Saturday, July 11, 2020

Sensex, Nifty charts (Jul 10, 2020): bulls looking tired after long rallies

FIIs were net buyers of equity on Mon., Tue. and Thu. (Jul 6, 7 and 9), but were net sellers on the other two days. Their total net selling was worth Rs 6.35 Billion. DIIs were net buyers on Mon., but were net sellers on the next four days. Their total net selling was worth Rs 26.09 Billion. 

Sensex and Nifty each gained 1.5% for the week even as FIIs and DIIs were both net sellers. So, who were the buyers? It was you and me - a sign of 'distribution' by the big boys.

India's IIP (Index of Industrial Production) contracted 34.7% in May '20 - an improvement over 57.6% contraction in Apr '20, reflecting gradual resumption of manufacturing activity.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex spent the entire trading week above its three daily EMAs in bull territory for the first time since Jan '20. However, all may not be well, as the past five weeks of trading has formed a bearish 'rising wedge' pattern. A downward breakout from such a pattern is more likely. 

Daily technical indicators are in bullish zones, but beginning to show downward momentum. MACD is sliding towards its signal line. ROC is about to cross below its 10 day MA. RSI looks poised to slip down from its overbought zone. Slow stochastic has started to move down inside its overbought zone.

All four indicators showed negative divergences by failing to rise higher with the index. A flood of short-term liquidity triggered an index rally of more than 40% from its Mar 24th low. The risk on the upside is increasing. 


There appears to be some thaw in the frozen border relations with China - a country notorious for its 'two steps forward, one step back' approach to its border relations with 14 different countries. Agreeing to form 'buffer zones' inside Indian territory - as per reports - is equivalent to falling prey to China's nefarious designs.

The Covid 19 virus continues to flourish - particularly in cities - as WHO has acknowledged airborne spread. Some factories that had opened up are facing a spike in new positive cases. Several hundred air travellers have been afflicted.

Q1 (Jun '20) results are expected to be a disaster. With FIIs and DIIs in sell mode, the rally from the Mar '20 low may have run its course. There may not be a sharp crash. A more gradual consolidation-cum-downward slide is likely.

NSE Nifty index chart pattern




The weekly bar chart pattern of Nifty formed a 45 points upward 'gap' to hop above its 50 week EMA, and closed above its three weekly EMAs for the first time since Feb 20th, gaining 160 points (1.5%) on a weekly closing basis. Bulls need to be wary, as the 'gap' can turn out to be an 'exhaustion gap'.

The index has moved 200 points above the 61.8% Fibonacci retracement level of 10550. However, it failed to close above the 76 points downward 'gap' that formed in the week ending on May 13th - though the 'gap' was filled.

Weekly technical indicators are looking bullish. MACD continues to rise above its signal line inside bearish zone. The signal line has formed a bullish 'rounding bottom' pattern. RSI is slowly rising above its 50% level. Slow stochastic is well inside its overbought zone, but its upward momentum has stalled


Nifty's TTM P/E has moved up to 28.27, which is well inside its overbought zone. The breadth indicator NSE TRIN (not shown) is falling towards its overbought zone, and can limit near-term index upside.

 
Bottomline? Ongoing rallies on Sensex and Nifty charts have overcome important resistance levels. Short-term liquidity flows gave bulls the upper hand. Now there are signs of 'distribution' from strong to weaker hands. Corrective moves can happen at any time.

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