FIIs eased up on their huge selling spree. They were net sellers of equity on the first four trading days, but were net buyers on Fri. Mar 27. Their total net selling was worth Rs 71.65 Billion. DIIs were net sellers of equity on Thu. Mar 26, but were net buyers on the other four days. Their total net buying was worth Rs 43.08 Billion, as per provisional figures.
RBI resorted to out-of-turn interest rate cuts in a desperate bid to stop the economy from sliding further. The Repo rate was cut by 75 bps (0.75%) to 4.4%, which is lower than its previous low of 4.74% in Apr '09.
The Reverse Repo was cut by 90 bps (0.9%) to 4%. The CRR was cut by 100 bps (1%) to 3%, which is likely to inject Rs 1.4 Trillion into the banking system. The move is expected to encourage banks to lend more.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex dropped to touch a new 3 year low of 25639 on Tue. Mar 24 before embarking on a sharp and swift short-covering rally. The index touched an intra-day high of 31126 on Fri. Mar 27, but formed a 'reversal day' bar (higher high, lower close).
Sensex is correcting the 11 year gain of some 34000 odd points from the Mar '09 low to the Jan '20 top. A 50% Fibonacci retracement is expected to drop the index to about 25100. Tuesday's low came within 500 points of this critical level.
Daily technical indicators are in various stages of correcting oversold conditions. MACD turned up inside its oversold zone, but is facing resistance from its falling signal line. RSI has emerged from its oversold zone, but its upward momentum has stalled. Slow stochastic has risen sharply towards its overbought zone, hinting at an end to the short-covering rally.
Sensex corrected 16600 odd points from its Jan 20th top to its Mar 24th low. A 38.2% Fibonacci retracement of the fall can take the index to about 32000. The falling 20 day EMA is at 32200. The zone between 32000-32200 will be a tough resistance to cross for the index.
Small investors with no experience of the 2008 bear market would do well to refrain from chasing the rally. Sensex may fall further before a recovery in the stock market and the economy can happen. It will be a slow grind upward taking several months - may be even a year or two.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty bounced up sharply after touching a new 3 year low of 7511, but closed well below its 200 week EMA for the third straight week. The 20 week EMA crossed below its 50 week EMA for the first time in 3 years, and both weekly EMAs are falling. The 200 week EMA is beginning to turn down.
The long-term bullish structure of the chart has been wrecked by bears. FIIs have pulled out more than Rs 580 Billion from their equity holdings during the month, and are expected to continue with their exit strategy.
Weekly technical indicators are looking bearish and oversold. MACD is falling inside its oversold zone. RSI is also falling inside its oversold zone. Slow stochastic has bounced up a bit from the edge of its oversold zone. Last week's short-covering rally should end soon.
After touching a low of 17.15 on Mon. Mar 23, Nifty's TTM P/E moved up to 19.52, which remains above its long-term average. The breadth indicator NSE TRIN (not shown) dropped sharply into its neutral zone, where it has been treading water. Any further rally may be short-lived.
Bottomline? Sensex and Nifty charts have closed well below their respective 200 week EMAs for the third straight week - signalling the start of long-term bear markets. RBI's desperate interest rate cuts are too little too late to trigger economic growth that has been decimated by the virus lock-down. Small investors should continue with their SIPs, while waiting patiently for the correction to play out.
FIIs were net sellers of equity on all five trading days. Their total net selling was worth a whopping Rs 209.09 Billion. DIIs were net buyers of equity on all five days. Their total net buying was worth Rs 164.72 Billion, as per provisional figures.
India's WPI-based inflation softened to 2.26% in Feb '20 from 3.1% in Jan '20 and 2.93% in Feb '19 - thanks to cheaper food and vegetables prices.
On Friday, Mar 20, SEBI announced a few steps to ease market volatility by limiting short positions in F&O segment, increasing margins on non-F&O stocks and revising marketwide positions limits for stock derivative contracts. (These measures will come into effect from Mon. Mar 23.)
BSE Sensex index chart pattern
Note the following comment from last week's post on the daily bar chart pattern of Sensex:
"Since 'panic bottoms' seldom hold, expect Friday's intra-day low of 29389 will be tested and breached."
It came as no surprise that the index closed well below 29389 on Wed. Mar 18, and dropped further to touch a new low of 26714 on Thu. Mar 19.
Friday's sharp rally on short-covering and some value buying was typical of bear market rallies, and should be treated as a 'dead-cat bounce'. That means, if the index tries to rally higher, expect bears to 'sell on rise'.
Sensex appears to be correcting the 11 year gain of some 34000 odd points from the Mar '09 low to the Jan '20 top. A 50% Fibonacci retracement will drop the index to about 25100. Thursday's low came within 1600 points of this critical level.
Daily technical indicators are looking bearish and oversold. MACD is falling deeper inside its oversold zone. RSI is trying to emerge from its oversold zone. Slow stochastic is oscillating about the edge of its oversold zone. Remember that a stock market can remain oversold for long periods during a bear phase.
The Corona virus may have been contained in China, but is spreading rapidly in Europe, USA, Australia. India will not escape its tentacles easily - whether you clap your hands on Sunday or not.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty touched a new 3 year low of 7833, and closed well below its 200 week EMA for the second straight week. The 20 week EMA has crossed below its 50 week EMA for the first time in 3 years, and both weekly EMAs are falling towards the 200 week EMA.
The long-term bullish structure of the chart has been dismantled by bears. FIIs have pulled out more than Rs 510 Billion from their equity holdings during the past three weeks, and may continue with their exit strategy.
Note that the past two weeks' steep correction, which has been blamed on the Corona virus by experts, was preceded by three weeks of correction that had dropped Nifty close to its 200 week EMA. The virus only exacerbated the already bearish mood.
Weekly technical indicators are looking bearish and oversold. MACD is falling inside its oversold zone. RSI is also falling inside its oversold zone. Slow stochastic has bounced up a bit from the edge of its oversold zone. Friday's short-covering bounce may not last long before bears resume their selling.
Nifty's TTM P/E has moved down further to 19.72, but remains above its long-term average. The breadth indicator NSE TRIN (not shown) has slipped down from its oversold zone, hinting at some near-term index pullback or consolidation.
Bottomline? Sensex and Nifty charts have closed well below their respective 200 week EMAs for the second straight week - signalling the end of long-term bull markets. A rapidly spreading corona virus has compounded bearish sentiment about weak economic growth and fiasco in the financial sector. Small investors should stay on the sidelines and curb any urge for bottom-fishing.
The Festival of Colours failed to enthuse FIIs, who were net sellers of equity on all four trading days of a holiday-shortened week. Their total net selling was worth a massive Rs 196.14 Billion. DIIs were net buyers of equity on all four days. Their total net buying was worth Rs 175.96 Billion, as per provisional figures.
India's Current Account Deficit (CAD) declined to 0.2% of GDP during Oct-Dec '19 from 0.9% during Jul-Sep '19 and 2.7% during Oct-Dec '18. The contraction in CAD was due to lower trade deficit and higher services receipts.
CPI-based inflation eased to 6.58% in Feb '20 from 7.59% in Jan '20. It was the first decline in 7 months, thanks to lower food prices.
BSE Sensex index chart pattern
The following comments from last week's post on the daily bar chart pattern of Sensex are worth noting:
"The impending 'death cross' of the 50 day EMA (blue) below the 200 day EMA will technically confirm a bear market."
"If Sensex breaches 36000, it can fall to its 200 week EMA (currently at 34800)."
The 36000 level, which had acted as a support during Aug-Sep '19, was easily breached on Mon. Mar 9. As often happens, the breached support level turned into a resistance level during a pullback on the next trading day (Mar 11).
Sensex formed a downward gap of 790 odd points on Thu. Mar 12, as bears pressed home their advantage. Panic selling on Fri. Mar 13 caused a circuit breaker and a 45 min. trading halt. On reopening of trade, huge short covering led to a sharp technical bounce that partly filled Thursday's 'gap'.
A partly or completely filled downward 'gap' is usually followed by a resumption of the down move. Note that the current level of the 200 week EMA (not shown) is 34450, which is just above Thursday's downward 'gap'. The zone between 34450-36000 should act as a strong resistance.
Friday's panic selling that dropped the index below 30000 - its lowest level in 3 years - may be a sign of capitulation by bulls that marks the end of a bull market. The 'death cross' of the 50 day EMA below the 200 day EMA - marked by grey oval - has technically confirmed a bear market. Thursday's closing level of 32778 was a 22.5% fall from Jan 20th top of 42274. A fall of 20% from the top is another technical sign of a bear market.
Can Friday's sharp fall below 30000, and the subsequent sharp recovery, be termed as a 'selling exhaustion'? The short answer is: No. A 'selling exhaustion' is a sign of capitulation by bears that typically happens after a prolonged downward move. Also, trading volumes should be significantly higher - which was not the case on Friday (Mar 13).
Daily technical indicators are in bearish zones and looking oversold. MACD is falling deeper inside its oversold zone. RSI is trying to emerge from its oversold zone. Slow stochastic has emerged from its oversold zone after re-entering it.
Since 'panic bottoms' seldom hold, expect Friday's intra-day low of 29389 will be tested and breached. Any continuation of Friday's short-covering pullback can be used to exit non-performing stocks in portfolios.
NSE Nifty index chart pattern
What a difference a week makes! The weekly bar chart pattern of Nifty formed a 76 points downward 'gap', crashed through its 200 week EMA and plummeted below 8600 - its lowest level in 3 years.
A circuit breaker and trading halt of 45 mins on Fri. Mar 13 led to a sharp short-covering pullback that stopped short of the support level of 10000. The support level should now become a resistance level. A bullish pattern of 'higher tops, higher bottoms' - formed during the past 18 months - has been negated.
The index fall below the 200 week EMA with a downward 'gap' is a sign that the long-term bull market has come to an end. The rapidly spreading corona virus has spooked global stock markets and FIIs, who have pulled out more than Rs 300 Billion during the past two weeks.
Weekly technical indicators are looking bearish and oversold. MACD is falling sharply in bearish zone. RSI and Slow stochastic have entered their respective oversold zones. Friday's short-covering bounce may last a bit longer before bears resume their selling.
Nifty's TTM P/E has moved down to 22.66, but still remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone. Some more near-term index pullback or some consolidation is possible.
Bottomline? Sensex and Nifty charts have closed well below their respective 200 week EMAs - signalling the end of long-term bull markets. A rapidly spreading corona virus has exacerbated uncertainty and concerns about weak economic growth and fiasco in the financial sector. Small investors should stay on the sidelines and use pullback rallies to move out of non-performing stocks.
FIIs were net sellers of equity on all five trading days of the week. Their total net selling was worth a huge Rs 107.20 Billion. DIIs were net buyers of equity on all five days. Their total net buying was worth Rs 100.93 Billion, as per provisional figures.
After touching an 8-year high of 55.3 in Jan '20, India's Manufacturing PMI slipped to 54.5 in Feb '20. (A figure above 50 indicates expansion.) However, India's Services PMI rose from 55.5 in Jan '20 to a 7-year high of 57.5 in Feb '20. The Composite (Manufacturing + Services) PMI rose from 56.3 in Jan '20 to 57.6 in Feb '20.
As per CMIE, India's unemployment rate rose to 7.78% in Feb '20 - highest in 4 months - from 7.16% in Jan '20. In rural areas, unemployment rate increased to 7.37% in Feb '20 from 5.97% in Jan '20; in urban areas, it fell to 8.65% from 9.7%.
BSE Sensex index chart pattern
Note the following comments from last week's post on the daily bar chart pattern of Sensex:
"... worrisome for bulls is the 336 points downward 'gap' formed on Fri. Feb 28. Such a 'gap' occurring in the midst of a down move can be a 'measuring gap' - with a downward target of about 37100."
"Any index pullback towards the 200 day EMA may partially or completely fill the downward 'gap'. The corrective down move can be expected to resume thereafter."
"A technical bounce towards 39000 is a possibility."
By touching a low of 37011 on Fri. Mar 6, the initial downward target of 37100 was met. The index pulled back past 39000 to touch an intra-day high of 39083 on Mon. Mar 2, but failed to fill the downward 'gap' formed on Feb 28.
After sideways consolidation below the 'gap' during the first four days of the week, the index formed another larger downward 'gap' of 640 points on Fri. Mar 06. Two downward gaps within a short time is usually treated as a single 'gap' for measuring purposes - giving a new downward target of 36300.
On Sep 19 '19, Sensex had touched an intra-day low of 35988. That is close to 36000. So, there is a possibility that the index may find an interim bottom in the zone between 36000-36300. Why? Because back-to-back downward gaps is often a sign of selling exhaustion.
Daily technical indicators are in bearish zones and looking oversold. MACD is falling deeper inside its oversold zone. RSI has re-entered its oversold zone. However, Slow stochastic has emerged from its oversold zone, hinting at a pullback to partly or completely fill the downward 'gap' formed on Fri. Mar 6.
The 20 day EMA (in red) has crossed below the 200 day EMA (green). The impending 'death cross' of the 50 day EMA (blue) below the 200 day EMA will technically confirm a bear market.
Government's decision to bail out Yes Bank may be good news for depositors - despite the withdrawal limitation - but not so good news for bond holders and equity shareholders. Banking sector stocks were hammered by bears on Friday, perhaps undeservedly.
Small investors should wait and watch. If Sensex breaches 36000, it can fall to its 200 week EMA (currently at 34800).
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty continued to fall after breaking out below a 'diamond' reversal pattern, and closed below the psychological level of 11000 after 6 months. A bullish pattern of 'higher tops, higher bottoms' - formed during the past 18 months - is just about intact.
The index is still trading above its rising 200 week EMA in a long-term bull market. However, the rapidly spreading corona virus has curbed bullish enthusiasm, particularly of FIIs, who have been huge net sellers of equity during the past couple of weeks.
Weekly technical indicators are looking bearish and showing downward momentum. MACD has dropped sharply to its neutral zone. RSI and Slow stochastic are poised to enter their respective oversold zones. The correction may last a bit longer before a technical bounce can occur.
Nifty's TTM P/E has moved down to 25.01, but remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) had dropped to the edge of its overbought zone on Wed. Mar 4, but has since risen sharply to re-enter its oversold zone. A near-term index pullback or some consolidation is possible.
Bottomline? Sensex and Nifty charts have corrected more than 12.5% from their respective lifetime highs touched on Jan 20th. Widening fiscal deficit and weak economic growth compounded by corona virus fears and fiasco in the financial sector have wreaked havoc on investor sentiment. Small investors should avoid bottom fishing and stay on the sidelines.
