Nifty Weekly Analysis for the week ending 19 May 2017

Nifty made bullish candle on the week ending 12^th May.  

Nifty opened the week at 9433.55, made a high of 9532.6, low of 9390.75 and closed the week at 9427.9. Thus it closed the week with a gain / loss of 27 points.  

On the 2^nd day of the week, Nifty is able to break last week high.   It also achieved 75% price-ratio with the earlier rally from March 2016 to September 2016, in 75% time.  3  times in the week  that Indian benchmarks have closed at new highs.

Stochastics and KST showing clear divergence in weekly as well as daily chart.

      

Indiavix hit the low of 8.84 on 15 May, which is lowest since 2008.  So there is a probability of high volatility  in coming days.

Nifty P/E Ratio reached 25.23on 17^th May.  

Market is made a correction 96 points on 18^th May followed by global sentiments.  On 19^th May,  Nifty tried to recover but failed to hold before noon itself and made another lower low in daily chart In the meantime Sensex made another record high (30712.35 on Friday, 19 May, but failed to hold the high and made another lower low.  A weekly doji is formed in Nifty. 

The highest Put base is at the 9300 strike while the highest Call base is at the 9500 strike.  There is a huge increase in Open Interest on 9500 CE indicate 9500 would stand strong resistance in May series.

Bank Nifty showing clear divergence compared to Nifty.  But Bank nifty is not able to break last week high.   As I have shown in a separate chart Bank Nifty made a double top and negative divergence visible in oscillators.  

Indian market is more expensive in terms of the P/E ratio compared to other major global indices including Dow Jones, S&P 500, FTSE 100, DAX, Shanghai Composite and Nikkei.   

Pease see below the valuation matrix.

Nifty P/E Ratio Valuation Matrix

Valuation	Nifty P/E Ratio Range
Very Expensive	25 to 30
Expensive	20 to 25
Average	15 to 20
Inexpensive	12 to 15
Extremely Inexpensive	Below 12

In October 2010 Nifty P/E reached  25.52.  Nifty made a high of 6284.1.  But in September Market broke that high and made peak of 6338.5.  Then it made a one year correction and made a fall of 1753 points.  

When we look one year back,  in September 2016 Nifty P/E ratio reached 24.54.  In the same month Nifty made a market top at 8968.7 and made a 4 month correction  of 1075 points.   Now it again came in the high expensive area on 17^th May,   Nifty P/E Ratio reached 25.23. 

Using only P/E ratio to buy or sell is dangerous.  The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes.  So it is not advisable to short the market now using only P/E Ratio.  Investors should be cautious in this bubble territory.   Only selective buying can initiative at this level with strict stop loss and partial profit can be taken those who hold the position. 

FII / DII data: First two days of the week FIIS are become buyers in cash segment.  Remaining days they were sellers.  So overall 987 crores FIIS sold in the cash segment.    DIIs were buyers of 1394 crores.

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