Technicals for week ending – 10th July 2016.

Note : This is not a recommendation, these are just observations and an assessment of the positives and negatives.

Nifty Weekly

On a longer term time-frame a lot of data sets still suggest to keep a bullish/positive stance on Nifty and Gold.

Observations & charts below:

Positives:

On the weekly time-frame we have a positive crossover of the 10 & 40-week MA. MACD is above 0 and RSI above 50 – as long as both these indicators have been above 0 & 50 there has been an upward bias as per past history. Also, a number of other indices and the Emerging markets ETF are exhibiting this same pattern hence supportive of overall positive stance.

               

The Nifty/Bond ratio is above its 40 week moving average and average of momentum across time-frames has turned in favour of Nifty. Also, the ratio has improved for the broader Nifty indices – even Mid & Small caps.

The broader indices/Nifty ratio has improved across the board suggestive of a broad based rally (refer weekly relative strength charts page above).

On a relative strength basis – Realty, Metals & Auto indices are the leaders – which sounds supportive of a bullish environment for equities.

Most of the sectoral indices are trading above their respective 40 week moving average. While All broad indices are above their 40 week moving average. IT is weak and below its 40 week moving average. With reading above the 0 line there has been a positive bias over next few weeks and months and when both these reading have hit the full score we have seen major uptrends.

Had discussed in past few posts about keeping gold in the portfolio and that view still holds, presently in Dollar terms the weekly charts of Gold & Silver are both supportive of a positive stance. Apart from the usual crossover and MACD readings, the weekly RSI reading has been highest since 2012 – indicative of a possibility of a longer term uptrend. Goldbees relative to Nifty still is holding its supports and 40 week moving average.

On the shorter daily time-frame both the Nifty & Bank-Nifty are still in their resistance zones, although the broader Nifty500 has broken out above its Oct’15 highs. Let the price breakout first.

The FII positioning continues to be net long in the index futures segment but Nifty tends to be choppy when FII’s start reducing net longs in index futures. On the VIX projected range the highest projected index reading comes in the 8600-8650 zone.

Negatives: (Now for some bad news!)

Index PE ratio is back above 1 standard deviation of its long term average and the last chart is a comparison of Nifty and earnings rebased to 100 – the spread between these two (indexed) as a percentage of indexed earnings is a tad below 100% and has usually topped out above 100%. – of course earnings have been flat for a long time now and if earnings improve so will the ratios.

To conclude – the weight of the evidence still leans towards the bullish side with more positives. RISK to this would be the Nifty and Goldbees closing below their respective 40 week moving average. A close below that moving average and I will be out.