Sunday, July 7, 2019

Sensex, Nifty charts (Jul 05, 2019): correcting due to budget disappointment

FIIs were net buyers of equity on Mon. Jul 1, but turned net sellers during the next four days. Their total net selling was worth Rs 5.9 Billion. DIIs were net sellers of equity on Mon., but net buyers during the next four days. Their total net buying was worth Rs 7.1 Billion, as per provisional figures.

India's Services PMI contracted for the first time since May '18, slipping to 49.6 in Jun '19 from 50.2 in May '19 due to stagnant sales and unfavourable taxation. (A number below 50 indicates contraction.) The Composite (Manufacturing + Services) PMI dropped to 50.8 in Jun '19 from 51.7 in May '19.

According to analysts, revenue mobilisation may be the single biggest impediment in the investment and consumption oriented budget tabled by the Finance Minister in Parliament on Fri. Jul 5. It will be difficult to meet the fiscal deficit target (3.3% of GDP).

BSE Sensex index chart pattern

A pre-budget rally in the stock market led to the formation of a bearish 'rising wedge' pattern on the daily bar chart of Sensex. The index crossed above the 40000 level for the first time since Jun 11 on budget day (Fri. Jul 5), but formed a 'reversal day' bar and dropped below the 'wedge'.

The index found support at its 20 day EMA - just like it did on the previous Fri. (Jun 28) - and gained ~119 points (0.3%) on a weekly closing basis. Sensex is trading well above the (blue) up trend line and its 200 day EMA in a bull market.

Daily technical indicators are looking neutral to bullish. MACD has merged with its falling signal line in bullish zone. ROC is above its 10 day MA in neutral zone. RSI is rising above its 50% level. Slow stochastic is poised to fall from its overbought zone - hinting at some more correction or consolidation.  

The budget 'event risk' is out of the way. The next trigger for the stock market will be announcement of Q1 (Jun '19) results, which are not expected to be good. There may be a few positive surprises. That won't be enough to boost bullish sentiments.

Sensex may correct down to completely or partly fill the 'gap' formed on May 20 (marked GAP2 on chart). That will be an opportunity to add fundamentally strong but beaten down stocks. But try to avoid the temptation of buying 'cheap' small-caps. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty has closed above the upward 'gap' (formed on May 20) for the seventh week in a row. The index traded above the (blue) up trend line and its weekly EMAs in a long-term bull market - gaining 22 points (~0.2%) on a weekly closing basis.

Bears are not out of the game yet. Gains of the previous two weeks have been accompanied by falling volumes. Also, the index failed to sustain near the week's high and formed a 'shooting star' like candlestick pattern that has bearish implications.

Weekly technical indicators are looking neutral to bearish. MACD is about to cross below its signal line, and fall from its overbought zone. ROC is below its 10 week MA and is moving sideways in neutral zone. RSI is sliding down towards its 50% level. Slow stochastic is moving sideways with a downward bias in bullish zoneSome more consolidation or correction is possible. 

Nifty's TTM P/E has moved up to 29.04, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone after a sharp fall from its oversold zone. Some near-term index downside is likely.

Bottomline? Sensex and Nifty charts have been consolidating after touching lifetime highs. The pre-budget rally appears to have come to a halt. Continue with SIPs. Wait for Q1 (Jun '19) results to determine stock-specific actions.

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