Saturday, August 17, 2019

Sensex, Nifty charts (Aug 16, 2019): fight back by bulls fizzling out?

In a holiday-shortened trading week, FIIs were net sellers of equity on Tue. and Fri. (Aug 13 and 16), but were net buyers on Wed. Aug 14. Their total net selling was worth Rs 3.6 Billion. DIIs were net buyers on all three trading days of the week. Their total net buying was worth Rs 28.8 Billion, as per provisional figures.

India's CPI based inflation eased marginally to 3.15% in Jul '19 from 3.18% in Jun '19 due to softening fuel prices. CPI inflation was 4.17% in Jul '18. WPI based inflation dropped to a multi-year low of 1.08% in Jul '19 from 2.02% in Jun '19. WPI inflation was 5.27% in Jul '18.

India's merchandise exports grew 2.25% to US $26.3 Billion in Jul '19 against $25.75 Billion in Jul '18. Imports declined 10.4% to $39.76 Billion in Jul '19 against $44.39 Billion in Jul '18. Trade deficit narrowed to $13.46 Billion in Jul '19 from $18.64 Billion in Jul '18.

BSE Sensex index chart pattern


Within a larger 'broadening top' pattern, the daily bar chart pattern of Sensex appears to be forming a 'rising wedge' pattern from which the likely breakout is downwards.

A sharp fall on Tue. Aug 13 dropped the index back inside the 'support zone' (between 35900 and 37100). Sensex bounced up above the 'support zone' on the back of combined FII and DII buying on Wed. Aug 14 and closed the truncated week of trading below its three EMAs in bear territory.

Daily technical indicators are looking neutral to bearish. MACD has crossed above its signal line in bearish zone. ROC, RSI and Slow stochastic have moved up towards their respective neutral zones, but are not showing much upward momentum. 

There have been rumours of tax tweaks for FIIs and a stimulus package for the economy as finance ministry and PMO officials have been huddling together to find some way out of the economic mess they have created. 

Any 'band aid' policy adjustments are unlikely to provide more than a short-term boost to sentiment. Inverted bond yield curves in Europe and USA may be giving an early warning of a global recession. 

Negative sentiment and economic uncertainty are not conducive to bullish animal spirits, but they are ideal for bearish animal spirits. Expect more near-term downside and some consolidation before lower base effect kicks in from Q3 (Dec '19) onwards.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty moved above the 11100 level intra-week, but dropped back to close inside the 'support zone' (between 10700 and 11100) - losing about 0.6% on a weekly closing basis.

The index continued to trade inside a large 'broadening top' pattern and below its 20 week and 50 week EMAs. Bears are threatening to take complete control of the chart. Bullish response has not been very forceful.

Weekly technical indicators are looking neutral to bearish. MACD is below its signal line, and has fallen to its neutral zone. ROC is below its falling 10 week MA and is moving sideways inside oversold zone. RSI has bounced up from the edge of its oversold zone. Slow stochastic is moving sideways at the edge of its oversold zone

Nifty's TTM P/E has moved down to 27.33 - which is above its long-term average in overbought zone. Despite a sharp fall, the breadth indicator NSE TRIN (not shown) remains well inside its oversold zone. Some near-term index upside or some consolidation is possible.

Bottomline? Sensex and Nifty charts are consolidating near long-term support zones. Rumours of an economic stimulus and a tax tweak for FIIs have raised hopes of battered bulls. Small investors should remain on the sidelines. 

Sunday, August 11, 2019

Sensex, Nifty charts (Aug 09, 2019): bulls fight back on rumours of re-look at tax proposals

FIIs were net sellers of equity during the first four days of the week, but were net buyers on Fri. Aug 9. Their total net selling was worth Rs 47.4 Billion. DIIs were net buyers on all five days of the week. Their total net buying was worth Rs 55.9 Billion, as per provisional figures.

India's Index of Industrial Production (IIP) slipped to a low of 2% in Jun '19, against 4.6% in May '19 and 7% in Jun '18. For the Apr-Jun '19 period, IIP grew 3.6% against 5.1% during Apr-Jun '18.

Instead of taking swift steps to address the serious downturn in the economy, the government has chosen to divert attention by muscle-flexing in Kashmir - a strategy that paid rich dividends before the Lok Sabha elections.

BSE Sensex index chart pattern



Oversold technical indicators triggered a technical bounce on the daily bar chart pattern of Sensex. The possibility was mentioned in last week's post.

After an intra-day breach of the lower (falling) trend line of a 'broadening top' pattern on Mon. Aug 5, the index bounced up to close above the trend line, but well inside the 'support zone' (between 35900 and 37100).

Two days of consolidation within the 'support zone' was followed by a breakout above 37100 on Thu. Aug 8, and another breakout above the 200 day EMA on Fri. Aug 9.

The falling 20 day EMA provided temporary resistance on Friday. However, the index may attempt to rise further next week.  

Daily technical indicators are showing upward momentum after correcting oversold conditions. MACD is poised to cross above its falling signal line in bearish zone. ROC, RSI and Slow stochastic have emerged from their respective oversold zones. 

The Finance Minister has been meeting with various industry representatives to assess the steps required to revive the economy. Wish she had paid more attention to their suggestions before preparing her maiden budget.

Rumours of tweaks in taxation proposals, which triggered the short-covering bounce, have remained rumours so far. Any minor tweaks - should they occur - may not enthuse FIIs to stop selling.

NSE Nifty index chart pattern



The following comment was made in last week's post on the weekly bar chart pattern of Nifty: "The breadth indicator NSE TRIN (not shown) has risen well inside its oversold zone, and can trigger a near-term index bounce."

The expected bounce formed a weekly 'reversal' bar (lower low, higher close) as the index took support from the lower (falling) trend line of a 'broadening top' pattern and closed just above the 11100 level, but faced resistance from the 50 week EMA.

Weekly technical indicators are looking bearish. MACD is below its signal line, and is falling towards neutral zone. ROC is below its falling 10 week MA and is moving sideways inside its oversold zone. RSI has bounced up from the edge of its oversold zone. Slow stochastic has slipped inside its oversold zone

Nifty's TTM P/E has moved up to 27.41 - which is above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is well inside its oversold zone, hinting at some more near-term index upside.

Bottomline? Sensex and Nifty charts have recovered from long-term support zones due to short covering on rumours of a likely tax tweak for FIIs. Small investors should remain cautious and stay on the sidelines. 

Friday, August 9, 2019

Adapt To A Bear Market

Witnessing a bear market for stocks doesn't have to be about suffering and loss, even though some cash losses may be unavoidable.

Instead, investors should always try to see what is presented to them as an opportunity - a chance to learn about how markets respond to the events surrounding a bear market or any other extended period of dull returns.

Read on to learn about how to weather a downturn:

https://www.investopedia.com/articles/younginvestors/08/bear-market.asp

Wednesday, August 7, 2019

Nifty chart: a midweek technical update (Aug 07, 2019)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 45.1 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 46.9 Billion, as per provisional figures.

IHS Markit India's Services PMI rose to a 1 year high of 53.8 in Jul '19 from 49.6 in Jun '19. A figure above 50 indicates expansion. The Composite PMI (Manufacturing + Services) rose to an 8 month high of 53.9 in Jul '19 from 50.8 in Jun '19.

RBI cut the repo rate by 35 bps (0.35%) to 5.4% today, and kept the door open for lowering rates further but flagged worries over economic growth prospects. It was the fourth straight cut in repo rate since Feb '19.



An interesting pattern according to Corrective Fan Principle is developing on the long-term weekly bar chart pattern of Nifty. Note the effects of the two trend lines - TL1 and TL2 - which are also called fan lines.

TL1 has been drawn through the lows touched in Feb '16 and Dec '16. This up trend line was breached in Oct '18. Nifty found support at 10000, and resumed its up move. Though the index touched a lifetime high of 12103 in Jun '19, it faced strong resistance from TL1.

TL2 has been drawn through the lows touched in Feb '16 and Oct '18. This second up trend line was breached last week. A third up trend line - TL3 - will be drawn once the ongoing correction finds an interim bottom.

The Fan Principle states that a downward breach of (a not-yet-drawn) TL3 will signal the beginning of a bear market. Such a situation may not arise if the index bounces up from the support zone between 9700 and 10000 and moves above TL2. (Nifty's 200 week EMA is within this support zone.)

Weekly technical indicators are looking bearish. MACD is falling rapidly below its signal line and is poised to enter bearish zone. RSI is falling below its 50% level. Slow stochastic has fallen inside its oversold zone. Expect some support in the zone between 10500 and 10800.

Nifty's TTM P/E has moved down to 26.74, but remains inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is well inside its oversold zone and can limit near-term index down side.

Thanks partly to heavy selling by FIIs, the Rupee is touching 71 against the US Dollar. That may negate any positive effect of the 35 bps interest rate cut by RBI. When sentiment turns bearish, even good news attracts selling.

Nifty is trying to find support at the 10800 level. But the support may not hold for long.

Sunday, August 4, 2019

Sensex, Nifty charts (Aug 02, 2019): bears have bulls on the ropes

FIIs continued their heavy net selling of equity during the week. Their total net selling was worth Rs 67.9 Billion. DIIs more than matched FII selling, but couldn't prevent sharp falls in Sensex and Nifty. Their total net buying was worth Rs 82.8 Billion, as per provisional figures.

The automobile sector remained in slide mode during Jul '19. Sales tumbled across categories due to weak consumer sentiment. Passenger vehicle sales fell over 30% - worse than the 24.6% fall back in Nov '08.

Gross GST collections during Jul '19 was Rs 1.02 Trillion - marginally up from Jun '19, and 5.8% higher than Jul '18 collection. 

Nikkei India's Manufacturing PMI rose to 52.5% in Jul '19 from 52.1% in Jun '19. A figure above 50% indicates expansion. Growth was driven by domestic demand, while growth in export orders slowed to its lowest level in 15 months.

BSE Sensex index chart pattern



The following comment appeared in last week's post on the daily bar chart pattern of Sensex: "A breach of the 200 day EMA will be quite bearish, and can drop the index to the support zone between 35900 and 37100."

On Mon. Jul 29, the index breached its 200 day EMA intra-day, but bounced up to close above it. The next day, the index fell and closed below its 200 day EMA in bear territory.

On Wed. Jul 31, the index dropped to test support from the 37100 level and bounced up to test resistance from its 200 day EMA. The next day, Sensex fell and closed inside the support zone between 35900 and 37100.

On Fri. Aug 2, the index formed a 'reversal day' bar (lower low, higher close) and bounced up to close just above 37100 - giving some respite to bulls.

Note that Sensex appears to be in the midst of a 'broadening top' pattern, which has bearish implications. If the pattern plays out, there could be a rally that propels the index to a new high. But the subsequent correction can be devastating. So, trade at your own peril.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line towards its oversold zone. ROC is facing resistance from its 10 day MA after emerging from its oversold zone. RSI has re-entered its oversold zone after briefly emerging from it. Slow stochastic is trying to emerge from its oversold zone. A technical bounce is a possibility.

There were rumours in the market on Friday about the government considering some tax relief for FIIs, which set off short-covering in an oversold market. Remember the market adage: Buy the rumour; sell the news.

NSE Nifty index chart pattern



The following comment appeared in last week's post on the daily bar chart pattern of Nifty: "A breach of the 50 week EMA will be quite bearish, and can drop Nifty to the support zone between 10700 and 11100."

As expected, the breach of its 50 day EMA by the index dropped it further to close inside the support zone between 10700 and 11100.

During the past four months. Nifty appears to have formed a bearish 'broadening top' pattern. If the pattern plays out, a rally to a new high followed by a deeper correction may occur. 

Weekly technical indicators are looking bearish and oversold. MACD has crossed below its signal line, and is falling rapidly in bullish zone. ROC faced resistance from its falling 10 week MA and has dropped inside its oversold zone. RSI and Slow stochastic have dropped to the edges of their respective oversold zones

Nifty's TTM P/E has moved down to 27.09 - but remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen well inside its oversold zone, and can trigger a near-term index bounce.

Bottomline? Sensex and Nifty charts are testing long-term (3.5 yr) up trend lines (not shown). Breach of the trend lines can trigger bear phases and lower levels on both indices. Small investors should remain cautious and concentrate on wealth protection.

Friday, August 2, 2019

Factors to Consider When Evaluating Company Management

Most investors realize that it's important for a company to have a good management team. 

The problem is that evaluating management is difficult. So many aspects of the job are intangible. 

It's clear that investors can't always be sure of a company by only poring over financial statements.

Read more at:
https://www.investopedia.com/articles/02/062602.asp

Wednesday, July 31, 2019

Nifty chart: a midweek technical update (Jul 31, 2019)

Except Jul 1, FIIs have been net sellers every single day during Jul '19. Their total net selling of equity during the month was worth Rs 198.70 Billion. Except Jul 1, DIIs have been net buyers every single day during Jul '19. Their total net buying of equity during the month was worth Rs 203.90 Billion, as per provisional figures. 

The government's fiscal deficit during Apr-Jun '19 touched Rs 4.32 Trillion, which is 61.4% of the budget estimate of Rs 7.03 Trillion for FY 2019-20. During Apr-Jun '18, the fiscal deficit was 68.7% of the budget estimate. Revenue receipts during Apr-Jun '19 was 14.4% of the budget estimate against 15.5% during Apr-Jun '18.

The sad episode of the Cafe Coffee Day founder has been a blow to the coffee sector, and brought 'ease of doing business' - or the lack of it - to the fore. Entrepreneurs take huge risks to set up businesses, and provide jobs to many, but tax terrorism can push the honest ones over the edge. The dishonest flout every rule and get away with it.


The daily bar chart pattern of Nifty is teetering on the brink of a bear market. On Jul 8, 9 and 10 the index had breached the lower Bollinger Band. The subsequent technical bounce faced strong resistance from the middle Bollinger Band (i.e. 20 day SMA - dotted green line) on Jul 17.

Nifty dropped sharply to the lower Bollinger Band on Jul 19. Since then, the index has been sliding down along the lower Bollinger Band - breaching technical supports in quick succession on the back of selling by FIIs. 

Two important technical points to note are: (1) a fall below the 200 day EMA (in blue) into bear territory on Jul 24-25, followed by a pullback on Jul 26; (2) a fall below the 200 day SMA (in red) and the previous (May 14) low of 11108 on Jul 30, followed by a pullback today.

Daily technical indicators are looking oversold. MACD is below its signal line and is falling inside its oversold zone. RSI is trying to emerge from its oversold zone. Slow stochastic is moving sideways well inside its oversold zone. Nifty may try to move up to the 11300-11400 zone. Expect bears to 'sell on rise'.

Nifty's TTM P/E has moved down to 27.42, but remains well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen high inside its oversold zone - hinting at some near-term index upside.

The breaches of the 200 day EMA and 200 day SMA are clear indications that Nifty is ready to fall into a bear market. The technical confirmation of a bear market will be provided by the 'death cross' of the 50 day EMA below the 200 day EMA.

Though the 50 day EMA is falling towards the 200 day EMA, it is still 260 points above the long-term moving average. That gives bulls a bit of wiggle room. But avoid bottom fishing. Use any near-term upside to book profits.