Possible Nifty retracement levels

First the bad news. FIIs were net sellers of equity worth a huge Rs 127 Billion during the previous five trading sessions (Jan 22, 25, 27-29). That is the main reason for Nifty shedding 1150 points (7.8%) from its Jan 21 lifetime top (of 14753.5) to close just below its 50 day EMA.

Now the good news. Despite the sharp correction, the index is trading well above its rising 200 day EMA. That means the bull market is alive and kicking.

So, is this index dip a good time to buy? That would depend on an investor's risk tolerance and investment time horizon. The best time to buy is when you have money to spare. 

While timing the market is always difficult, it helps not to buy near market tops. Experienced investors have the patience to wait months (sometimes even years) for better buying opportunities.

For those not so experienced, having some idea of index (or stock) retracement levels can help to decide about entry points. 

Typically, Fibonacci retracement levels of 38.2% and 50% seem to work on technical charts. What are these levels for Nifty?

Let us make a couple of assumptions. The first assumption is that the index is correcting the gains made from its Sep '20 low (of 10790). A 38.2% retracement gives a figure of around 13250; a 50% retracement means about 12800. By touching a low of 13600 on Fri. Jan 29, Nifty has almost retraced 38.2%.

Note that the index has penetrated the lower Bollinger Band. Also, the Slow stochastic indicator is well inside its oversold zone. So, a technical bounce is very much within the realm of possibilities. 

Question is: Will the likely bounce rise to a new high, or get terminated at the 20 day SMA (middle Bollinger Band, marked by green dotted line)? In the latter case, the correction may resume and the index can drop to lower levels.

That leads us to our second assumption - that Nifty is actually in the process of correcting all gains made since its Mar '20 low (of 7511). A 38.2% retracement gives a figure of around 12000; a 50% retracement can drop the index to 11150.

That leaves the door open for a test of support from the 200 day EMA - currently at 12200. What if the 200 day EMA is breached and the index does fall to 11150 (however unlikely it may seem now)?

Then we may need to reassess the sustainability of the current bull phase. The annual budget on Feb 1 can have some short-term effect on the market. Long-term, it is profitability and earnings growth of India Inc. that will decide the winners and losers.

Sticking to large-cap market leaders won't hurt.

Sensex, Nifty charts (May 29, 2020): shorts get squeezed

For the month of May '20, FIIs were net buyers of equity worth Rs 139.14 Billion. (On May 7 alone, the GSK-HUL bulk deal led to their net buying worth Rs 190.6 Billion. Otherwise, they would have been net sellers for the month.) DIIs were net buyers of equity worth Rs 122.93 Billion, as per provisional figures.

India's GDP growth during Q4 (Jan-Mar '20) was a dismal 3.1% despite only 7 days of lockdown in Mar '20. That dragged FY 2019-20 GDP growth down to a more than a decade low of 4.2%. GDP during Q1 (Apr-Jun '20) is likely to slip into negative zone. 

For FY 2019-20, India's fiscal deficit widened to 4.59% of GDP, overshooting Govt.'s upwardly revised target of 3.8%. The actual deficit was Rs 9.35 Trillion, which was 22% higher than the revised target of Rs 7.66 Trillion.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex made a sharp up move in a holiday-shortened trading week that included monthly F&O expiry on Thu. May 28. Shorts got squeezed as both FIIs and DIIs were net buyers of equity.

Bulls were successful in ensuring that the index crossed two important hurdles - the middle Bollinger Band (20 day SMA) and the sliding 50 day EMA. However, the upper Bollinger Band may limit further index upside. Sensex continues to trade well below its falling 200 day EMA in a bear market.

Daily technical indicators are giving bullish signals. MACD has crossed above its signal line in neutral zone. RSI is rising above its 50% level. Slow stochastic has climbed sharply past its 50% level towards its overbought zone. Some more near-term index upside is a possibility, but don't expect a runaway rally.

Note the following comments from last week's post: "RIL's huge rights issue at a substantial premium is open for subscription till June 9th. Don't expect the index to fall much till then." The rights issue pot has been kept boiling by wily bullish announcements (e.g. multiple foreign investments in Jio, and a possible overseas listing after one or two years). The Rights Entitlement form is trading at a premium!  

India's economy has been tanking for a while. The pandemic has made it worse. Now there is a locust attack. Prolonged lockdown restrictions are gradually getting lifted though the Covid 19 curve refuses to flatten. There is no vaccine or cure in sight.

Under the circumstances, the index should be plummeting instead of moving up. True mettle of small investors are tested during such times. The market doesn't understand logic. It moves on sentiment and liquidity in the near-term. 

So, neither should you fight the 'ticker tape', nor should you jump in with all guns blazing. Just follow your Asset Allocation plan, and stay detached and calm.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty gained more than 540 points (6%) on a weekly closing basis, after three straight weeks of lower closes. Shorts were squeezed out, thanks to combined buying by FIIs and DIIs. However, the index closed below its three weekly EMAs for the 12th straight week.

The 20 week EMA crossed below the 200 week EMA a while back. All three weekly EMAs are falling, 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 in bearish zones, but showing slight upward momentum. MACD is trying to cross above its falling signal line inside oversold zone. RSI is rising towards neutral zone. Slow stochastic is in bearish zone (below its 50% level). Some near-term index upside is possible. 

Nifty's TTM P/E has risen to its highest level for the month at 22.38, which is above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling inside neutral zone, hinting at near-term index upside or some consolidation.

Bottomline? Sensex and Nifty charts are trading below their respective 200 day and 200 week EMAs in bear markets. Positive Covid 19 cases continue to increase rapidly after easing of lockdown restrictions. India's economy is on the verge of falling into a recession. Don't stop your SIPs, but don't be in a hurry to do bottom fishing.

Nifty chart: a midweek technical update (Dec 18, 2019)

FIIs were net buyers of equity during the first three trading days this week. Their total net buying was worth Rs 38.1 Billion. DIIs were net sellers of equity on all three trading days. Their total net selling was worth Rs 29.7 Billion, as per provisional figures.

India's WPI-based inflation rose 0.58% in Nov '19 against 0.16% in Oct '19 due to increase in prices of food items. WPI inflation was 4.47% in Nov '18.

There are a few green shoots of revival visible in the Indian economy. During Nov '19, passenger air traffic volume rose 11.2%, fuel demand rose 10%, bitumen consumption indicated increase in road construction.

The daily bar chart pattern of Nifty rose to touch new intra-day (12237.70) and closing (12221.65) highs today (Dec 18), on the back of strong buying by FIIs. In the process, the index pierced and closed above the upper Bollinger Band.

All three EMAs are rising, and the index is trading above them in a bull market. The rally continues to be led by a few large-cap stocks, like RIL, HDFC. Mid-cap and small-cap stocks are continuing to struggle.

Daily technical indicators are looking bullish and showing upward momentum. MACD has crossed above its falling signal line in bullish zone. RSI is rising above its 50% level. Slow stochastic has entered its overbought zone. 

All three indicators are showing negative divergences by touching lower tops while the index rose to touch a new high. A corrective move may follow.

Nifty's TTM P/E has moved up to 28.48 - its highest level this month, and well inside its overbought zone. After a sharp fall from its oversold zone, the breadth indicator NSE TRIN (not shown) is rising in neutral zone, hinting at some near-term index downside.

Part resolution of US-China trade dispute has encouraged bulls in global stock markets. However, a possible impeachment process of the US President can trigger some profit booking.

Nifty chart: a midweek technical update (Dec 11, 2019)

FIIs were net buyers of equity on Mon. and Wed. (Nov 9 and 11), but were net sellers on Tue. (Nov 10). Their total net buying was worth Rs 7.0 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 6.5 Billion, as per provisional figures.

India's electricity demand fell 4.3% to 94.6 Billion units in Nov '19 against 98.84 Billion units in Nov '18. It was the fourth straight month of power demand decline, as per CEA. Power demand had declined 13.2% YoY in Oct '19 - the steepest monthly decline in more than 12 years, reflecting a deepening growth slowdown.

ADB has slashed India's GDP growth forecast to 5.1% in FY 2019-20 from 6.5% that was forecast earlier. For FY 2020-21, GDP growth forecast has been cut to 6.5% from 7.2% on the back of risk aversion, credit crunch, slumping consumption and rural distress.

The daily bar chart pattern of Nifty has been correcting after touching a new high of 12158.80 on Nov 28 and penetrating the upper Bollinger Band. The correction has dropped the index below the middle band (20 day SMA, marked by green dotted line).

Note that the lower Bollinger Band is at 11819 and the rising 50 day EMA is at 11777. The zone between 11777 and 11819 should provide good support to the index on the downside.

Daily technical indicators are looking bearish to neutral. MACD is moving down below its falling signal line in bullish zone. RSI is exactly at its 50% level. Slow stochastic has dropped inside its oversold zone, and may have triggered today's pullback past 11900. 

Nifty's TTM P/E has slipped down to 27.76, which remains well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside oversold zone, hinting at some near-term index upside.

The index may be forming a 'head and shoulders' reversal pattern with a 'neckline' at 11800. The left 'shoulder' and 'head' have formed already. A technical bounce towards 12000 followed by a fall towards 11800 will complete the right 'shoulder' formation.

The right 'shoulder' hasn't formed yet - and may not form at all. However, the possibility of formation of a known reversal pattern should be treated with respect and caution. In case the pattern does play out, Nifty can move down to test support from its 200 day EMA.

Nifty chart: a midweek technical update (Sep 25, 2019)

FIIs were huge net buyers of equity on Mon. Sep 23, but were net sellers on the next two trading days this week. Their total net buying was worth Rs 15.1 Billion. DIIs were net sellers of equity on Wed. Sep 25, but were net buyers on the first two trading days. Their total net buying was worth only Rs 22.8 Million, as per provisional figures.

The government is expecting a Rs 400 Billion shortfall in GST collections during FY 2019-20 due to the economic slowdown. That could put pressure on the compensation that state governments are liable to receive in case tax growth falls below 14% for the year.

India's apparel exports have revived by 4% YoY during the Apr-Jul '19 period after two consecutive years of de-growth of 3-4% per year. However, ICRA has reported a likely slowdown in growth during the rest of FY 2019-20.

The daily bar chart pattern of Nifty shows how the Finance Minister's fourth 'booster' dose - a cut in corporate taxes announced on Fri. Sep 20 morning - has turned around the bearish sentiment prevailing in the market.

A short-covering frenzy erupted, and the index soared like a rocket past its 200 day EMA and the upper Bollinger Band. Nifty gained more than 550 points (5.3%) in one day.

There was more fun and games on Mon. Sep 23. Huge FII buying propelled the index higher with an upward 'gap' of 90 points. Nifty tested the 11700 level intra-day and closed with a gain of more than 300 points.

Sanity prevailed on Tue. Sep 24. The index formed an indecisive 'doji' and closed just 12 points lower but still traded above the upper Bollinger Band.

Both FIIs and DIIs were in profit booking mode today (Wed. Sep 25). Nifty fell sharply below the upper Bollinger Band and partly filled the 90 points upward 'gap' formed on Mon. Sep 23.

Daily technical indicators are in bullish zones. MACD is rising above its signal line. RSI has made a U-turn before it could reach its overbought zone. Slow stochastic is inside its overbought zone, but has turned down. Some more correction or consolidation is possible.

Nifty's TTM P/E has slipped down to 25.92, but remains inside its overbought zone and higher than its long-term average. The breadth indicator NSE TRIN (not shown) is hovering near the edge of its oversold zone, hinting at some near-term index consolidation.

The post-budget downward 'gap' of 26 points can provide resistance on the upside, in case bulls get adventurous again. The corporate tax cut has come as a sentiment booster to the stock market, but is unlikely to stimulate consumer demand in the near term.

A silver lining is that the festive season is almost upon us. Urban consumers may be able to open their purse strings - thanks to their Diwali bonuses. It is doubtful that rural consumers will be able to do likewise.

Small investors should avoid falling into the trap of 'buy' calls and big upside targets being suggested by experts on TV and pink sheets. An index barely 5-6% below its lifetime high is not providing a 'great buying opportunity'. 

Stay invested, continue with your SIPs, get rid of non-performers in your portfolios, and be very selective in what you buy.

Nifty chart: a midweek technical update (Sep 18, 2019)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 25.2 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 11.7 Billion, as per provisional figures.

India's WPI-based inflation was 1.08% in Aug '19 - the same as in Jul '19 but much lower than 4.62% in Aug '18. Rise in inflation of food items was balanced by deflation in fuel and power.

The Finance Ministry is considering a fourth 'booster' dose to revive a sliding economy, after the first three 'booster' doses failed to generate any significant revival in 'animal spirits'. 

For the past seven weeks, the daily bar chart pattern of Nifty has been consolidating sideways with a slight downward bias, touching progressively lower tops. The 'death cross' (marked by grey oval) of the 50 day EMA below the 200 day EMA at the beginning of the month had technically confirmed a bear market. 

Bulls are fighting hard, but the resistance zone between 11100 and 11200 has proved to be a tough hurdle. The Aug 23 low of 10637 is in danger of being tested, and breached.

The index had bounced up after testing support from the lower Bollinger Band at the beginning of the month. But the counter-trend rally lost steam after crossing above the middle band (20 day SMA - marked by green dotted line).

Daily technical indicators are in bearish zones. MACD is seeking support from its rising signal line. RSI is below its 50% level. Slow stochastic formed a 'double top' reversal pattern at the edge of its overbought zone, and has dropped sharply below its 50% level. 

Nifty's TTM P/E has slipped down to 26.66, but remains inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is oscillating near the edge of its oversold zone, hinting at some near-term index consolidation.

Three 'booster packages' from the Finance Minister have come and gone without making a dent on the bearish sentiment of FIIs. Bulls are hoping for a miracle from our popular leader. But he seems more interested in fiddling around with photo-ops while the economy is sinking.

Q2 (Sep '19) corporate earnings may be worse than Q1 (Jun '19) numbers. The upcoming festive season sales may prevent a total washout. Small investors should be extremely wary about bottom fishing.

Nifty chart: a midweek technical update (Aug 28, 2019)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 26.1 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 27.9 Billion, as per provisional figures.

RBI's transfer of Rs 1.76 Trillion surplus to the government has drawn wide-spread criticism from 'Harvard economists'. It is unfortunate that the first action of the 'hard work economists' to tackle the economic slowdown was to put their collective hands inside RBI's till. 

As per Moody's, the 'booster package' announced by the Finance Minister on Fri. Aug 23 may boost investor and business sentiments, but won't be able to prevent India's GDP growth to slip to 6.4% for FY 2019-20.

The following remark was made in last week's technical update on the daily bar chart pattern of Nifty: "Nifty's previous (Aug 5) low of 10783 may get tested, and breached."

The day after breaking out below a 'rising wedge' pattern, the index fell below its Aug 5 low of 10783 and closed just below the lower Bollinger Band at 10741 on Thu. Aug 22.

On Fri. Aug 23, Nifty touched an intra-day low of 10637 but bounced up on short-covering after rumours of a 'booster package' from the Finance Minister - forming a 'reversal day' bar (lower low, higher close) that often marks an intermediate bottom.

The effect of the 'booster package' - announced after close of trading on Friday - lasted two days. On Mon. Aug 26, Nifty rallied strongly and closed above its 20 day SMA (middle Bollinger Band - marked by green dotted line). 

There was some follow-up buying on Tue. Aug 27, but the index formed a 'doji' candlestick that indicated uncertainty among bulls and bears. An intra-day pullback to the 20 day SMA today and some short-covering before tomorrow's monthly F&O expiry took the index to a close just below 11050.

A dark cloud of resistance is looming overhead (marked by grey oval) - consisting of the upper Bollinger Band and rapidly merging 50 day and 200 day EMAs. The 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a bear market.

Daily technical indicators are giving mixed signals. MACD is rising above its signal line in bearish zone. RSI has started to fall after facing resistance from its 50% level. Slow stochastic has risen to the edge of its overbought zone. Any further index rally is likely to be short-lived. 

Nifty's TTM P/E is at 27.33, which is inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone, hinting at some near-term index up side.

The 'booster package' from the Finance Minister came 'too little, too late'. No major reform announcements were made. The 'low hanging fruit' (RBI surplus) has been plucked. It will be interesting to see what happens next if the economy continues to slide.

FMCG giant HUL has announced 20-30% price cuts on soaps. Maruti has announced lay-offs. Q1 (Jun '19) results showed continued tepid earnings growth. The only 'animal spirits' visible are of the bearish kind.

Nifty chart: a midweek technical update (Aug 21, 2019)

FIIs were net sellers of equity on Mon. and Wed. (Aug 19 and 21) but net buyers on Tue. this week. Their total net selling was worth Rs 7.0 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 10.4 Billion, as per provisional figures.

According to the RBI Governor, moderation in CPI inflation including food, fuel and contraction in merchandise imports is actually reflecting a slowdown in domestic demand. This raises hopes that RBI may cut interest rates more rapidly.

SEBI has decided to simplify and rationalise the existing regulatory framework for FIIs by easing operational constraints and compliance requirements. FIIs will now be recategorised into two classes instead of three.

The daily bar chart pattern of Nifty has broken out below a bearish 'rising wedge' pattern and is poised to fall further. Note that the index had fallen below bearish 'rising wedge' and 'flag' patterns in July '19.

The falling middle Bollinger Band (20 day SMA, marked by green dotted line) provided strong resistance to the index, just as it had done last month during formation of the 'flag' pattern.

The 50 day EMA is falling towards the 200 day EMA, and the space between the two EMAs is decreasing rapidly. A 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a bear market.

Daily technical indicators are in bearish zones. MACD is moving sideways above its signal line. RSI is falling below its 50% level. Slow stochastic has started to fall after facing resistance from its 50% level. Nifty's previous (Aug 5) low of 10783 may get tested, and breached.

Nifty's TTM P/E is at 27.01, which is inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising further inside its oversold zone, hinting at some more near-term index down side.

Piecemeal 'packages' being announced by various clueless government departments are unlikely to change the bearish sentiment prevailing in the stock market.

Demonetisation had broken the back of rural and unorganised sectors. Tax terrorism is now taking a toll on the organised sector. Analysts who are calling a bottom of the economic cycle are just trying to 'talk up' the market.

Small investors should stay on the sidelines, concentrate on wealth protection and start preparing a 'buy list'.

Nifty chart: a midweek technical update (Jul 31, 2019)

Except Jul 1, FIIs have been net sellers every single day during Jul '19. Their total net selling of equity during the month was worth Rs 198.70 Billion. Except Jul 1, DIIs have been net buyers every single day during Jul '19. Their total net buying of equity during the month was worth Rs 203.90 Billion, as per provisional figures. 

The government's fiscal deficit during Apr-Jun '19 touched Rs 4.32 Trillion, which is 61.4% of the budget estimate of Rs 7.03 Trillion for FY 2019-20. During Apr-Jun '18, the fiscal deficit was 68.7% of the budget estimate. Revenue receipts during Apr-Jun '19 was 14.4% of the budget estimate against 15.5% during Apr-Jun '18.

The sad episode of the Cafe Coffee Day founder has been a blow to the coffee sector, and brought 'ease of doing business' - or the lack of it - to the fore. Entrepreneurs take huge risks to set up businesses, and provide jobs to many, but tax terrorism can push the honest ones over the edge. The dishonest flout every rule and get away with it.

The daily bar chart pattern of Nifty is teetering on the brink of a bear market. On Jul 8, 9 and 10 the index had breached the lower Bollinger Band. The subsequent technical bounce faced strong resistance from the middle Bollinger Band (i.e. 20 day SMA - dotted green line) on Jul 17.

Nifty dropped sharply to the lower Bollinger Band on Jul 19. Since then, the index has been sliding down along the lower Bollinger Band - breaching technical supports in quick succession on the back of selling by FIIs. 

Two important technical points to note are: (1) a fall below the 200 day EMA (in blue) into bear territory on Jul 24-25, followed by a pullback on Jul 26; (2) a fall below the 200 day SMA (in red) and the previous (May 14) low of 11108 on Jul 30, followed by a pullback today.

Daily technical indicators are looking oversold. MACD is below its signal line and is falling inside its oversold zone. RSI is trying to emerge from its oversold zone. Slow stochastic is moving sideways well inside its oversold zone. Nifty may try to move up to the 11300-11400 zone. Expect bears to 'sell on rise'.

Nifty's TTM P/E has moved down to 27.42, but remains well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen high inside its oversold zone - hinting at some near-term index upside.

The breaches of the 200 day EMA and 200 day SMA are clear indications that Nifty is ready to fall into a bear market. The technical confirmation of a bear market will be provided by the 'death cross' of the 50 day EMA below the 200 day EMA.

Though the 50 day EMA is falling towards the 200 day EMA, it is still 260 points above the long-term moving average. That gives bulls a bit of wiggle room. But avoid bottom fishing. Use any near-term upside to book profits.

Gold and Silver charts: weak recovery after sharp falls

Gold chart pattern

The daily bar chart pattern of Gold bounced up from the lower Bollinger Band and crossed above its 50 day EMA, but faced strong resistance from the middle Bollinger Band (20 day SMA, marked by green dotted line).

Gold's price is consolidating near the 1300 level, and managed to close well above its 200 day EMA in bull territory.

Daily technical indicators are looking neutral to bearish. MACD is moving sideways below its signal line in bearish zone. RSI is facing resistance from its 50% level. Slow stochastic remains in bearish zone after recovering from oversold condition.

After a sharp rise above 97.50 on Mar 7, the US Dollar index has dropped below 96.50. That helped gold's price to rally from its Mar 7 low of 1281.

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory for the 12th week in a row. Weekly technical indicators are showing downward to sideways momentum in bullish zones, hinting at more consolidation or correction. 

Silver chart pattern

The following remark was made in the previous post on the daily bar chart pattern of Silver: "Slow stochastic has entered its oversold zone, and can trigger a pullback towards the 200 day EMA."

The expected pullback crossed above the 200 day and 50 day EMAs, but faced strong resistance from the 20 day SMA (middle Bollinger Band, marked by green dotted line). Silver's price is below its three EMAs in bear territory.

Daily technical indicators are looking bearish. MACD is facing resistance from its falling signal line. RSI is below its 50% level. Slow stochastic has emerged from its oversold zone, but is showing downward momentum.

On longer term weekly chart (not shown), silver's price faced resistance from its 50 week EMA, formed a 'long legged doji' candlestick and closed well below its 200 week EMA in a long-term bear market. Weekly technical indicators are in neutral zones, and showing sideways to downward momentum. Some more correction or consolidation may follow.

Nifty chart: a midweek technical update (Mar 13, 2019)

FIIs were on a buying spree on all three trading days this week. Their total net buying in equity was worth a massive Rs 90.1 Billion. DIIs were net sellers of equity on all three trading days. Their total net selling was worth Rs 44.5 Billion, as per provisional figures.

The Index of Industrial Production (IIP) slowed to 1.7% in Jan '19 from 2.6% in Dec '18 due to deceleration in manufacturing, capital goods, consumer, non-durables and electricity sectors.  

Retail (CPI) inflation rose to 2.57% in Feb '19 from 1.97% in Jan '19 due to higher food prices (except vegetables). Lower IIP and higher CPI may force RBI to cut interest rates in its Apr '19 policy meeting.

The daily bar chart pattern of Nifty has shot up like a rocket - fuelled by renewed FII buying. Announcement of dates of general elections, and likely return of NDA for a second term (as per recent polls) has given a big boost to bullish sentiment.

Note that the index has closed above the upper Bollinger Band two days in a row, and also formed a 'hanging man' candlestick today. The two together may be a warning of a potential downward reversal.

Daily technical indicators are looking bullish, and overbought. MACD is rising above its signal line inside its overbought zone. RSI has entered its overbought zone for the first time since Aug '18. Slow stochastic is moving sideways inside its overbought zone, and can trigger a correction.

Remember that an index (or stock) can remain overbought for long periods. That doesn't mean one should throw caution to the winds. The index is just 400 points away from its lifetime high. Charts tend to have 'memory'. Profit booking can emerge as the index approaches 11760.

Nifty's TTM P/E has moved up to 27.80, which is way higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone, and can limit near-term index upside.

Polls have often proved incorrect - probably because of insufficient sample sizes among a heterogenous population. So, they should always be taken with a pinch of salt. 

The stock market - and specifically, FIIs - seem certain of a win for NDA. But there have been many a slip between the cup and the lip. NDA was supposed to be a shoo-in in 2004.

Nifty chart: a midweek technical update (Mar 06, 2019)

FIIs were net buyers of equity on the two trading days this week. Their total net buying was worth Rs 18.8 Billion. DIIs were net buyers of equity on Tue. (Mar 5), but net sellers today. Their total net selling was worth Rs 3 Billion, as per provisional figures.

Nikkei India's Services Purchase Manger's Index (PMI) rose to 52.5 in Feb '19 from 52.2 in Jan '19. (A figure above 50 indicates growth.) The Composite PMI (Manufacturing + Services) rose to 53.8 in Feb '19 from 53.6 in Jan '19. 

According to data compiled by Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India rose to 7.2% in Feb '19 from 5.9% in Feb '18. It was the highest unemployment rate since Sep '16.

The daily bar chart pattern of Nifty shows that bulls came back re-energised after the long weekend. Bullish sentiments had already received a boost last Friday (Mar 1) when the shot-down Indian pilot was returned unharmed by our not-so-friendly neighbour.

War hysteria, fomented by several news channels, has died down. A huge cloud of uncertainty hanging above the market has been dispelled. The index rose more than 120 points on the back of combined FII and DII buying on Tue. Mar 5.

Nifty gained another 65 points today. FIIs stepped up their buying, but DIIs were sellers. The index is trading well above its three EMAs in bull territory. However, the upper Bollinger Band can hinder further index progress. 

Daily technical indicators are looking bullish, and showing upward momentum. MACD is rising above its signal line in bullish zone. RSI is rising above its 50% level. Slow stochastic has entered its overbought zone, and can trigger a correction.

Nifty's TTM P/E has moved up to 27.09, which is much higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has stopped falling inside its overbought zone, and can limit near-term index upside.

Politicians have started a blame game and finger pointing after war rhetoric subsided. Market focus should shift now to underlying fundamentals - which are not looking rosy. 

Unemployment is rising. Economic growth is slowing. Rising inventories at auto dealerships are causing concerns. Expecting the index to keep rallying in such circumstances may be unrealistic.

If you are among the lucky few who bought near last month's low, book partial profits and lock in your gains. If you missed the rally, don't jump in now. Use the rally to ditch non-performers in your portfolio.

Gold and Silver charts: three month long rallies face sharp corrections

Gold chart pattern

The daily bar chart pattern of Gold received good support from the middle Bollinger Band (20 day SMA, marked by green dotted line) and rose quickly to touch a high of 1349.80 on Feb 20.

By closing above the upper Bollinger Band, the door was left wide open for bears. Gold's price corrected sharply below the lower Bollinger Band and closed below its 50 day EMA after more than three months.

Daily technical indicators are showing downward momentum after correcting overbought conditions. MACD is falling below its signal line in bullish zone. RSI has dropped below its 50% level. Slow stochastic has entered its oversold zone, and can trigger a pullback towards the 50 day EMA.

After a sharp fall below 96 on Feb 26, the US Dollar index is rising towards 97. That seems to have dampened bullish enthusiasm. The strong rally from the Nov '18 low has ended.

On longer term weekly chart (not shown), gold’s price dropped to seek support from its 20 week EMA, and closed above its three weekly EMAs in long-term bull territory for the tenth week in a row. The 'golden cross' of the 50 week EMA above the 200 week EMA has technically confirmed a return to a long-term bull market. Weekly technical indicators have corrected overbought conditions but are showing downward momentum in bullish zones. 

Silver chart pattern

The daily bar chart pattern of Silver bounced up after receiving good support from its 50 day EMA and rose to test its previous (Jan 31) top of 16.29, but failed to close above it.

Silver's price pierced the upper Bollinger Band and formed a 'double top' reversal pattern. A sharp correction below the lower Bollinger Band and the 200 day EMA followed.

Daily technical indicators are looking bearish. MACD is falling below its signal line and has entered bearish zone. RSI is falling towards its oversold zone. Slow stochastic has entered its oversold zone, and can trigger a pullback towards the 200 day EMA.

On longer term weekly chart (not shown), silver's price closed below its three weekly EMAs in a long-term bear market. Weekly technical indicators are showing downward momentum. MACD and Slow stochastic are in bullish zones. RSI has fallen below its 50% level.

Nifty chart: a midweek technical update (Feb 20, 2019)

FIIs were net sellers of equity on Mon. and Tue. (Feb 18 and 19), but net buyers today. Their total net selling was worth Rs 13.4 Billion. DIIs were net buyers of equity on all three trading days this week. Their total net buying was worth Rs 36.1 Billion, as per provisional figures.

Foreign Direct Investment (FDI) in India contracted by 7% to US $33.49 Billion during the Apr-Dec '18 period, compared to US $35.94 Billion during Apr-Dec '17. The decline may put pressure on balance of payments and value of Rupee.

The government has approved a Rs 482 Billion recapitalisation for 12 Public Sector Banks to strengthen their balance sheets and help them to better negotiate RBI's Prompt Corrective Action (PCA) framework.

The following remark was made in last week's technical update on the daily bar chart pattern of Nifty: "Looks like Nifty may be headed below its 200 day EMA towards the lower Bollinger Band."

Six straight days of lower closes - due mainly to FII selling - had dropped the index below its 200 day EMA to the lower Bollinger Band by Fri. Feb 15. 

The index continued to fall further, and slipped below the 10600 level intra-day on Tue. Feb 19 - correcting more than 530 points (4.8%) from its Feb 7 top of 11118.

News of PSB recapitalisation triggered short covering by FIIs today. Nifty pulled back to its 200 day EMA, erasing the losses made on Mon. and Tue.

Daily technical indicators are in bearish zones. MACD is below its falling signal line. RSI is below its 50% level, but showing upward momentum. Slow stochastic is inside its oversold zone. 

The pullback rally is likely to go past the 200 day EMA. Note that the 20 day SMA (middle band - marked by green dotted line) is merging with the 50 day EMA, and the two together can provide overhead resistance.

Nifty's TTM P/E has moved down to 26.5, but remains much higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is in neutral zone after a sharp fall from its oversold zone, and can limit near-term upside.

The worst may not be over for Nifty. The probability of a fall to 10000 or even lower remains high - despite heavy buying by DIIs. Decreasing inflows into equity mutual funds and uncertainty about outcome of general election are taking a toll on bullish sentiments.

Small investors need not sell in a panic. Neither should they attempt bottom fishing. Sitting on your hands may not be particularly exciting, but can be a good strategy in a volatile and directionless stock market.