Saturday, April 27, 2019

Sensex, Nifty charts (Apr 26, 2019): bears hanging on for dear life

FIIs were net buyers of equity on Mon., Wed. and Thu. (Apr 22, 24 and 25), but net sellers on the other two days. Their total net buying was worth Rs 45.2 Billion. DIIs were net buyers of equity on Tue. and Fri. (Apr 23 and 26) but net sellers on the other three days. Their total net selling was worth Rs 36.8 Billion, as per provisional figures.

Five years after launch, the Jan Dhan Yojana scheme has achieved a total balance of nearly Rs 1 Trillion. The scheme got a boost from demonetisation in Nov '16, and gained rapid pace in the last 6 months - leading to scepticism on the possible link between elections and spurt in balances. 

A dark storm cloud (read: rising oil prices) has gathered over the Indian stock market. Prices in petrol pumps have not been revised upwards in proportion to the rise in international oil prices due to the ongoing election. After May 23, that cloud is going to burst upon Indian consumers.

BSE Sensex index chart pattern

The following remark appeared in last week's post on the daily bar chart pattern of Sensex: "Some more consolidation near the upper edge of the trading channel, and/or a drop towards the rising 20 day EMA are possibilities."

Sometimes, the index does exactly what you expect it to do. Despite the volatility and the alternate days of sharp rise followed by equally sharp fall, all that Sensex managed was a sideways consolidation that faced resistance from the upper edge of the trading channel and received support from the 20 day EMA.

The entire trading during the month of Apr '19 has occurred within a small 'diamond' pattern, which can be a trend reversal pattern at a market top. However, a 'diamond' can also act as a continuation pattern. So, it is better to wait for the eventual breakout before taking any buy/sell decision.

A 'diamond' pattern has measuring implications. The height of the 'diamond' - about 1200 points - will be the downward or upward target from the eventual breakout point. (For a possible downward breakout, the long-term support level of 37690 - marked by blue dotted line - can come into the picture.)

Daily technical indicators are giving conflicting signals. MACD is falling below its signal line in bullish zone. ROC has crossed above its 10 day MA to enter bullish zone. RSI and Slow stochastic are at their respective neutral zones.

All four technical indicators showed negative divergences by failing to touch new highs when the index touched its lifetime high of 39487 on Apr 18. That is usually an advance warning of a possible change in trend.

FIIs are on a buying spree. A flood of liquidity can throw bearish technical signals out the window. But note that they were net sellers on two days during the week. 

Near a lifetime index high, discretion should be the better part of valour. Sensex is trading at a P/E of 29.5 - well above its long-term average. The downside risk is increasing by the day.

NSE Nifty index chart pattern

There is good (bullish) news and bad (bearish) news visible on the weekly bar chart pattern of Nifty. First, the good news: the index closed above the upward-sloping trading channel at a new lifetime high closing level of 11755.

Now, the bad news: For the second week in a row, the index failed to close above its Aug '18 top of 11760. Also, the index has formed a weekly 'hanging man' candlestick that usually has bearish implications.

Weekly technical indicators are looking bullish and overbought. MACD and ROC are rising inside their respective overbought zones. RSI and Slow stochastic are moving sideways inside their respective overbought zones - showing negative divergences by failing to touch new highs with the index.

Remember that an index can remain overbought for long periods. However, the two previous occasions when all four technical indicators were inside their overbought zones - in Jan '18 and Aug '18 - sharp corrections had followed.

History may not repeat itself - but many small investors are doomed by repeating their mistakes of becoming too bullish at a market top. 

Nifty's TTM P/E has moved up to 29.34, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating in neutral zone. Some more consolidation or correction is possible.

Bottomline? Sensex and Nifty charts are still hovering near the upper edges of their respective upward-sloping trading channels, and can consolidate or correct some more  before moving up further. Stay invested, but control any impulse to buy big.

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