Technicals for week ending – 9th December 2016.

Note : This is not a recommendation and I am not a registered analyst, these are just data points and an assessment of the positives and negatives from a longer term point of view.

Nifty Weekly

As the Index PE ratio is around 22 the most likely scenario over the longer term is either we consolidate around these levels or fall further while a sharp run up will put us in mania territory either ways the end result for all 3 scenarios doesn’t warrant putting more money to work around here.

Observations (Charts below)

1 – For the Nifty & its highest weightage constituent – Bank Nifty – both indices are between massive support & resistance zones and stochastics for both indices are in oversold territory. Given the December seasonality and light trading activity shorter term outlook looks to be a bit on the positive side.

2 – Also, lending support to the above point is that the FII flows in the index futures segment is on long side and client category positioning in the index options long segment is not at an extreme level. In the past year, we have seen that when the Client category index put long/call long ratio hits extreme levels there is some short-term reversal.

3 – Now on the longer-term perspective the Nifty/Bond ratio for the total return indices is below its 40-week moving average suggesting that over the longer-term bonds may outperform Nifty.

4 – Most of the Individual sectors are below their 40-week MA but broader indices are still holding up. Current situation seems a bit similar to the Mar’15 top when individual sectors were the first to lose their 40-week MA followed by the broader market.

5 – On the intermarket strength perspective the Metals and Energy index still continue to outperform and have been in the top 2 ranks based on RS ratio and have also been in the top 2 based on the short term momentum model - Sector Momentum Update . Also, Energy looks promising to be a potential outperformer from a longer term perspective and in case you missed it I had written about it few weeks ago here - Energy Index – Potential Outperformer ?

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