On a weekly closing basis, Sensex lost 75 points - a point more than what it had gained in the previous week. Nifty lost 5 points, closing lower for the second week in a row.
Chances of a US interest rate hike pushed the Dollar higher and the Rupee lower. Oil prices rose on speculation of a production freeze by OPEC. Without any immediate bullish triggers, market players chose to book profits.
BSE Sensex index chart pattern
The following comments were made in last week's post on the daily bar chart pattern of Sensex: "Some more consolidation or correction is likely. With FIIs buying on every dip, the Sensex may not face a deep correction."
The index consolidated in a narrow range within the 'support-resistance zone' between 27600 and 28600. The 20 day EMA provided good downside support. The up trend from the Feb 29 '16 low is intact.
Three of the daily technical indicators - MACD, ROC, Slow stochastic - are in bullish zones, but not showing any upward momentum. RSI is straddling its 50% level.
The longer the index consolidates, the sharper will be the eventual breakout. In a bull market, such consolidations usually precede an upward breakout.
However, the macroeconomic picture has not improved. Inflation is rising again. Manufacturing output is weak. Q1 (Jun '16) earnings were nothing to write home about.
The 7th Pay Commission awards will get implemented from next month. That may provide some fillip to consumer-related stocks.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty closed just above the resistance level of 8650 after trading within a 100 point range. The index formed a 'doji' candlestick that indicates indecision among bulls and bears.
The index may be forming a small 'rounding top' reversal pattern that can trigger a correction. A move above the previous week's top of 8728 will negate the pattern.
Three of the weekly technical indicators - MACD, RSI, Slow stochastic - are moving sideways well inside their overbought zones. ROC is also moving sideways below its 10 week MA just inside its overbought zone.
Nifty's TTM P/E remains high at 23.7. The breadth indicator NSE TRIN (not shown) has dropped inside its overbought zone.
An index can remain overbought for long periods. No need to worry about a big crash as FIIs are buying all dips. Stay invested, but with a stop-loss as the downside risk appears higher.
Bottomline? Sensex and Nifty charts show that bulls and bears are locked in a stalemate. Index valuations on a TTM basis are expensive, increasing downside risk. If you wish to enter now, your bottom-up stock picking skills will be tested.