Wednesday, October 16, 2019

Nifty chart: a midweek technical update (Oct 16, 2019)

FIIs were net buyers of equity on all three trading days this week. Their total net buying was worth Rs 20.2 Billion. DIIs were net sellers of equity on Mon. Oct 14, but were net buyers on the next two trading days. Their total net buying was worth Rs 20.8 Billion, as per provisional figures.

India's CPI-based inflation in Sep '19 climbed to a 14 months high of 3.99% against 3.28% in Aug '19 and 3.70% in Sep '18 due to costlier vegetables and pulses. However, WPI-based  inflation dropped to 0.33% in Sep '19 against 1.08% in Aug '19.

India's trade deficit fell to a 7 months low of US $10.86 Billion in Sep '19, as exports contracted 6.57% to US $26.03 Billion, while imports dropped to a 3 year low of US $36.89 Billion - indicating weak demand in a slowing economy.


The daily bar chart pattern of Nifty has been rallying on the back of FII buying during the past four trading sessions. The index has closed above its three EMAs in bull territory.

Further upside is likely, but the (purple) down trend line and the downward 'gap' formed on Jul 8 (i.e. the zone between 11600 and 11800) is expected to provide strong resistance. 

Daily technical indicators are in bullish zones. MACD has just crossed above its signal line. RSI is rising above its 50% level. Slow stochastic is above its 50% level, but not showing strong upward momentum. 

Nifty's TTM P/E has moved up to 26.48, which is well inside its overbought zone and higher than its long-term average. The breadth indicator NSE TRIN (not shown) has fallen from its oversold zone, hinting at some more near-term index upside.

Despite a good monsoon and low inflation, macroeconomic fundamentals are looking weak. Commercial vehicle sales are down. So are imports and exports. These are signs of a struggling economy.

Q2 (Sep '19) results declared so far have been more or less as per expectations. That is good news. However, top line and bottom line pressure are clearly visible. The rest of the earnings season is unlikely to throw up many positive earnings surprises.

The stock market tends to 'discount' bad news in advance. That means selective buying in fundamentally strong stocks can be initiated. But stay with market leaders among large-cap stocks. The pain in mid-cap and small-cap stocks is going to last a while longer.

Sunday, October 13, 2019

Sensex, Nifty charts (Oct 11, 2019): consolidating below down trend lines

In a holiday-shortened trading week, FIIs were net buyers of equity on Fri. Oct 11, but net sellers on the other three days. Their total net selling was worth Rs 4.9 Billion. DIIs were net sellers of equity on Fri., but net buyers on the other three days of the week. Their total net buying was worth Rs 16.6 Billion, as per provisional figures.

India's Index of Industrial Production (IIP) contracted 1.1% in Aug '19 against a growth of 4.8% in Aug '18. This was the sharpest decline in industrial growth since Feb '13. During the Apr-Aug '19 period, IIP was 2.4% against 5.3% during Apr-Aug '18.

According to RBI's Monetary Policy Report, forward-looking indicators suggest that world trade is likely to slow down further in 2019. The Indian economy, which is already facing a slow down, may face the heat even more.

BSE Sensex index chart pattern



After closing below its three EMAs in bear territory on Mon. Oct 7, the daily bar chart pattern of Sensex got re-energised during the Dussehra holiday on Oct 8, and bounced up to close above its three EMAs in bull territory. 

The 300 points upward 'gap' that formed on on Mon. Sep 23 was subsequently filled on Oct 1. Since then, the 'gap' has been acting as a resistance zone. If the index manages to overcome the 'gap' resistance, it is likely to face stronger resistance from the down trend line.

Daily technical indicators are turning bullish. MACD is moving sideways below its signal line in bullish zone. ROC has bounced up from the edge of its oversold zone. RSI and Slow stochastic have bounced up from their respective 50% levels. Some near-term upside is possible, but don't expect a strong rally.

Early Q2 (Sep '19) results from TCS, Infosys, IndusInd Bank were more or less in line with market expectations, but showed weak top and bottom line growth. Auto sales plummeted in double-digits during Sep '19 - so they will declare poor results or even losses. 

Several economic measures announced by the government - the latest being a DA boost for govt. employees - is yet to show up on company earnings. In a desperate effort at window dressing, first day collections of movie theatres and on-line sales of amazon and flipkart are being touted as India's economic well being!

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty received good support from the zone between 10700 and 11100, and bounced up to close above its 20 week and 50 week EMAs in long-term bull territory. 

The (blue) down trend line has dominated the index chart since the beginning of Jun '19, and may continue to do so for a while longer. India's economy is on a downward trajectory, and so far there are no signs of an imminent recovery - despite valiant efforts by government spin doctors.

Weekly technical indicators are giving mixed signals. MACD is moving sideways below its signal line in neutral zone. ROC has entered its bullish zone. RSI is moving sideways below its 50% level. Slow stochastic is trying to move up above its 50% level. Some near-term index upside is likely.

Nifty's TTM P/E has moved up to 26.11 - which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is hovering at the edge of its oversold zone, giving no clear directional indication. 

Bottomline? Sensex and Nifty charts are consolidating after sharp upward breakouts. A cut in corporate taxes had boosted bullish sentiment, but did not have much effect on consumer demand. Both indices need to overcome trend line resistances to move higher. Some more consolidation or correction may be on the cards.

Sunday, October 6, 2019

Sensex, Nifty charts (Oct 04, 2019): bears trying to regain control

In a holiday-shortened trading week, FIIs were net sellers of equity on all four days. Their total net selling was worth Rs 32.6 Billion. DIIs were net buyers of equity on all four days of the week. Their total net buying was worth Rs 34.8 Billion, as per provisional figures.

Nikkei India's Manufacturing PMI for Sep. '19 was stagnant at 51.4 - same as in Aug '19. (A figure above 50 indicates growth.) The Services PMI for Sep. '19 contracted to a 19 month low of 48.7, from 52.4 in Aug '19. The Composite PMI (Manufacturing + Services) dropped below the 50 mark for the first time since Feb '18.

Major automobile makers - including Maruti, M&M, Hyundai, Tata Motors, Honda, Toyota - reported double digit declines in domestic passenger vehicle sales in Sep. '19. Onset of the festive season has failed to reverse the ongoing slump in the auto industry. 

BSE Sensex index chart pattern



The 300 points upward 'gap' that formed on the daily bar chart pattern of Sensex on Mon. Sep 23 failed to support the index against a determined bear attack.

The index dropped steeply below the 'gap' on Tue. Oct 1, but found support from its 20 day EMA. The subsequent technical bounce faced resistance from the 'gap' and dropped to seek support from its 200 day EMA.

The (green) down trend line - drawn through the Jun '19 and Jul '19 tops - has dominated the Sensex chart for more than 4 months. RBI's 25 bps (0.25%) repo rate cut on Fri. Oct 4 failed to lift the market's mood, as the RBI Governor significantly reduced India's GDP growth estimate to 6.1%.

Daily technical indicators are looking bearish. MACD has formed a bearish 'rounding top' pattern, and is seeking support from its signal line in bullish zone. ROC (not shown) is falling towards its '0' line. RSI has dropped to its 50% level. Slow stochastic is falling towards its 50% level. Some more correction is likely.

Demonetisation and a hurriedly implemented GST has completely decimated the rural and unorganised sectors. Many small businesses have closed down. Larger businesses are more interested in cleaning up their balance sheets than making new investments.

Periodic economic booster doses by the Finance Minister have failed to revive bullish sentiments. Small investors can use the ongoing corrective phase to gradually add good large-cap stocks to their portfolios. Stay away from mid-cap, small-cap and PSU stocks.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty spent just a week above the (purple) up trend line before a bear onslaught forced a close below the trend line and the 20 week and 50 week EMAs.

The index continues to trade above its rising 200 week EMA in a long-term bull market. However, repeated breaches of a long-term up trend line should be treated with utmost caution.

Weekly technical indicators are looking neutral to bearish. MACD is below its signal line in bearish zone. ROC (not shown) is turning down after rising towards its neutral zone. RSI is trying to hang on to its 50% level. Slow stochastic is facing resistance from its 50% level. Some more index correction or consolidation is likely.

Nifty's TTM P/E has moved down to 25.75 - which remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has re-entered its oversold zone after falling sharply from it. Some more  near-term index correction is possible.

Bottomline? Sensex and Nifty charts are correcting after sharp upward breakouts. A cut in corporate taxes boosted bullish sentiment, but may not boost consumer demand. Both indices are hovering near support levels. Some more correction can't be ruled out.

Sunday, September 29, 2019

Sensex, Nifty charts (Sep 27, 2019): consolidating after sharp short-covering rallies

FIIs were net buyers of equity on Mon. and Thu. (Sep 23 and 26), but were net sellers on Tue., Wed. and Fri. (Sep. 24, 25 and 27). Their total net buying was worth Rs 20.4 Billion. DIIs were net sellers of equity on Wed., but were net buyers during the other four days of the week. Their total net buying was worth Rs 8.0 Billion, as per provisional figures.

As on Sep 26, countrywide rainfall figure is 107% of its long period average, as per the India Meteorological Dept. With more than 2 weeks to go before monsoon recedes, the figure could touch 110% (putting it in the 'excess' category after staying 'below normal' for five straight years).

According to a recent UNCTAD report, India's GDP growth will moderate to 6% in 2019 from 7.4% in 2018 due to lower than targetted tax collections and limited public spending.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex formed a 300 points upward 'gap' on Mon. Sep 23 and touched an intra-day high of 39441. It was the highest level touched by the index since the post-budget sell-off began on Jul 8 '19. In the process, 'death cross' of the 50 day EMA below the 200 day EMA was prevented.

On Wed. Sep 25, the index dropped inside the 'gap' zone - partly filling it - before bouncing up the next day. The 'gap' should act as a floor on the down side. It may take a couple of weeks for the index to 'digest' the sharp two-day rally before it resumes its quest to touch a new high.

Daily technical indicators are in bullish zones, but only MACD is showing upward momentum by rising above its signal line. ROC (not shown) is hovering above the edge of its overbought zone. RSI is moving sideways above its 50% level. Slow stochastic is sliding down inside its overbought zone. Some more consolidation above the 'Gap' is likely.

Small investors should suppress the 'left out' feeling after missing the unexpectedly sharp rally. This is not the right time to jump into the market feet first - despite entreatments by brokers and experts on business TV channels.

Cutting out the 'noise', keeping cool, and following an investment plan is what generates wealth over the long-term. Do your homework, choose fundamentally strong stocks, and hold on to them for many years. Getting in and out of the market willy-nilly due to news headlines is a recipe for financial disaster. 

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty had spent seven straight weeks below its 50 day EMA, and the (purple) up trend line drawn through its Dec '16 and Oct '18 lows. Just when it seemed that the bears were getting the upper hand, a corporate tax cut announced on Sep 20 sent short sellers scurrying for cover. 

The index rose above the up trend line, tested resistance from the 11700 level, closed above 11500 after ten weeks, and is back above its three weekly EMAs in a long-term bull market. A new high by Diwali won't be a surprise.

Weekly technical indicators are turning bullish. MACD has formed a bullish 'rounding bottom' pattern below its signal line in bearish zone. ROC (not shown) is rising towards its neutral zone. RSI has crossed above its 50% level. Slow stochastic has risen to its 50% level. Some more near-term index upside is possible.

Nifty's TTM P/E has moved down to 26.52 - which remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating near the edge of its oversold zone, hinting at near-term index consolidation.

Bottomline? Sensex and Nifty charts are consolidating after sharp upward breakouts following seven weeks of sideways consolidation. A cut in corporate taxes boosted bullish sentiment, but will it boost consumer demand? Both indices are within 5% of their lifetime highs. It is a time for cautious optimism - not euphoria.

Wednesday, September 25, 2019

Nifty chart: a midweek technical update (Sep 25, 2019)

FIIs were huge net buyers of equity on Mon. Sep 23, but were net sellers on the next two trading days this week. Their total net buying was worth Rs 15.1 Billion. DIIs were net sellers of equity on Wed. Sep 25, but were net buyers on the first two trading days. Their total net buying was worth only Rs 22.8 Million, as per provisional figures.

The government is expecting a Rs 400 Billion shortfall in GST collections during FY 2019-20 due to the economic slowdown. That could put pressure on the compensation that state governments are liable to receive in case tax growth falls below 14% for the year.

India's apparel exports have revived by 4% YoY during the Apr-Jul '19 period after two consecutive years of de-growth of 3-4% per year. However, ICRA has reported a likely slowdown in growth during the rest of FY 2019-20.


The daily bar chart pattern of Nifty shows how the Finance Minister's fourth 'booster' dose - a cut in corporate taxes announced on Fri. Sep 20 morning - has turned around the bearish sentiment prevailing in the market.

A short-covering frenzy erupted, and the index soared like a rocket past its 200 day EMA and the upper Bollinger Band. Nifty gained more than 550 points (5.3%) in one day.

There was more fun and games on Mon. Sep 23. Huge FII buying propelled the index higher with an upward 'gap' of 90 points. Nifty tested the 11700 level intra-day and closed with a gain of more than 300 points.

Sanity prevailed on Tue. Sep 24. The index formed an indecisive 'doji' and closed just 12 points lower but still traded above the upper Bollinger Band.

Both FIIs and DIIs were in profit booking mode today (Wed. Sep 25). Nifty fell sharply below the upper Bollinger Band and partly filled the 90 points upward 'gap' formed on Mon. Sep 23.

Daily technical indicators are in bullish zones. MACD is rising above its signal line. RSI has made a U-turn before it could reach its overbought zone. Slow stochastic is inside its overbought zone, but has turned down. Some more correction or consolidation is possible.

Nifty's TTM P/E has slipped down to 25.92, but remains inside its overbought zone and higher than its long-term average. The breadth indicator NSE TRIN (not shown) is hovering near the edge of its oversold zone, hinting at some near-term index consolidation.

The post-budget downward 'gap' of 26 points can provide resistance on the upside, in case bulls get adventurous again. The corporate tax cut has come as a sentiment booster to the stock market, but is unlikely to stimulate consumer demand in the near term.

A silver lining is that the festive season is almost upon us. Urban consumers may be able to open their purse strings - thanks to their Diwali bonuses. It is doubtful that rural consumers will be able to do likewise.

Small investors should avoid falling into the trap of 'buy' calls and big upside targets being suggested by experts on TV and pink sheets. An index barely 5-6% below its lifetime high is not providing a 'great buying opportunity'. 

Stay invested, continue with your SIPs, get rid of non-performers in your portfolios, and be very selective in what you buy.

Sunday, September 22, 2019

Sensex, Nifty charts (Sep 20, 2019): short covering causes euphoric upward breakouts

FIIs were net sellers of equity during the first four trading days of the week, but were net buyers on Fri. (Sep. 20). Their total net selling was worth Rs 33.7 Billion. DIIs were net buyers of equity on all five days of the week. Their total net buying was worth Rs 48.2 Billion, as per provisional figures.

After three disappointing 'booster' packages, the Finance Minister hit the ball out of the park by announcing a significant cut in corporate taxes on Fri. Sep 20. Sensex and Nifty soared - trapping unwary short sellers - and business leaders sang 'Hallelujah'

The GST council announced reduction in rates for hotels, outdoor caterers, precious/semi-precious stones but hiked rates for caffeinated drinks and railway wagons. No major relief was provided to auto and cement sectors.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex fell steadily on the back of sustained FII selling, and dropped to test support from the lower edge of the 'support zone' (between 35900 and 37100) on Thu. Sep 19.

There was a sea change in market sentiment after the FM announced corporate tax rate cut on Fri. Sep 20. The index did a sharp U-turn as traders rushed to cover their shorts. Sensex closed above its three EMAs in bull territory for the first time in nearly three months.

Daily technical indicators are turning bullish. MACD has crossed above its rising signal line in bearish zone. ROC has risen sharply to the edge of its overbought zone. RSI has moved above its 50% level. Slow stochastic has emerged from its oversold zone. Some more near-term upside is possible.

Small investors should avoid getting caught in the sudden euphoria. The devil is in the details. How many companies actually pay more than 25% tax? If they do, will they be willing to forego existing tax incentives? Will tax benefits be passed on to consumers, or used to pare debt? Will rural consumers rush out to buy two-wheelers, tractors and cars? Will MSMEs start opening new factories just because tax has been reduced by 3.5%?

Only time will provide answers to those questions. In the meantime, follow your asset allocation plan, continue SIPs, use the sentiment boost to get rid of non-performing stocks/funds and stay invested in good companies/funds for the long-term. That is the best way to build wealth - whether Sensex is falling or suddenly jumping northwards.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty breached the lower edge of the 'support zone' (between 10700 and 11100) intra-week, but bounced up sharply on Fri. Sep 20 to close above both its 50 week and 20 week EMAs for the first time since early Jul '19.

Reduction in corporate taxes - announced by the Finance Minister on Fri. Sep 20 - triggered a sharp technical bounce due to short-covering. Nifty closed at its highest level in eight weeks.

Weekly technical indicators are in bearish zones, but showing upward momentum. MACD appears to be forming a bullish 'saucer' pattern below its falling signal line. ROC has crossed above its falling 10 week MA. RSI has emerged from its oversold zone. Slow stochastic has started rising towards its 50% level. Expect some more near-term index upside.

Nifty's TTM P/E has moved up to 27.72 - which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating near the edge of its oversold zone, hinting at near-term index consolidation.

Bottomline? Sensex and Nifty charts have broken out upwards after consolidating sideways for seven weeks. Sharp short-covering bounces were triggered by a cut in corporate taxes, which may not boost consumer demand in the near term. Stay calm, and follow your investment plans.

Wednesday, September 18, 2019

Nifty chart: a midweek technical update (Sep 18, 2019)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 25.2 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 11.7 Billion, as per provisional figures.

India's WPI-based inflation was 1.08% in Aug '19 - the same as in Jul '19 but much lower than 4.62% in Aug '18. Rise in inflation of food items was balanced by deflation in fuel and power.

The Finance Ministry is considering a fourth 'booster' dose to revive a sliding economy, after the first three 'booster' doses failed to generate any significant revival in 'animal spirits'. 


For the past seven weeks, the daily bar chart pattern of Nifty has been consolidating sideways with a slight downward bias, touching progressively lower tops. The 'death cross' (marked by grey oval) of the 50 day EMA below the 200 day EMA at the beginning of the month had technically confirmed a bear market. 

Bulls are fighting hard, but the resistance zone between 11100 and 11200 has proved to be a tough hurdle. The Aug 23 low of 10637 is in danger of being tested, and breached.

The index had bounced up after testing support from the lower Bollinger Band at the beginning of the month. But the counter-trend rally lost steam after crossing above the middle band (20 day SMA - marked by green dotted line).

Daily technical indicators are in bearish zones. MACD is seeking support from its rising signal line. RSI is below its 50% level. Slow stochastic formed a 'double top' reversal pattern at the edge of its overbought zone, and has dropped sharply below its 50% level. 

Nifty's TTM P/E has slipped down to 26.66, but remains inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is oscillating near the edge of its oversold zone, hinting at some near-term index consolidation.

Three 'booster packages' from the Finance Minister have come and gone without making a dent on the bearish sentiment of FIIs. Bulls are hoping for a miracle from our popular leader. But he seems more interested in fiddling around with photo-ops while the economy is sinking.

Q2 (Sep '19) corporate earnings may be worse than Q1 (Jun '19) numbers. The upcoming festive season sales may prevent a total washout. Small investors should be extremely wary about bottom fishing.