Saturday, June 20, 2020

Sensex, Nifty charts (Jun 19, 2020): facing resistances after sharp rallies

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.

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