Nifty Weekly Analysis for the week ending 19 January 2018

Sensex opened the week at 34687, made a high of 35542, low of 34687 and closed the week at 35512. Thus it closed the week with a gain of 919 points (2.66%). At the same time the Nifty opened the week at 10718, made a high of 10907, low of 10667 and closed the week at 10895. Thus the Nifty closed the week with a gain of 213 points  (2.00%).

Let us discuss few observations on last week/month Indian benchmark movements. 

1. Market continued its rally for seventh straight week, conquering new milestones as Sensex made a new record highs of 35,511.58, while Nifty closed at all-time historic high at 10,894.70.  Since 2012 it is first time Indices made seven straight gain.   Considering the same situation Nifty can make a correction up to 10300-400 level. 
2. Nifty P/E level reached 27.44 on Friday.  All-time high of Nifty P/E is 28.47 in 2000.  Same time Sensex P/E ratio reached at 26.06. All-time high of Sensex P/E is 29.39 in June 2000.  This ratio indicates that the benchmark index could well be in a bubble territory as of now. Sensex lost around 4000 points within a quick span of one month during the 2008 financial crisis. At that time, Sensex was trading at a P/E ratio of around 28.  So Investors and Traders should take a careful approach of trading. 
3. Midcap and Small Cap not participated in the current rally.  Also when Sensex made mere a 70 point drop on Thursday many midcaps burnt badly.  So There is a clear divergence is visible Sensex versus Midcap and Small Cap. 
4. Time wise Indices took 31 days from 6^th December to achieve 874 points.  In all previous upswings it took only 24-25 days maximum  and maximum 803 points, after that a correction of 400 point happened.  So considering this market is maturing for a correction. 
5. Bearish Divergence still persists in RSI. Daily stochastic and RSI in overbought zone.  
6. The above signals are not adequate for shorting the Market.   More signal required for that. 
7. On the daily charts, on Friday, both the indices have formed a real white body candle.  On the weekly charts, Sensex has formed a big Opening White body Marubuzo, whereas Nifty has formed a big white body candle. Thus daily as well as weekly candlestick pattern suggests a bullish bias in the near term.
8. There are two gaps are formed.  One is on this week, both the indices opened with an Upward Gap between Sensex 34687-34638 and Nifty 10713-10690. This gap is likely to act as Support in the near term. Similarly two weeks back, the indices had formed a bullish Gap between Sensex 34020-33995 and 10520-10513 on the Nifty..
9. Global financial markets: Global stock markets ended the week on a positive note
10. On Weekly basis, FII were buyers in the cash segment and DIIs were sellers.  Current bull market mainly driven by Domestic Institutional Investors.   Now DIIS are started booking profit and FIIS are started buying.  So there is a sharp corrections in DIIS invested stocks and bullish movement is visible in FIIS invested stocks like HDFC Bank, ICICI bank etc. 
11. Options data for January series indicate highest Call Open Interest is at the strike of 11000 whereas the highest Put build-up has shifted higher at the strike of 10500. Thus Options data suggests a trading range with resistance at 11000 & support at 10500.  Open Interest additional visible at put strike of 10800 and 10900 which indicate bullish optimism of Traders.  Open Interest unwinding seen in call option 10900 and 11000.