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.

Sunday, September 15, 2019

Sensex, Nifty charts (Sep 13, 2019): continue to consolidate sideways

During another holiday-shortened trading week, FIIs were net sellers of equity on Mon. and Fri. (Sep. 9 and 13), but were net buyers on Wed. and Thu. (Sep. 11 and 12). Their total net buying was worth Rs 4.6 Billion. DIIs were net sellers of equity on Thu., but were net buyers on the other three trading days. Their total net buying was worth Rs 19.0 Billion, as per provisional figures.

India's merchant exports slipped by 6.1% to US $26.13 Billion in Aug '19. Imports dropped by 13.4% to US $39.58 Billion. The trade deficit of $13.45 Billion narrowed from $17.92 Billion in Aug '18, but widened marginally from $13.43 Billion in Jul '19.

In Jul '19, India's Index of Industrial Production (IIP) rose to 4.3% from a downwardly revised 1.2% in Jun '19, but was lower than 6.5% in Jul '18. CPI-based consumer inflation in Aug '19 rose to a 10 month high of 3.2% (due to higher vegetable prices) against 3.1% in Jul '19.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex gained more than 400 points (1.1%) on a weekly closing basis as FIIs turned net buyers for the week. The index moved above its 20 day EMA, but faced resistance from its 200 day EMA.

The 50 day EMA is about 105 points above the 200 day EMA, and the two together may provide strong resistance on the upside. In case Sensex manages to move above its 50 day EMA, it can quickly reach the 38250-38500 zone. Will it?

Daily technical indicators are looking neutral to bullish. MACD rising above its signal line in bearish zone. RSI is at its neutral zone. Slow stochastic is above its 50% level. Some near-term upside is possible.

The expected third economic 'booster' package was announced by the Finance Minister on Sat. Sep 14 - some sops for exporters and affordable housing - but perhaps not enough to boost bullish sentiment. The market may have rallied in hope of a stronger 'booster' dose.

'Death cross' of the 50 day EMA below the 200 day EMA, which will technically confirm a bear market, is still awaited. Except for two or three sessions, the index has spent most of the past six weeks below its 200 day EMA in bear territory.

Small investors have kept faith in the market by not discontinuing SIPs. However, anecdotal evidence from the hinterland shows that rural economy is in shambles. The periodic 'booster' packages have not shown much effect on the ground.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty gained 130 points (1.2%) on a weekly closing basis, but closed below its 50 week EMA for the seventh straight week.

Weekly technical indicators are in bearish zones, but not showing any downward momentum. MACD is moving sideways below its falling signal line. RSI is below its 50% level. Slow stochastic has moved up a bit from the edge of its oversold zone. Expect some near-term index upside.

Nifty's TTM P/E has moved up to 27.23 - which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone, and can limit near-term index upside.

Bottomline? Sensex and Nifty charts have been consolidating sideways for the past seven weeks. A low Q1 (Jun '19) GDP figure and the ongoing US-China trade spat dampened bullish sentiment. Small investors should continue with their SIPs, but avoid any impulsive buying. 

Sunday, September 8, 2019

Sensex, Nifty charts (Sep 06, 2019): consolidating inside support zones

During a holiday-shortened trading week, FIIs were net sellers of equity on all four days. Their total net selling was worth Rs 52.7 Billion. DIIs were net buyers of equity on all four trading days. Their total net buying was worth Rs 44.6 Billion, as per provisional figures.

The market started a pullback rally from Wed. Sep 4 expecting announcement of a third set of measures for boosting India's sagging economy. Instead, the Finance Minister promised to consider more measures after consultations.

After strong rallies, prices of gold and silver corrected sharply during Thu. and Fri. (Sep 5 and 6). With global stock markets on recovery paths, some more near-term downside in precious metals is possible.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex dropped sharply and lost 770 points on Tue. Sep 3 due to heavy selling by FIIs after the long week end. There was some recovery during the rest of the week, but the index closed below its three EMAs inside the 'support zone' (between 35900 and 37100).

Daily technical indicators are looking neutral to mildly bullish. MACD has merged with its rising signal line in bearish zone. ROC has crossed above its 10 day MA to enter bullish zone. RSI and Slow stochastic are just below their respective 50% levels.

The market was hoping for a third economic booster 'package' on Fri. Sep 6, but all it got was a promise. It won't be surprising if FIIs continue to vote with their feet. When an economy is steadily going downhill, throwing a few 'packages' in its path won't stop the slide. The gradient of the road itself needs to be changed.

That means bold reforms and immediate actions. The time for consultation and consideration is long over. More and more companies are laying-off employees and reducing production - making the economy decelerate even more. It is going to be a long and difficult road ahead. 

Small investors should concentrate on protecting capital - whatever may be left of it. Ignore the exhortations of those experts who want you to buy now.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty tested the lower edge of the 'support zone' (between 10700 and 11100) intra-week before bouncing up to close just below 10950. 

The index has been consolidating inside the 'support zone' for the past six weeks, and is trading below its 20 week and 50 week EMAs.

Weekly technical indicators are looking bearish and oversold. MACD is falling below its signal line in bearish zone. ROC and RSI are falling inside their respective oversold zones. Slow stochastic is moving sideways along the edge of its oversold zone. Expect some more consolidation or correction.

Nifty's TTM P/E has moved down to 26.91 - which remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has fallen sharply inside its oversold zone. Further index upside may be limited.

Bottomline? Sensex and Nifty charts are consolidating within long-term support zones. A low Q1 (Jun '19) GDP figure and the ongoing US-China trade spat have dampened bullish sentiment. Small investors should stay on the sidelines, but continue with their SIPs. 

Wednesday, September 4, 2019

Nifty chart: a long-term outlook

After Monday's holiday, FIIs were net sellers of equity on both trading days this week. Their total net selling was worth Rs 37.5 Billion. DIIs were net buyers of equity on both trading days. Their total net buying was worth Rs 25.6 Billion, as per provisional figures.

The IHS Markit India Manufacturing PMI slipped to a 15 month low of 51.4 in Aug '19 from 52.5 in Jul '19, but remained above 50 indicating growth. The Services PMI also declined to 52.4 in Aug '19 from 53.8 in Jul '19. The Composite (Manufacturing + Services) PMI moved down to 52.6 in Aug '19 from 53.9 in Jul '19.

GST collection in Aug '19 slipped to Rs 98.2 Billion from Rs 1.02 Trillion in Jul '19, but was 4.5% higher than Rs 93.9 Billion collected in Aug '18.


The weekly line chart of Nifty has breached two up trend lines drawn from the Feb '16 low (also called Fan Lines - marked FL1 and FL2). This is a sign that the long-term up trend is getting weak, but is not yet over.

As per Corrective Fan Principle, downward breach of a third up trend line - that has not yet been drawn on the chart - will technically confirm the reversal of the long-term up trend.

The index is struggling to hold on to the support level of 10800, and may move lower. A test of support from the 200 week EMA appears increasingly likely.

Weekly technical indicators are in bearish zones. MACD is showing downward momentum. RSI and Slow stochastic are moving sideways - hinting at near-term index consolidation.

Nifty's TTM P/E has moved down to 26.61, but remains inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone. Some near-term index up side is possible.

The market is hoping that a third round of economic booster 'package' - promised by the Finance Minister - will help stop the slide in the index. But the two earlier 'packages' have failed to revive bullish sentiment.

FIIs have intensified their selling after a weak Q1 GDP number and sliding auto sales. They may not turn buyers in a hurry.

Sunday, September 1, 2019

Sensex, Nifty charts (Aug 30, 2019): bears use technical bounces to sell

For the month of Aug '19, FIIs were net sellers of equity worth Rs 148.3 Billion. It was their fourth straight month of net selling. DIIs more than matched them. They were net buyers of equity worth Rs 209.3 Billion, as per provisional figures.

India's GDP growth slumped to 5% during Apr-Jun '19 - lowest growth in 6 years; much lower than 8% growth during Apr-Jun '18, and even lower than 5.8% growth during Jan-Mar '19.

India's fiscal deficit during Apr-Jul '19 stood at Rs 5.47 Trillion, which is nearly 78% of the full year (FY 2019-20) deficit target of Rs 7.03 Trillion. Revenue collection is weak due to the economic slowdown.

BSE Sensex index chart pattern



The following comments were made in last week's post on the daily bar chart pattern of Sensex: "All four indicators are showing positive divergences...by rising higher while the index dropped lower. That is a clear signal that precedes a technical bounce."

Finance Minister's first 'booster package' was announced on Fri. Aug 23 after close of day's trading. Bullish fervour was evident on Mon. Aug 26. The index bounced up above the 37100 level and its 20 day EMA before facing resistance at its 200 day EMA.

On Tue. Aug 27, Sensex closed above its 200 day EMA but couldn't move above its falling 50 day EMA. Bear selling resumed on Wed., and the index closed below its 200 day EMA. There was more selling on Thu. Aug 29 (monthly F&O settlement day). The index dropped to close just below 37100.

On Fri. Aug 30, FIIs were net buyers along with DIIs. Sensex formed a 'reversal day' bar (lower low, higher close) and climbed above the 37100 level but closed below its 200 day EMA in bear territory. 

The index gained more than 630 points (1.7%) on a weekly closing basis. The 'support zone' (between 37100 and 35900) provided very good support to Sensex during Aug '19. Will the support hold during Sep '19? The poor GDP number can turn out to be the 'joker in the pack'.

Daily technical indicators are looking neutral to bearish. MACD is rising above its signal line in bearish zone. ROC is facing resistance from its 10 day MA in neutral zone. RSI is seeking support from its neutral zone. Slow stochastic has dropped from its overbought zone. 

Finance Minister announced a second 'booster package' after close of trade on Fri. Aug 30. This time it was a proposed merger of 10 smaller PSU banks to form four larger banks. Will it positively influence credit off-take in the near-term? Seems very unlikely.

The stock market wants 'big bang' labour reform and land reform plus scrapping of LTCG to revive bullish sentiment. Instead, it is getting peripheral reforms in dribs and drabs and lectures on fitness, holidays within India, and 'all is well' in Kashmir. Be prepared for more listless index performance - if not a crash.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty moved above the 11100 level intra-week - as it had done in each of the past three weeks - but failed to move above its 50 week EMA once again.

The index corrected to close inside the 'support zone' (between 11100 and 10700) for the fifth straight week, but gained almost 194 points (1.8%) on a weekly closing basis.

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

Nifty's TTM P/E has moved up to 27.27 - which is above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is moving up inside its oversold zone. Some near-term index downside or consolidation is possible.

Bottomline? Sensex and Nifty charts are at long-term support zones. A couple of 'booster packages' announced by Finance Minister has failed to revive bullish sentiment. A lower-than-expected Q1 (Jun '19) GDP figure and the ongoing US-China trade spat are not going to help the cause of bulls. Small investors should stay on the sidelines, but not stop their SIPs. 

Wednesday, August 28, 2019

Nifty chart: a midweek technical update (Aug 28, 2019)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 26.1 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 27.9 Billion, as per provisional figures.

RBI's transfer of Rs 1.76 Trillion surplus to the government has drawn wide-spread criticism from 'Harvard economists'. It is unfortunate that the first action of the 'hard work economists' to tackle the economic slowdown was to put their collective hands inside RBI's till. 

As per Moody's, the 'booster package' announced by the Finance Minister on Fri. Aug 23 may boost investor and business sentiments, but won't be able to prevent India's GDP growth to slip to 6.4% for FY 2019-20.


The following remark was made in last week's technical update on the daily bar chart pattern of Nifty: "Nifty's previous (Aug 5) low of 10783 may get tested, and breached."

The day after breaking out below a 'rising wedge' pattern, the index fell below its Aug 5 low of 10783 and closed just below the lower Bollinger Band at 10741 on Thu. Aug 22.

On Fri. Aug 23, Nifty touched an intra-day low of 10637 but bounced up on short-covering after rumours of a 'booster package' from the Finance Minister - forming a 'reversal day' bar (lower low, higher close) that often marks an intermediate bottom.

The effect of the 'booster package' - announced after close of trading on Friday - lasted two days. On Mon. Aug 26, Nifty rallied strongly and closed above its 20 day SMA (middle Bollinger Band - marked by green dotted line). 

There was some follow-up buying on Tue. Aug 27, but the index formed a 'doji' candlestick that indicated uncertainty among bulls and bears. An intra-day pullback to the 20 day SMA today and some short-covering before tomorrow's monthly F&O expiry took the index to a close just below 11050.

A dark cloud of resistance is looming overhead (marked by grey oval) - consisting of the upper Bollinger Band and rapidly merging 50 day and 200 day EMAs. The 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a bear market.

Daily technical indicators are giving mixed signals. MACD is rising above its signal line in bearish zone. RSI has started to fall after facing resistance from its 50% level. Slow stochastic has risen to the edge of its overbought zone. Any further index rally is likely to be short-lived. 

Nifty's TTM P/E is at 27.33, which is inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone, hinting at some near-term index up side.

The 'booster package' from the Finance Minister came 'too little, too late'. No major reform announcements were made. The 'low hanging fruit' (RBI surplus) has been plucked. It will be interesting to see what happens next if the economy continues to slide.

FMCG giant HUL has announced 20-30% price cuts on soaps. Maruti has announced lay-offs. Q1 (Jun '19) results showed continued tepid earnings growth. The only 'animal spirits' visible are of the bearish kind.

Saturday, August 24, 2019

Sensex, Nifty charts (Aug 23, 2019): ready for a technical bounce

FIIs were net buyers of equity on Tue. (Aug 20), but were net sellers on the other days of the week. Their total net selling was worth Rs 33.4 Billion. DIIs were net buyers on all five trading days of the week. Their total net buying was worth Rs 43.0 Billion, as per provisional figures.

Finance Minister announced a 'package' that comprised a restatement of a few budget proposals; withdrawal of (a) controversial tax surcharge on some categories of FIIs and (b) 'punishment' for not meeting CSR obligations; postponement of (a) higher registration fees for cars, (b) phasing out of BS IV vehicles and (c) introduction of EVs; removal of ban on govt. vehicle purchase and increased depreciation on vehicles purchased till Mar 2020. 

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex broke out below a 'rising wedge' pattern on Wed. Aug 21. The possibility was mentioned in last week's post. The next day, the index dropped deeper inside the 'support zone' (between 35900 and 37100).

On Fri. Aug 23, the index breached the downward-sloping trend line of the 'broadening top' pattern intra-day, but bounced up to close higher - forming a 'reversal day' bar that often forms at an intermediate bottom.

Daily technical indicators are looking neutral to bearish. MACD is seeking support from its signal line in bearish zone. ROC and RSI are at their respective neutral zones. Slow stochastic is falling below its 50% level. 

All four indicators are showing positive divergences (marked by blue arrows) by rising higher while the index dropped lower. That is a clear signal that precedes a technical bounce.

Escalation of the trade war between USA and China caused a sharp fall in US markets on Fri. Aug 23. Emerging markets, including India, may feel the after-effects next week. Bulls would do well to curb their enthusiasm.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty breached the downward-sloping trend line of a 'broadening top' pattern and the 10700 support level intra-week, but bounced up to close inside the 'support zone' (between 10700 and 11100).

The index closed below its 20 week and 50 week EMAs for the fourth straight week - for the first time since Oct '18 - and lost about 2% on a weekly closing basis.

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

Note that RSI and Slow stochastic are showing positive divergences by not falling lower with the index. A technical bounce is likely. 

Nifty's TTM P/E has moved down to 26.79 - which remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling sharply inside its oversold zone. Some near-term index upside is likely.

Bottomline? Sensex and Nifty charts are inside long-term support zones. A 'booster package' announced by Finance Minister may temporarily dispel the feeling of despondency in the market. A likely low Q1 (Jun '19) GDP figure and the ongoing US-China trade spat can dampen bullish hopes. Small investors may use any technical bounce to book profits. 

Wednesday, August 21, 2019

Nifty chart: a midweek technical update (Aug 21, 2019)

FIIs were net sellers of equity on Mon. and Wed. (Aug 19 and 21) but net buyers on Tue. this week. Their total net selling was worth Rs 7.0 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 10.4 Billion, as per provisional figures.

According to the RBI Governor, moderation in CPI inflation including food, fuel and contraction in merchandise imports is actually reflecting a slowdown in domestic demand. This raises hopes that RBI may cut interest rates more rapidly.

SEBI has decided to simplify and rationalise the existing regulatory framework for FIIs by easing operational constraints and compliance requirements. FIIs will now be recategorised into two classes instead of three.


The daily bar chart pattern of Nifty has broken out below a bearish 'rising wedge' pattern and is poised to fall further. Note that the index had fallen below bearish 'rising wedge' and 'flag' patterns in July '19.

The falling middle Bollinger Band (20 day SMA, marked by green dotted line) provided strong resistance to the index, just as it had done last month during formation of the 'flag' pattern.

The 50 day EMA is falling towards the 200 day EMA, and the space between the two EMAs is decreasing rapidly. A 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a bear market.

Daily technical indicators are in bearish zones. MACD is moving sideways above its signal line. RSI is falling below its 50% level. Slow stochastic has started to fall after facing resistance from its 50% level. Nifty's previous (Aug 5) low of 10783 may get tested, and breached.

Nifty's TTM P/E is at 27.01, which is inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising further inside its oversold zone, hinting at some more near-term index down side.

Piecemeal 'packages' being announced by various clueless government departments are unlikely to change the bearish sentiment prevailing in the stock market.

Demonetisation had broken the back of rural and unorganised sectors. Tax terrorism is now taking a toll on the organised sector. Analysts who are calling a bottom of the economic cycle are just trying to 'talk up' the market.

Small investors should stay on the sidelines, concentrate on wealth protection and start preparing a 'buy list'.

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.