Long-term index trend & momentum: Technicals for week ending

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 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).

Most of the broader indices & sectoral indices are trading above their respective 40 week moving averages. IT & Pharma are weak and below their 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.

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. The Bollinger Bandwidth on the Bank-Nifty is at its lowest level in years and with price at resistance we have to let the price do the talking before anticipating a breakout/down.

The FII positioning continues to be net long in the index futures segment and on the VIX projected range the highest projected index reading comes in the 8600-8650 zone.

Negatives: (there is always some bad news!)

The Auto/FMCG and Bank/FMCG weekly ratio charts are flattish and below their 40 week MA. Though, a flat to uptrending ratio has been good for Nifty in the past instances.

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 is still on the bullish side with more positives vs negatives. RISK’s 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.

Nifty Weekly chart :