Sunday, June 9, 2019

Sensex, Nifty charts (Jun 07, 2019): pause after touching new highs

During a holiday-shortened trading week, FIIs were net buyers of equity on Mon. Jun 3, but net sellers on Tue., Thu. and Fri. (Jun 4, 6, and 7). Their total net buying exceeded Rs 7.2 Billion. DIIs were net buyers of equity on Fri. Jun 7, but net sellers on the other three days. Their total net selling was worth Rs 12.9 Billion, as per provisional figures.

Nikkei India's Manufacturing PMI increased to 52.7 in May '19 from 8-months low figure of 51.8 in Apr '19 - remaining above 50 (indicating growth) for the 22nd month in a row. 

However, Nikkei India's Services PMI slipped to 50.2 in May '19 from 51 in Apr '19 - its slowest growth in a year. The Composite PMI (Manufacturing + Services) was 51.7 in May '19 - the same as in Apr '19.

Passenger vehicle sales in India declined 21.6% YoY in May '19 due to high finance costs and economic uncertainty. Monthly sales for Maruti, Tata Motors, Honda, Toyota declined between 7.5% to 38%. M&M sales were marginally lower. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex gained more than 550 points on the back of heavy FII buying on Mon. Jun 3. The index rose further to touch a new high of 40312 on Jun 4, but formed a small 'reversal day' bar (higher high, lower close) due to profit-booking before the Eid holiday.

A 25 bps (0.25%) cut in repo and reverse repo rates by the RBI Governor on Thu. Jun 6 had already been 'discounted' by the market. Downward revision in the GDP growth rate led to profit booking by both FIIs and DIIs. Sensex lost 550 points.

The index bounced up after receiving support from its rising 20 day EMA on Fri. Jun 7, and formed a 'reversal day' bar (lower low, higher close) that brought some relief for bulls. The index is trading above its three EMAs in a bull market.

Daily technical indicators are in bullish zones after correcting overbought conditions. MACD is falling towards its rising signal line. ROC has crossed below its 10 day MA and dropped from its overbought zone. RSI and Slow stochastic have slipped down from their respective overbought zones. 

All four technical indicators showed negative divergences by failing to touch new highs with the index on Jun 4. Some more correction, and a part or complete filling of 'Gap 2' (formed on May 20) will improve the technical 'health' of the chart and enable Sensex to rise higher.

The NBFC debt mess continues, with DHFL being the latest defaulter after IL&FS. Remember Buffett's quote: "There's never just one cockroach in the kitchen." Several mutual funds, PSU and private banks have large outstanding loans to both NBFCs.

Expect the problem to get worse before it gets better. Banks are very wary of loaning money to NBFCs. Some of the smaller NBFCs will die. Others will be forced to borrow overseas just to survive - and will get into bigger trouble. 

Easy finance fuelling India's consumption growth is a thing of the past. Manufacturing growth has been weak for a while. For the next few quarters, earnings growth for Indian companies may not improve much

Don't get fooled by the high index level into thinking all is well. No need to sell off in a panic. Remain cautiously optimistic. Maintain trailing stop-losses. Avoid bargain-hunting when Sensex is near a lifetime high.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new high of 12103, but formed a 'reversal' bar (higher high, lower close) due to profit booking by FIIs and DIIs.

Three of the weekly technical indicators - MACD, RSI, Slow stochastic - are inside their respective overbought zones, but only Slow stochastic is showing some upward momentum. ROC is falling below its 10 week MA towards neutral zone. 

All four indicators showed negative divergences by failing to touch new highs with the index. Some more correction or consolidation is likely. 

After touching a high of 29.90 on Mon. Jun 3, Nifty's TTM P/E has moved down to 29.39, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen sharply to the edge of its oversold zone, hinting at some near-term index upside.

Bottomline? Sensex and Nifty charts are consolidating near lifetime highs, as bulls have not been able to shake off tenacious bears. A weakening economy and debt crisis of NBFCs will be detrimental to earnings growth of India Inc. Stay invested with trailing stop-losses. Avoid bargain hunting near lifetime highs.

1 comment:

Subhankar said...

Cockroaches are crawling out of the woodwork.

IL&FS, Reliance ADAG, DHFL and now India Bulls.