Saturday, July 20, 2019

Sensex, Nifty charts (Jul 19, 2019): hostile bears force bulls to retreat

FIIs are rushing to the exit door. They were net sellers of equity on all five trading days. Their total net selling was worth Rs 30.3 Billion. DIIs were net buyers of equity on all five days, but couldn't match FII selling. Their total net buying was worth Rs 25.0 Billion, as per provisional figures.

India's Current Account balance deficit grew to US $68 Billion in FY 2018-19 from $49 Billion in FY 2017-18 as per IMF. Overall international reserves stood at $411.9 Billion on Mar 31 '19, down by $12.5 Billion from Mar 31 '18.

According to IHS Markit India Business Outlook, business sentiment fell to its lowest level since Jun '16, as companies worried about a slowing economy, water shortage and government policies. 

BSE Sensex index chart pattern

The following comments appeared in last week's post on the daily bar chart pattern of Sensex"The index appears to be forming a small, bearish 'flag' pattern that often forms midway during a sharp correction. If the pattern plays out, the index can completely fill GAP2, and test support from the up trend line and its 200 day EMA." 

After a sharp two days' correction below a bearish 'rising wedge' pattern, Sensex formed a bearish 'flag' pattern from which it has broken out downwards - filling about 50% of GAP2 (formed on May 20).

The index is trading above the up trend line (drawn through its Oct 26 '18 and Feb 19 '19 lows) and its 200 day EMA in a bull market. But the chart structure has turned distinctly bearish.

Sensex had touched a lifetime high of 40312 on Jun 4 '19. Since then, the index has not only formed a bearish pattern of 'lower tops, lower bottoms', it has also broken out below two bearish patterns (viz. 'rising wedge' and 'flag'). That is a clear sign that bulls are gradually yielding ground.

A confluence of supports - from the lower edge of GAP2, the blue up trend line and the 200 day EMA - should protect Sensex downside in the near term. If the index falls below its 200 day EMA, it can slip into a bear market.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bearish zone. ROC is falling below its 10 day MA in bearish zone. RSI has dropped to the edge of its oversold zone. Slow stochastic is falling towards its oversold zone after emerging from it. Any technical bounce may induce bear selling.  

Stock market participants were hoping for some relief on 20% tax on share buybacks and the extra surcharge on higher-bracket tax payers that affected about 40% of FIIs. Finance Minister quashed such hopes by tabling the Finance Bill in Parliament without any further relief on taxes.

It has been clarified by the government that relief announced for buying electric vehicles will apply only to commercial vehicles and not to personal transportation. That should effectively end any possibility of consumers switching to electric vehicles.

NSE Nifty index chart pattern

The following comments appeared in last week's post on the daily bar chart pattern of Nifty: "...the index is below a downward-sloping trend line, and has formed a bearish pattern of 'lower tops, lower bottoms'. Some more correction and/or consolidation is likely." 

The index dropped sharply below its 20 week EMA to completely fill the upward 'gap' formed in the week beginning on May 20. Twin downside support can be expected from the blue up trend line and the 50 week EMA.

Any technical bounce from the current level, or from the supports mentioned above, is unlikely to last long. Bears are seizing control of the chart and are likely to 'sell on rise' at every opportunity.

Weekly technical indicators are looking bearish. MACD has crossed below its signal line, and is falling in bullish zone. ROC is facing resistance from its falling 10 week MA in neutral zone. RSI is sliding below its 50% level. Slow stochastic is ready to fall below its 50% level

Nifty's TTM P/E has moved down to 27.92 - its lowest level this month - but remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone. Some more near-term index downside is possible.

Bottomline? Sensex and Nifty charts are slipping into the paws of bears. Tax proposals in the budget and a visibly slowing economy have combined to dampen bullish sentiments. Q1 (Jun '19) results declared so far have failed to create much buying enthusiasm. Time to batten down the hatches and wait for the bearish sentiment to pass.

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