Saturday, June 27, 2020

Sensex, Nifty charts (Jun 26, 2020): 3 months long rallies losing momentum?

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.

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