FIIs were net sellers of equity on Thu. and Fri. (Jun 25 and 26) but were net buyers during the first three trading days. Their total net buying was worth Rs 5.56 Billion. DIIs were net buyers of equity on Tue. and Fri. (Jun 23 and 26), but were net sellers during the three other days. Their total net selling was worth Rs 13.1 Billion, as per provisional figures.
According to a report by S&P Global Ratings, India's economy is in deep trouble. Inability to contain the Covid 19 virus, an anaemic policy response, underlying vulnerabilities, particularly in the financial sector can lead to a contraction in GDP growth by 5% during FY 2020-21.
Despite some of the worst macroeconomic fundamentals in recent memory, millions of new investors with no previous trading history have been piling into Asian stock markets. It is time to remain circumspect.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex consolidated sideways with a slight upward bias, spending four of the five trading sessions inside the downward 'gap' that had formed back in Mar 12th.
On Tue. Jun 23, the index closed above the 'gap' for the first time in more than 3.5 months. Partial or complete filling of a downward 'gap' is usually followed by a resumption of the down trend.
On Wed. Jun 24, the index rose higher to test resistance from the sliding 200 day EMA but dropped back inside the 'gap' - forming a reversal day bar (higher high, lower close) that often marks an intermediate top.
Daily technical indicators are in bullish zones, but not showing much upward momentum. MACD is moving sideways in bullish zone along with its merged signal line. ROC is moving sideways above its 10 day MA. RSI is moving down towards its 50% level. Slow stochastic has slipped down from its overbought zone.
The present government has proved quite incapable of either managing the economy or the rapid spread of the Covid 19 virus. Now the China threat along India's border is being mismanaged by resorting to obfuscation and jingoism.
A flush of liquidity helped in boosting three months long rallies in global stock markets. A handful of stocks have led the rally in India, with RIL doing most of the heavy lifting. Any breach of the up trend line from the Mar 24th low can trigger a sharp correction.
NSE Nifty index chart pattern
For the second week in a row, the weekly bar chart pattern of Nifty closed above its 200 week EMA in long-term bull territory, gaining about 138 points (1.35%) on a weekly closing basis.
The breach of the 200 week EMA is a bullish sign. However, there are three overhead resistance levels - the 61.8% Fibonacci retracement level of 10550, the 50 week EMA (at 10610) and the 76 points downward 'gap' formed in the week ending on May 13th. The zone between 10550-10750 may provide strong resistance.
Weekly technical indicators are looking bullish. MACD continues to rise above its signal line inside oversold zone. The signal line has formed a bullish 'rounding bottom' pattern. RSI has just moved above its 50% level. Slow stochastic has entered its overbought zone. Near-term index upside seems limited.
Nifty's TTM P/E has moved up to 26.67, its highest level for the month and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped sharply from its oversold zone. Some near-term index consolidation or correction is possible.
Bottomline? Bear market rallies on Sensex and Nifty charts are close to important resistance levels. Short-term liquidity flows may have given the impression that all is well with the economy and the stock market. Both indices look ripe for corrective moves.
FIIs were net buyers of equity on Thu. and Fri. (Jun 18 and 19) but were net sellers during the first three trading days. Their total net selling was worth Rs 33.2 Billion. DIIs were net sellers of equity on Fri. (Jun 19), but were net buyers during the first four days. Their total net buying was worth Rs 26.6 Billion, as per provisional figures.
After failing to protect India from Chinese incursion in Ladakh, the government has resorted to its overused jingoistic playbook. PSUs and private companies are being asked to ban or cancel orders for Chinese products and services.
Since China's exports to India comprise only about 2% of its total exports, the jingoism is obviously targetted at the domestic audience. Many Indian companies - particularly in pharma and power sectors - are dependent on Chinese goods and services. Their competitiveness will suffer.
BSE Sensex index chart pattern
The following comments were made in last week's post on the daily bar chart pattern of Sensex: "The index may make another attempt to test resistance from the 'gap' zone. Bulls would do well to curb their enthusiasm."
The index consolidated sideways during the first three trading days, only to jump up on Thu. Jun 18 on the back of combined buying by FIIs and DIIs. Friday's foray inside the 'gap' zone was thanks mainly to Reliance touching a new high on news about fresh foreign investments.
Daily technical indicators are looking bullish. MACD is moving sideways in bullish zone after merging with its signal line. ROC is below its 10 day MA in neutral zone. RSI is moving sideways below its overbought zone. Slow stochastic is moving up towards its overbought zone.
Note that Sensex closed at its highest level since formation of the downward 'gap' on Mar 12th. However, all four technical indicators failed to touch new highs. The negative divergences - and overhead resistance from the sliding 200 day EMA - can bring the up trend from the Mar 24th low to an end.
China continues to occupy and threaten India's border areas. Pakistan and Nepal are adding to the confusion. Covid 19 virus is spreading fast and not showing any signs of getting controlled. MSMEs are facing severe financial problems. Q1 (Jun '20) corporate results are expected to be a disaster.
RIL, HDFC twins and a handful of other large-cap stocks are boosting the Sensex and luring late-comers into the market. Time to be very circumspect. Protecting capital should be the main goal for small investors.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty rallied to close just above its 200 week EMA, gaining about 270 points (2.7%) on a weekly closing basis. The index had closed below its 200 week EMA for the previous 14 weeks.
Though the breach of the 200 week EMA is a bullish sign, it hasn't been a convincing breach as yet. In case of further upside, the zone between 10500-10600 may provide resistance.
Weekly technical indicators are looking bullish. MACD is rising above its signal line inside oversold zone. RSI has moved up to its neutral zone. Slow stochastic has risen to the edge of its overbought zone. Some near-term index upside is likely.
Nifty's TTM P/E has moved up to 25.49, its highest level for the month and well above its long-term average inside overbought zone. The breadth indicator NSE TRIN (not shown) has risen sharply inside its oversold zone. Some more near-term index upside is possible.
Bottomline? Bear market rallies on Sensex and Nifty charts are nearing resistance levels. Short-term liquidity flows can give the impression that things are back to normal. An already weak economy has been devastated by the pandemic. The market has already gained 35% from its recent low. Further upside may be limited.
FIIs were net buyers of equity on Mon. and Tue. (Jun 8 and 9) but they turned net sellers during the next three trading days. Their total net selling was worth Rs 17.32 Billion. DIIs were net buyers of equity on Wed. and Fri. (Jun 10 and 12), but were net sellers on the other three days. Their total net selling was worth Rs 4.0 Billion, as per provisional figures.
India's industrial production in Apr '20 shrank a record 55.4%, with manufacturing crashing 64.3%. Government did not release the IIP growth number.
Government withheld the CPI inflation figure for May '20 due to lack of data owing to lockdown restrictions. However, retail food inflation rose 9.28% YoY.
BSE Sensex index chart pattern
Note the following comment in last week's post on the daily bar chart pattern of Sensex: "...technical headwinds may stall the rally soon." The 'headwinds' included the downward 'gap' formed on Mar 12th, the falling 200 day EMA and the 61.8% Fibonacci retracement level of 35920.
The downward 'gap' provided strong resistance. On Mon. Jun 8, the index rose well inside the 'gap' to an intra-day high of 34928, but corrected to close just below the 'gap'. The next day, it again ventured inside the 'gap' intra-day, but touched a lower top of 34811 and dropped to close below the 'gap'.
Sensex traded below the 'gap' during the next three trading days. On Fri. Jun 12, the index dropped below its 20 day and 50 day EMAs to an intra-day low of 32348 but formed a 'reversal day' bar (lower low, higher close) on the back of short-covering and some value buying.
Daily technical indicators are in bullish zones but not showing much upward momentum. MACD is moving sideways above its rising signal line. ROC has crossed below its 10 day MA and dropped down from its overbought zone. RSI has bounced up a bit from the edge of its overbought zone. Slow stochastic has slipped down from its overbought zone.
The index may make another attempt to test resistance from the 'gap' zone. Bulls would do well to curb their enthusiasm. Bear market rallies give the impression that the 'worst is over'.
The prolonged lockdown has led to a sharp increase in retail participation. To counter looming recessions caused by the pandemic, global liquidity taps have been opened and is flowing into equity assets for short-term gains. The flow can reverse at the drop of a hat.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty crossed above its 200 week EMA intra-week but corrected to close below all three weekly EMAs in long-term bear territory.
The index lost about 170 points (1.7%) for the week - as FIIs and DIIs resorted to profit booking - and closed below its 200 week EMA for the 14th straight week.
Weekly technical indicators are looking bullish. MACD is rising above its signal line inside oversold zone. RSI has moved up to its neutral zone. Slow stochastic is rising above its 50% level. Some near-term index consolidation or correction is likely.
After touching a high of 24.41 on Wed. Jun 10, Nifty's TTM P/E has slipped down to 24.08, which is above its long-term average and inside overbought zone. After diving deep inside overbought zone to touch 0.47 on Mon. Jun 8, the breadth indicator NSE TRIN (not shown) has risen sharply inside neutral zone. Near-term index consolidation or correction may be expected.
Bottomline? Bear market rallies on Sensex and Nifty charts can trap unwary and inexperienced investors. Short-term liquidity flows often give the impression that things will be back to normal soon. An already weak economy has been devastated by the pandemic. There is no need to jump into a market that has already gained 35% from its recent low. Remain patient for better opportunities to enter.
FIIs
were net buyers of equity on all five trading days. Their total buying was worth a huge Rs 139.27 Billion (which exceeded their net buying for the entire month of May '20). DIIs
were net buyers of equity on Tue. and Fri. (Jun 2 and 5), but were net sellers on the other three days. Their total net selling was worth Rs 16.0 Billion, as per provisional figures.
India's Manufacturing PMI rose to 30.8 in May '20 from 27.4 in Apr '20. The Services PMI rose to 12.6 in May '20 from a dismal 5.4 in Apr '20. The Composite (Mfg. + Serv.) PMI rose to 14.8 in May '20 from 7.2 in Apr '20. (All the numbers remained well below 50, which indicates contraction.)
Passenger vehicle sales slumped 85% YoY in May '20. Maruti, Hyundai, Toyota, M&M reported more than 80% drop in their wholesale numbers. A silver lining was a 2% increase in M&M tractor sales.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex rode on the back of strong FII buying to close above its 20 day and 50 day EMAs, with a weekly gain of more than 1850 points (5.7%). Can the index continue to rally? It certainly can if FIIs remain active bulls.
However, some technical headwinds may stall the rally soon. Note the downward 'gap' that had formed on Mar 12th and was partly filled the next day. Since then, Sensex has remained below the 'gap' and faced resistance from it three days in a row during the week.
Even if the 'gap' gets completely filled, further upward progress will come up against strong resistances from the falling 200 day EMA and the 61.8% Fibonacci retracement level (35920) of the entire fall from the Jan 20th top of 42274 to the Mar 24th low of 25639.
Daily
technical indicators are looking bullish and overbought. MACD has crossed above
its signal line to enter bullish zone. ROC has slipped down from its overbought zone. RSI and Slow
stochastic are inside their respective overbought zones. Near-term index upside appears limited.
Mid-cap and small-cap stocks have started rallying. That is usually a sign that retail investors are entering the market. The index has already rallied almost 35% from its Mar 24th low, but still remains below its sliding 200 day EMA in a bear market.
The economy is in doldrums. Corona positive cases are climbing higher each day. Service industry has been decimated. Job and salary cuts are increasing. Large share issues from RIL, Bharti, Kotak Bank have sucked liquidity from the secondary market. These are not conducive for a stock market rally.
Low interest rates, deferment of loan payments, easy availability of credit and a torrent of global liquidity seems to be funneling into India's stock market for quick gains instead of funding capital expenditure and manufacturing. This will not end well for newcomers.
If you were lucky or smart (or both) to have entered the market in late March-early April, this may be a good time to take some profit and remain invested with tight stop-losses. Fresh investments are not recommended at this stage.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty formed an upward 'gap' and climbed past its 20 week EMA but stopped short of its sliding 200 week EMA. The index gained more than 550 points (5.8%) for the week - thanks to huge FII buying - but closed below its 200 week EMA for the 13th straight week.
Weekly
technical indicators are looking bullish and showing upward
momentum. MACD has crossed above its signal line inside
oversold zone. RSI and Slow stochastic are in neutral zones (just below their respective 50% levels). Some more near-term index upside is possible.
Nifty's TTM P/E has risen to 23.91, which is above its long-term average and inside overbought zone.
The breadth indicator NSE TRIN (not shown) has dropped inside overbought zone. Near-term index upside may be limited.
Bottomline? Sensex and Nifty charts have been rallying for the past two weeks on the back of FII buying, but continue to trade in bear territory. Technical resistance levels may stall the rallies soon. It may be a good idea to book partial profits, and get rid of portfolio underperformers.
