Sensex, Nifty charts (Dec 18, 2020): rising higher but showing some signs of fatigue

FIIs continued with their strong buying during the week. They were net buyers of equity worth Rs 118.06 Billion. DIIs tried their best to match them. They were net sellers of equity worth Rs 110.25 Billion. Sensex and Nifty both gained around 1.8% on a weekly closing basis.

India's CPI-based retail inflation eased marginally to 6.93% in Nov '20 from a six and a half year high of 7.61% in Oct '20 - thanks to easing of vegetable prices. WPI-based wholesale inflation rose for the fourth consecutive month to a nine months' high of 1.55%. 

In Nov '20, India's exports declined 8.74% to US $23.52 Billion while imports declined 13.32% to $33.39 Billion. The trade deficit hit a 10 months' high of $9.87 Billion. During Apr-Nov '20, exports dropped 17.76% to $173.66 Billion while imports dropped 33.55% to $215.69 Billion - leaving a trade deficit of $42 Billion.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex again touched new intra-day (47026) and closing (46961) highs during the week. FIIs continued with their strong buying while ignoring stretched index valuation. A falling US Dollar index may have motivated them to do so.

Sensex is trading well above its three rising EMAs in a long-term bull market. It has been rising within a nine months long upward-sloping channel, and is testing resistance from the upper edge of the trading channel. There is a possibility of some correction or consolidation prior to the Christmas holidays.

Daily technical indicators are in bullish zones, and looking overbought. MACD is moving sideways after merging with its signal line. ROC is moving sideways along with its 10 day MA. RSI is rising higher inside its overbought zone. Slow stochastic is rising gradually inside its overbought zone.

The farmers' agitation is being allowed to fester by an adamant government. Instead of solving the problem, farmers are being vilified and forced to hunker down in the open in extremely cold weather. The negative effects are beginning to be felt in industry, food prices and movement of goods.

Macroeconomic fundamentals have taken a back seat as the index is rising on the back of a flood of FII money. Enjoy the bull ride while it lasts, but maintain trailing stop-losses to protect profits.  

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose for the seventh straight week to close at a new high of 13760. A falling US Dollar index has resulted in strong buying by FIIs - pushing the index higher into extremely stretched valuation zone. 

The index has been rising within an upward-sloping channel for almost 9 months, and is trading well above its three rising weekly EMAs in a long-term bull market. FII buying has sustained the long rally, but there is possibility of some profit booking before Christmas holidays.

Weekly technical indicators are inside their respective overbought zones. MACD is rising above its signal line. ROC has dipped towards its rising 10 week MA. RSI and Slow stochastic are rising slowly. 

Nifty's TTM P/E has touched a new high of 37.84 - which is far above its long-term average and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) has climbed sharply from its overbought zone, and can trigger some near-term index consolidation or correction.

 

Bottomline? Sensex and Nifty charts are rising to newer highs on the back of strong buying by FIIs. Year-end profit booking by foreign fund houses is a distinct possibility. This is not a good time to look for new stock ideas. Hold existing positions with trailing stop-losses.

Sensex, Nifty charts (Nov 13, 2020): in blue-sky territories after touching lifetime highs

FIIs continued with their buying spree during the week. They were net buyers of equity worth a massive Rs 198.69 Billion - far exceeding their entire net buying during Oct '20. DIIs were net sellers of equity worth Rs 135.11 Billion. Both indices gained 4.2% to touch lifetime highs.

According to RBI, India's GDP may have slipped into an unprecedented recession by contracting 8.6% during Q2 (Jul-Sep '20), following a 24% contraction during Q1 (Apr-Jun '20). (Two straight quarters of GDP contraction is a thumb-rule definition of a recession.)

India's Index of Industrial Production (IIP) grew at 0.2% in Sep '20 after contracting for six consecutive months. IIP had contracted by 4.6% in Sep '19. However, CPI-based retail inflation rose to 7.61% in Oct '20 - its highest level since May '14 - against 7.34% in Sep '20.

BSE Sensex index chart pattern

During 'muhurat' trading on Sat. Nov 14, the daily bar chart pattern of Sensex rose to touch lifetime intra-day (43830.9) and closing (43638) highs. The index is trading in blue-sky territory (with no known resistances) - well above its three rising daily EMAs in a long-term bull market.

In less than 8 months since touching an intra-day low of 25638.9 on Mar 24 '20, the index has made a spectacular gain of more than 18100 points (71%). However, many small investors who prefer mid-cap and small-cap stocks may be wondering why their portfolios are barely in profit.

The pandemic-induced lockdown and subsequent stuttering economic growth has affected smaller companies a lot more. Larger, well-established companies have been able to utilise tax cuts and lower interest rates to grab more market share from smaller and unorganised companies. The rich have got richer; the poor, poorer.

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. RSI is moving sideways inside overbought zone. Slow stochastic is falling inside its overbought zone. While an index can remain overbought for long periods, some consolidation or correction may be around the corner.

Q2 (Jul-Sep '20) results of corporate India have shown clear improvement over Q1 (Apr-Jun '20) as economic activity is returning back towards normalcy post sudden lockdown in Mar '20. Manufacturing activity and credit growth still remains weak. Certain sectors - like hospitality, travel, transportation will take a long time to recover.

High food prices despite a bountiful monsoon is another concern. Sky-high vegetables prices have seriously affected both rural and urban poor. The increasing gap between the rich and the poor does not augur well for a broad-based economic growth. Sooner than later, the stock market indices will revert to mean. 

Till then, extra due diligence is recommended before investing in individual stocks. Those who are already invested in good, diversified portfolios should add to existing holdings on dips but avoid chasing fresh ideas at a market top.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose sharply for the second straight week to close at a lifetime high of 12780. Massive buying by FIIs has propelled the index into blue-sky territory with no known resistances. 

Bulls are in total control of the chart. The index is trading well above its three rising weekly EMAs in a long-term bull market. However, caution is advised near a lifetime high. 

A sharp correction had followed after the index had touched its previous top in Jan '20. Such a dramatic correction is unlikely at this stage - specially with FIIs in buoyant buying mood. A more moderate correction or consolidation will improve the technical 'health' of the chart.

Weekly technical indicators are looking bullish and overbought. MACD is rising above its signal line towards its overbought zone. RSI has moved up to the edge of its overbought zone. Slow stochastic has bounced up from the edge of its overbought zone but showing negative divergence by touching a lower top. That may trigger some consolidation or correction.

Nifty's TTM P/E has moved up to 34.73 - which is way above its long-term average and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped inside its overbought zone. Near-term index upside appears limited.

Bottomline? Sensex and Nifty charts have climbed up to lifetime highs on the back of huge buying by FIIs. Overbought technical indicators can lead to some profit booking. Stay on the sidelines till bullish euphoria subsides. 

Sensex, Nifty charts (Sep 18, 2020): consolidation continues after sharp rallies

FIIs were net sellers of equity on Thu. Sep 17, but were net buyers during the other days of the week. Their total net buying was worth Rs 16.89 Billion. DIIs were net sellers during all five days. Their total net selling was worth Rs 23.97 Billion.

Total vehicle registrations at Regional Transport Offices during Aug '20 fell 26.81% YoY. While tractor registrations grew 27.8%, PV, 2W, CV and 3W registrations fell 7.1%, 28.7%, 57.4% and 69.5% respectively.

CPI based retail inflation slipped a bit to 6.69% YoY in Aug '20 from 6.73% in Jul '20. It was at 3.28% in Aug '19. WPI based wholesale inflation turned positive in Aug '20 for the first time since Mar '20, rising to 0.16% YoY in Aug '20 from -0.58% in Jul '20.

Exports fell 12.7% YoY in Aug '20 while imports were down 26%, resulting in a lower trade deficit of US $6.77 Billion against $13.86 Billion a year ago.

BSE Sensex index chart pattern

During the week, the daily bar chart pattern of Sensex consolidated sideways while trading above its three daily EMAs in a bull market. However, bears put up a good fight at the 335 points downward 'gap' (formed on Feb 28) - continuing to frustrate efforts by bulls to push the index higher for the third straight week.

A foray inside the 'gap' zone on Wed. Sep 16 could not be sustained despite buying by FIIs. On a weekly basis, the index closed flat. The hurdle of the 'gap' will need to be overcome before bulls can resume control of the chart. 

Daily technical indicators are looking neutral to bullish. MACD is moving sideways after merging with its signal line in bullish zone. ROC has moved above its 10 day MA in neutral zone. RSI has just crossed above its 50% level. Slow stochastic is rising above its 50% level.

US stock indices closed lower for the third straight week, as a tech-led sell-off intensified. If current restrictions on short selling are not extended beyond Sep 24, expect selling to intensify in Indian stock indices as well.

After 50% gains from its Mar '20 low, do not expect Sensex to surge much higher. Stocks like RIL, which has gained more than 100% since its Mar '20 low, HDFC twins, HUL fuelled the index rally. 

Now midcap and smallcap stocks are coming to the forefront and several IPOs are in the pipeline. Small investors should be extra cautious not to fall into the trap of making easy money with little effort. 

Wealth building in the stock market requires knowledge, discipline, patience and a lot of time for the magic of compounding to take effect. Quick profits are here today, gone tomorrow.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty had bounced up after dropping inside the 'support-resistance zone' between 11000-11250 in the previous week. Despite FII buying, the index failed to make much upward progress - gaining about 40 points (0.35%) on a weekly closing basis.

Convincing breach of an up trend line is often a sign of trend reversal. But bears are still on the back foot, since all three weekly EMAs are moving up and the index is trading above them in long-term bull territory. 

Weekly technical indicators are in bullish zones but not showing any upward momentum. MACD is above its signal line inside its overbought zone. RSI is moving sideways above its 50% level. Slow stochastic is sliding down towards the edge of its overbought zone. 

After touching a new high of 33.03 on Tue. Sep 15, Nifty's TTM P/E has moved down a bit to 32.98, which is well above its long-term average and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped sharply from its oversold zone. Some more near-term index consolidation or correction is possible.
 
Bottomline? After breaching 5 months long up trend lines on Sensex and Nifty charts, both indices have been consolidating near resistance zones. Some more consolidation or correction is likely. Stay on the sidelines. Wait for better entry opportunities.

Sensex, Nifty charts (Aug 14, 2020): bears keep bulls on a leash

FIIs were net buyers of equity on all five trading days. Their total net buying was worth Rs 21.30 Billion. DIIs were net sellers of equity on all five trading days. Their total net selling was worth Rs 44.21 Billion.

India's CPI-based retail inflation rose to 6.93% in Jul '20 from 6.23% in Jun '20. CPI remained above 6% for the fourth straight month. Food inflation was 9.62%, thanks to supply disruptions. WPI-based wholesale inflation was -0.58% in Jul '20 against -1.81% in Jun '20.

After a US $790 Million trade surplus in Jun '20, India's trade deficit was US $4.83 Billion in Jul '20. Exports were down 10.21% to $23.64 Billion, while imports were down 28.4% to $28.47 Billion. Trade deficit was $13.43 Billion in Jul '19.

BSE Sensex index chart pattern

Note the following comment from last week's post on the daily bar chart pattern of Sensex: "Sensex needs to convincingly move above its Jul. 29th top of 38617 for the bullish pattern of 'higher tops, higher bottoms' to continue."

Despite FII buying throughout the week, the index tested but failed to move above 38617. On Fri. Aug 14, the index formed a 'reversal day' bar (higher high, lower close) and dropped to close near the lower edge of the 640 points downward 'gap' formed back on Mar 6th.

Should bulls be worried? Not yet. Though the index slipped below its 20 day EMA intra-day on Fri., it received support from the (blue) up trend line and bounced up. Remember that a trend line gets stronger with each successful test (unlike support/resistance levels, which get weakened with frequent tests).

The 'golden cross' (marked by light blue circle) of the 50 day EMA above the 200 day EMA is a technical confirmation of a return to a bull market. Does that mean bears have been vanquished, and all dips are buying opportunities?

Not quite. Sensex may be forming a small 'double top' reversal pattern that will be technically confirmed on a fall below the Aug 3rd low of 36911. In case the index does confirm the 'double top', the downward target will be 35250 (which just happens to fall inside the downward 'gap' formed back on Mar 12th).

Daily technical indicators are looking bullish to neutral. MACD is moving sideways after merging with its signal line in bullish zone. ROC has merged with its 10 day MA, and is moving sideways along its '0' line. RSI has dropped to its 50% level. Slow stochastic has dropped from its overbought zone after re-entering it.

Why are FIIs still buying after the index has already gained more than 45% from its Mar '20 low? One of the reasons may be the US Dollar index, which had peaked at 104 on Mar 23rd but is now languishing at 93. DIIs are clearly in profit-booking mode, and they have often outsmarted FIIs at or near market tops. So, caution is advised for those holding long positions.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs in long-term bull territory for the 6th straight week, but again failed to close above the 'support-resistance' zone between 11000-11250. Bear resistance forced a fourth weekly close inside the 'support-resistance' zone.

The 20 week and 50 week EMAs are moving up after forming bullish 'rounding bottom' patterns. The 200 week EMA has also started to move up. Bulls remain on top. However, failure of the index to close above the 'support-resistance' zone has kept bears in the game. A correction down to the 200 week EMA (at 10291) is possible.

Weekly technical indicators are in bullish zones. MACD is rising above its signal line and is well inside bullish zone. RSI is moving sideways above its 50% level. Slow stochastic is sliding down inside its overbought zone. 

Nifty's TTM P/E touched a new lifetime high of 31.42 on Thu. Aug 13 before slipping a bit to 31.09, which remains deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) dropped to the edge of its overbought zone, only to bounce up a little. Some more correction or consolidation is likely.
 
Bottomline? Counter-trend rallies on Sensex and Nifty charts have failed to move above resistance zones after re-entering bull territories. Bulls still have the advantage, but bears have kept them on a leash during the past four weeks. Time to book some profits.

Sensex, Nifty charts (Jun 12, 2020): correcting after profit booking by FIIs and DIIs

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.

Sensex, Nifty charts (Apr 17, 2020): counter-trend rallies form bearish rising wedge patterns

In another holiday-shortened week, FIIs were net buyers of equity on Wed. (Apr 15), but net sellers on the other three trading days. Their total net selling was worth Rs 41.97 Billion. DIIs were net buyers of equity on Thu. and Fri. (Apr 16 and 17), but net sellers on Mon. and Wed. (Apr 13 and 15). Their net selling was worth Rs 3.39 Billion, as per provisional figures.

India's CPI-based inflation eased to 5.91% during Mar '20 from 6.58% during Feb '20 due to a sharp fall in food inflation. CPI was 2.86% in Mar '19.

Merchandise exports in Mar '20 was worth US $21.41 Billion, down 34.57% from $32.72 Billion in Mar '19. Imports contracted 28.72% to $31.16 Billion. The trade deficit narrowed to $9.75 Billion - the lowest in 13 months.

RBI reduced the reverse repo rate by 25 basis points (0.25%) and the Liquidity Coverage Ratio (LCR) for banks to 80% from 100% in a bid to inject more liquidity into the banking system. Without a proper fiscal stimulus from the government, such monetary inducements may fall well short of expectations.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex oscillated about its 20 day EMA during a holiday-shortened trading week, and closed above its 20 day EMA with a weekly gain of about 430 points (1.4%). 

During the first 9 trading days of Apr '20 (till Apr 18th), Sensex has gained more than 2100 points (7.2%). What is interesting is that FIIs and DIIs were both net sellers of equity - cumulatively during the week, and also during the 9 trading days in Apr '20. 

The index continued its consolidation with an upward bias within a bearish 'rising wedge' pattern. Some more upside - may be past the 32000 level - is still possible. But remember that the expected breakout from a 'rising wedge' pattern is downwards.

Daily technical indicators are giving mixed signals. MACD is rising above its signal line in bearish zone. RSI is facing resistance from its 50% level. Slow stochastic has fallen down from its overbought zone, and can trigger a correction.

Partial opening of manufacturing and services activities from Mon. Apr 20 in an effort to keep a faltering economy from slipping into a recession may be good in theory but will be difficult to implement. It can lead to a community spread of the COVID19 virus, with disastrous consequences for an inadequate healthcare infrastructure.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed higher for the second week in a row. On a weekly closing basis, the index gained about 155 points (1.7%) in four days of trading in a holiday-shortened week. However, it closed well below its 200 week EMA for the 6th straight week. 

The 20 week EMA has crossed below the 200 week EMA for the first time in 9 years. 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.

The sharp counter-trend rally on Nifty chart appears to have formed a bearish 'rising wedge' pattern, from which the expected breakout is downwards. Upside risk is increasing by the day. 

Weekly technical indicators are correcting oversold conditions. MACD is still falling inside its oversold zone, but its downward momentum is stalling. RSI has emerged from its oversold zone, but not showing much upward momentum. Slow stochastic has bounced up sharply to reach neutral zone. The pullback rally may come to an end soon. 

Nifty's TTM P/E has moved up to 20.85, which is above its long-term average. The breadth indicator NSE TRIN (not shown) has fallen to the edge of its oversold zone. Near-term index upside seems limited.

Bottomline? Sensex and Nifty charts have closed well below their respective 200 day and 200 week EMAs, and are trading within bearish 'rising wedge' patterns. Extension of the corona virus lockdown till May 3 is likely to push an already weak economy into a recession. Small investors should continue with their SIPs, but avoid chasing the counter-trend rallies. 

Sensex, Nifty charts (Mar 13, 2020): panic selling hints at end of long-term bull market

The Festival of Colours failed to enthuse FIIs, who were net sellers of equity on all four trading days of a holiday-shortened week. Their total net selling was worth a massive Rs 196.14 Billion. DIIs were net buyers of equity on all four days. Their total net buying was worth Rs 175.96 Billion, as per provisional figures. 

India's Current Account Deficit (CAD) declined to 0.2% of GDP during Oct-Dec '19 from 0.9% during Jul-Sep '19 and 2.7% during Oct-Dec '18. The contraction in CAD was due to lower trade deficit and higher services receipts.

CPI-based inflation eased to 6.58% in Feb '20 from 7.59% in Jan '20. It was the first decline in 7 months, thanks to lower food prices.

BSE Sensex index chart pattern

The following comments from last week's post on the daily bar chart pattern of Sensex are worth noting:

"The impending 'death cross' of the 50 day EMA (blue) below the 200 day EMA will technically confirm a bear market."

"If Sensex breaches 36000, it can fall to its 200 week EMA (currently at 34800)."

The 36000 level, which had acted as a support during Aug-Sep '19, was easily breached on Mon. Mar 9. As often happens, the breached support level turned into a resistance level during a pullback on the next trading day (Mar 11).

Sensex formed a downward gap of 790 odd points on Thu. Mar 12, as bears pressed home their advantage. Panic selling on Fri. Mar 13 caused a circuit breaker and a 45 min. trading halt. On reopening of trade, huge short covering led to a sharp technical bounce that partly filled Thursday's 'gap'.

A partly or completely filled downward 'gap' is usually followed by a resumption of the down move. Note that the current level of the 200 week EMA (not shown) is 34450, which is just above Thursday's downward 'gap'. The zone between 34450-36000 should act as a strong resistance.

Friday's panic selling that dropped the index below 30000 - its lowest level in 3 years - may be a sign of capitulation by bulls that marks the end of a bull market. The 'death cross' of the 50 day EMA below the 200 day EMA - marked by grey oval - has technically confirmed a bear market. Thursday's closing level of 32778 was a 22.5% fall from Jan 20th top of 42274. A fall of 20% from the top is another technical sign of a bear market.

Can Friday's sharp fall below 30000, and the subsequent sharp recovery, be termed as a 'selling exhaustion'? The short answer is: No. A 'selling exhaustion' is a sign of capitulation by bears that typically happens after a prolonged downward move. Also, trading volumes should be significantly higher - which was not the case on Friday (Mar 13).    

Daily technical indicators are in bearish zones and looking oversold. MACD is falling deeper inside its oversold zone. RSI is trying to emerge from its oversold zone. Slow stochastic has emerged from its oversold zone after re-entering it. 

Since 'panic bottoms' seldom hold, expect Friday's intra-day low of 29389 will be tested and breached. Any continuation of Friday's short-covering pullback can be used to exit non-performing stocks in portfolios. 

NSE Nifty index chart pattern

What a difference a week makes! The weekly bar chart pattern of Nifty formed a 76 points downward 'gap', crashed through its 200 week EMA and plummeted below 8600 - its lowest level in 3 years. 

A circuit breaker and trading halt of 45 mins on Fri. Mar 13 led to a sharp short-covering pullback that stopped short of the support level of 10000. The support level should now become a resistance level. A bullish pattern of 'higher tops, higher bottoms' - formed during the past 18 months - has been negated.

The index fall below the 200 week EMA with a downward 'gap' is a sign that the long-term bull market has come to an end. The rapidly spreading corona virus has spooked global stock markets and FIIs, who have pulled out more than Rs 300 Billion during the past two weeks.

Weekly technical indicators are looking bearish and oversold. MACD is falling sharply in bearish zone. RSI and Slow stochastic have entered their respective oversold zones. Friday's short-covering bounce may last a bit longer before bears resume their selling. 

Nifty's TTM P/E has moved down to 22.66, but still remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone. Some more near-term index pullback or some consolidation is possible.

Bottomline? Sensex and Nifty charts have closed well below their respective 200 week EMAs - signalling the end of long-term bull markets. A rapidly spreading corona virus has exacerbated uncertainty  and concerns about weak economic growth and fiasco in the financial sector. Small investors should stay on the sidelines and use pullback rallies to move out of non-performing stocks.

Sensex, Nifty charts (Feb 14, 2020): consolidating below lifetime highs

FIIs were net buyers of equity on Wed. and Thu. (Feb 12 and 13) but net sellers on Mon., Tue. and Fri. (Feb 10, 11 and 14). Their total net buying was worth Rs 0.11 Billion. DIIs were net sellers of equity on Mon. and Thu., but net buyers on the other three days of the week. Their total net selling was worth Rs 7.93 Billion, as per provisional figures.

India's CPI-based retail inflation moved up to 7.59% in Jan '20 from 7.35% in Dec '19. WPI-based wholesale inflation also rose to 3.1% in Jan '20 from 2.59% in Dec '19. The Index of Industrial Production (IIP) contracted 0.3% in Dec '19 against a growth of 1.8% in Nov '19. 

Exports fell 1.66% to US $25.97 Billion while imports slipped 0.75% to $41.14 Billion in Jan '20. The trade deficit widened to a 7 months high of $15.17 Billion. A combination of rising inflation, widening trade deficit and contracting production does not augur well for India's economic growth.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex closed above its three EMAs in long-term bull territory, eking out a gain of 115 points on a weekly closing basis. The index is trading just 1000 odd points below its lifetime high of 42274 touched in Jan '20.

Daily technical indicators are looking neutral to bearish. MACD has crossed above its signal line and moved up to the '0' line. RSI is falling towards its 50% level. (Since Nov '19, MACD and RSI have been showing negative divergences by forming bearish patterns of 'lower tops, lower bottoms'.) Slow stochastic has dropped down from its overbought zone. 

Declining stocks were outnumbering advancing stocks during the week gone by, making the current rally unsustainable for long. Heavyweight stocks like RIL, HUL are keeping the index afloat as the broader market continues to slide.

[There are signs of a reversal pattern formation in progress at the index top. It could be a 'broadening top' or a 'diamond'. If either of the patterns play out, there could be a sharp index correction below the 200 day EMA.]

Q3 (Dec '19) results season is almost over. Results have been more or less as per lower market expectations, with a few positive earnings surprises on the back of corporate tax rate cuts.

It is not an appropriate time for bargain hunting when an index is trading near a lifetime high. For long-term investors, waiting patiently for lower levels to add is often more rewarding. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs, but formed a 'doji' bar that indicates indecision among bulls and bears. A bullish pattern of 'higher tops, higher bottoms' - formed during the past 18 months - shows that bulls are controlling the chart.

The index is trading just 300 odd points below its lifetime high. Till it crosses convincingly above 12500, caution is advised due to a slowing economy and a rapidly spreading corona virus in China that is affecting global supply chains.

Weekly technical indicators are looking neutral to bearish. MACD has crossed below its signal line after falling from its overbought zone. RSI has moved above its 50% level but its upward momentum has stalled. Slow stochastic has fallen below its 50% level after forming a 'double top' reversal pattern inside its overbought zone. 

Nifty's TTM P/E moved up to 27.45, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating about the edge of its oversold zone. More near-term index consolidation is likely.

Bottomline? After touching lifetime highs in Jan '20, Sensex and Nifty charts have been in consolidation modes. With very few positive triggers left for the stock market in the near-term, the indices can drift down. Investors should increase liquidity by booking profits wherever available.

Nifty chart: a midweek technical update (Jan 15, 2020)

FIIs were net buyers of equity on Mon. and Wed. (Jan 13 and 15), but were net sellers on Tue. (Jan 14). Their total net buying was worth Rs 1.9 Billion. DIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 24.2 Billion, as per provisional figures.

India's CPI-based retail inflation jumped to 7.35% in Dec '19 from 5.54% in Nov '19 due to soaring food prices. With most banks offering less than 7% interest on fixed deposits, real rate of return has turned negative.

WPI-based wholesale inflation has increased to 2.59% in Dec '19 from 0.58% in Nov '19. Prices of food and non-food items rose higher.

The daily bar chart pattern of Nifty touched a new high of 12374 on Jan 14th, but corrected a little bit after facing resistance from the second up trend line (marked TL 2). The index is trading above its three rising EMAs in a bull market.

Though the index appears to be climbing a wall of worries because of rising inflation and rapidly decelerating GDP growth, some bearish technical signals are visible on Nifty's chart.

Note that the first up trend line (marked TL 1) - drawn through the index lows touched on Sep 19th, Oct 9th and 25th - was breached on Nov 13th. The index continued to move higher till Nov 28th, before succumbing to profit booking and falling below its 20 day EMA.

The index bounced up after forming a 'reversal day' bar (lower low, higher close) on Dec 11th. A second trend line (TL 2) has been drawn through the Sep 19th and Dec 11th lows. Nifty touched a new high (12294) on Dec 20th. Following a few days of sideways consolidation, TL 2 was breached with a downward 'gap' on Jan 6th.

Nifty dropped below its 50 day EMA after three months, but subsequently bounced up with an upward 'gap' to rise to a new high (on Jan 14), but has been facing resistance from TL 2. 

As per 'Corrective Fan Principle', breach of two up trend lines is bearish. Breach of a third up trend line (not yet drawn) usually indicates a change of trend. This hasn't happened yet - and may not happen at all - but any bearish signal at an index top should be treated with caution and respect.

Daily technical indicators are in bullish zones. MACD has crossed above its signal line. RSI is moving sideways above its 50% level. Both MACD and RSI are showing negative divergences by forming bearish patterns (lower tops, lower bottoms) while Nifty has climbed higher. Slow stochastic is well inside its overbought zone and can trigger a correction or consolidation. 

After touching a high of 28.67 on Mon. Jan 13, Nifty's TTM P/E has moved down a bit to 28.63, which remains well inside its overbought zone. The breadth indicator NSE TRIN (not shown) is hovering near the edge of its oversold zone, hinting at some near-term index consolidation.

Q3 (Dec '19) results declared so far have not generated much hope of any improvement over disappointing Q2 (Sep '19) results. Small investors should remain circumspect and concentrate on preserving capital.