Saturday, May 9, 2020

Sensex, Nifty charts (May 08, 2020): correcting after false breakouts above rising wedge patterns

FIIs were net sellers of equity on the first three days of the week but net buyers on the next two days. Their total net buying was worth a whopping Rs 185.9 Billion - due entirely to the GSK-HUL bulk deal on Thu. May 7. DIIs were net buyers of equity on Wed. and Thu. (May 6 and 7), but net sellers on the other three trading days. Their total net buying was worth Rs 9.18 Billion, as per provisional figures.

Thanks to the countrywide virus lock-down, India's Manufacturing PMI fell to an all-time low of 27.4 in Apr '20 from 51.8 in Mar '20. (A number below 50 indicates contraction.) Services PMI plunged to an unprecedented low of 5.4 in Apr '20 from 49.3 in Mar '20. Composite (Manufacturing + Services) PMI plummeted to 7.2 in Apr '20 from 50.6 in Mar '20.

As per Moody's, India's GDP growth will be nil during FY 2020-21 because of the deep shock triggered by the coronavirus outbreak. Downside risks to growth will increase if the lockdown is extended beyond May 17th.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex had broken out above the 'rising wedge' pattern with an upward 'gap' on Apr 30, and closed above its falling 50 day EMA - appearing to negate the bearish pattern.

On May 4, the index opened trade with a downward 'gap' below its 50 day EMA, and broke out below the 'wedge' (as had been expected earlier). In the process, Nifty formed an 'island reversal' pattern that ended the pullback rally.

The index oscillated about its 20 day EMA during the rest of the week, giving bulls some hope. That does not mean dips will be opportunities to buy. A global economic recession is looming ahead, and India is not in a fiscal position to escape it. 

Daily technical indicators are looking neutral to bearish. MACD is moving along its '0' line in neutral zone. RSI is moving along its 50% level. Slow stochastic is trying to emerge from its oversold zone, and can trigger a technical bounce.

The stock market is expecting some good news in the form of a bailout package for small businesses. Even if it comes, it will likely be too little too late. A government more concerned with optics and stifling dissent appears to have lost its coronavirus fight long ago with its twisted priorities. 

The prolonged lockdown may have delayed the spread of the virus, but without adequate testing/tracing facilities and a creaking healthcare infrastructure, the worst is ahead of - not behind - us. Not a conducive environment for a rising stock market. Small investors should conserve cash to fight another day.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty had broken out above the 'rising wedge' pattern in the previous week, but the breakout turned out to be a 'false' one. The index dropped to close below the 'wedge' - losing more than 600 points (6.2%) for the week.

The unexpected upward breakout had appeared to negate the bearish 'rising wedge' pattern. The week's trade has restored the empirical order (of a downward breakout from a 'rising wedge' pattern).

The 20 week EMA has crossed below the 200 week EMA. All three weekly EMAs continue to fall, which is a sign of a long-term bear market. The 'death cross' of the 50 week EMA below the 200 week EMA - which will technically confirm a long-term bear market - is still awaited.

Weekly technical indicators are giving bearish signals. MACD is below its signal line inside its oversold zone, and its upward momentum has stalled. RSI is falling inside bearish zone. Slow stochastic has dropped to the edge of its overbought zone

Nifty's TTM P/E has moved down to 21.28 but remains above its long-term average. The breadth indicator NSE TRIN (not shown) bounced up from the edge of its overbought zone, hinting at near-term index
correction or consolidation.

Bottomline? Sensex and Nifty charts continue to trade below their respective 200 day and 200 week EMAs in bear markets. Extension of the corona virus lockdown is showing signs of pushing an already weak economy into a recession. Small investors can continue with their SIPs, but should avoid any bargain hunting

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