to touch new highs. Bulls are dominating. Any corrections should be welcomed as buying opportunities. This is not the time to be greedy or fearful. Be sensible.

(Note for blog visitors: I intend to take a brief break from a big city to a more tranquil place, where access to the Internet will be limited. My next blog post will be next week's Sensex and Nifty update.)

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