FIIs have continued to sell equity in the spot market. Their net selling during the first four days of trading in Sep '17 totalled Rs 34.4 Billion. DIIs were net buyers of equity worth Rs 12.1 Billion.
Nifty has been trading sideways with an upward bias in a range between 9700 and 10000 since correcting down from the Aug 2 top of 10138. However, it has formed a 'rising wedge' pattern from which the likely breakout is downwards.
The Nikkei India Services PMI for Aug '17 was 47.5 - higher than 45.9 in Jul '17 but below the 50 level which indicates contraction. Call it the 'GST effect'. The Services PMI was also below 50 in the Nov '16 to Jan '17 period - thanks to demonetisation.
The daily bar chart pattern of Nifty had broken out below a 'diamond' pattern after touching a lifetime high of 10138 on Apr 2. Read all about the 'diamond' pattern and its implications in an earlier post.
After receiving support from the 9700 level on Aug 11, the index bounced up to touch 9948 on Aug 17 but entered a sideways consolidation within a bearish 'rising wedge' pattern.
Daily technical indicators are in bullish zones but not showing any upward momentum. MACD is moving sideways above its signal line. RSI is seeking support from its 50% level. Slow stochastic has dropped from its overbought zone.
Nifty's TTM P/E is at 25.88 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has dropped sharply and entered its overbought zone - hinting at a correction.
A fall below the 'rising wedge' should receive some support from the 9700 level. If the support fails to hold, a deeper correction to test support from the rising 200 day EMA may follow.
Keep a close watch on the zone between 9700 and 10000. Bears will dominate below 9700. Bulls will rule above 10000. Where is the index headed first?
Don't place any bets, but the odds of a fall below 9700 first appears better. Why? Because a bull market requires earnings support to sustain and prosper in the long-term. And earnings of India Inc. has been disappointing to say the least.
DIIs don't have much choice but to keep buying as investors continue to pour money into mutual funds, because investments in realty and gold is no longer in fashion. But as long as FIIs keep selling, the index is not going to move much higher.
So, sit out the correction. Bravehearts can short the index if it falls below the 'rising wedge' (not a recommended strategy for novice investors).
FIIs were net buyers of equity worth a huge Rs 74.5 Billion during the first three trading days this week. DIIs were also net buyers of equity - worth Rs 10.4 Billion, as per provisional figures.
Despite all the buying, Nifty has been stuck in a range between 9000 and 9150 after an intra-day move above 9200 on Fri. Mar 17.
NDA government is facing flak from opposition parties by trying to introduce a large number of amendments to the Finance bill. The GST bill has also been tabled in Parliament. Transition of power in UP has caused a lot of turmoil so far.
The daily bar chart pattern of Nifty has so far received good support from the 85 points 'gap' formed on Mar 14.
The index dropped inside the 'gap' (marked by grey rectangle) twice - on Mar 22 and Mar 27 - but bounced up on both occasions.
Part filling of the 'gap' should have been followed by a resumption of the up move from the Dec '16 low. F&O expiry on Thu. Mar 30 may be the reason for a bit of caution among market players.
All three technical indicators are in bullish zones after correcting overbought conditions, but are not showing much upward momentum. Some more consolidation or correction can't be ruled out.
The index is trading above its three EMAs in bull territory. The distance between the index and its 200 day EMA is almost 650 points - which is not a 'healthy' condition technically.
Nifty's TTM P/E has inched up to 23.74 - much higher than its long-term average, and limiting index upside. The breadth indicator NSE TRIN (not shown) is in neutral zone.
The Rupee is strengthening against the US Dollar - thanks to FII and FDI inflows. With DIIs also turning buyers, the index can move higher.
This is a good time to think about asset reallocation by booking partial profits in equity holdings.
FIIs were net buyers of equity worth Rs 50.6 Billion during the three days of trading this week. DIIs were net sellers of equity worth Rs 32.9 Billion, as per provisional figures.
Steel exports in Feb '17 (at 0.75 MT) was up by 150% over Feb '16, but declined by 15% over Jan '17. Imports in Feb '17 (0.49 MT) was down by 46% over Feb '16 and by 19% over Jan '17.
The government is talking to almost 300 Indian and foreign companies for proposed investments of US $62 Billion, of which nearly half is expected from Chinese companies.
The daily closing chart pattern of Nifty is clearly hesitating near its previous (Sep 8 '16) top of 8953. Proximity to the psychological level of 9000 and uncertainty about the upcoming state election results on Mar 11 have kept bulls in check.
All three EMAs are rising, and the index is trading well above them in a bull market. However, for the past two weeks, the index has touched higher tops while the three daily technical indicators have touched lower tops.
The combined negative divergences can lead to some correction or consolidation. A sharp correction (4-5%) can occur if the BJP does not fare well at the polls - particularly in UP.
Nifty's TTM P/E continues to hover above 23 - well above its long term average. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone. Index upside appears limited.
(A friend - to whom I had recommended a textile exporting company back in Nov '16 - called me yesterday to say that the stock has gained 40% and asked whether it would be OK to buy at the current price. Such queries often indicate an intermediate top!)
If you are ready to jump into the market feet first, take another look at the chart. The index has gained 1100 points (~14%) in less than 3 months. This is a time for cautious optimism and partial profit booking, not euphoria.
For the month of Feb '17, FIIs and DIIs were both net buyers of equity, as per provisional figures. FII net buying crossed Rs 87 Billion; DII net buying was worth Rs 9.3 Billion.
(Those figures were skewed by a single day's buying and selling on Feb 17 '17, when a removal of cap on FII buying in HDFC Bank led to FII net buying of Rs 80 Billion and DII net selling of Rs 56 Billion.)
Q3 (Dec '16) GDP growth was 7% - lower than 7.4% in Q2 (Sep '16), but much higher than the 6.4% figure that economists had predicted due to the after-effects of demonetisation.
The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to 50.7 in Feb '17 from 50.4 in Jan '17. The strong GDP and PMI numbers may put the brakes on any further interest rate cuts by RBI.
The daily bar chart pattern of Nifty rose 0.75% today after two days of correction, and closed at a new lifetime high of 8946. Bulls were active after hearing good news on the GDP and Manufacturing PMI data fronts.
All three EMAs are rising, and the index is trading above them in a bull market. For the past two months, every dip in the index has been used to buy - keeping bears on the back foot.
Daily technical indicators have corrected overbought conditions but remain in bullish zones - leaving the door open for higher levels on the index.
Nifty's TTM P/E has remained above 23 for the past month, which is much higher than the long-term average. The breadth indicator NSE TRIN (not shown) is inside its overbought zone - but some more upside can't be ruled out entirely.
Near a previous top, the outlook should be cautiously optimistic. The time to buy by the truckload passed two months back. Be very selective in your current buying.
FIIs and DIIs have both been net buyers of equity during the first three days of this week. FII buying was worth Rs 190 Crores, as per provisional figures - thanks to their net selling today following announcement of the Mauritius tax treaty. DII buying was worth nearly Rs 1150 Crores.
India plans to impose capital gains tax on investments routed through Mauritius from Apr '17. A similar tax treaty with Singapore may be in the pipeline. Mauritius and Singapore are the source of the bulk of FII investments in India since 2000.
The revised treaty should help reduce 'round-tripping' of Indian 'black' money sent abroad through 'hawala' channels and routed back through Mauritius to turn them into 'white' money investments without paying taxes. However, there is concern that some FIIs may withdraw their investments from India.
The following remarks were made in the previous mid-week update on the daily bar chart pattern of Nifty: "Some more correction is likely. Expect the rising 50 day EMA to provide some downside support - as it had done in the past two months."
The index dropped below the 7700 level intra-day on Fri. May 6, but received good support from its rising 50 day EMA. On Mon. May 9, the index bounced up strongly above its 200 day EMA into bull territory on the back of FII and DII buying.
On the next two days, the index failed to overcome resistance from the 7900 level, and pulled back to the 200 day EMA in early trading today before value-buying by DIIs took the index to a close near 7850.
Technical indicators are in bullish zones. MACD is moving sideways below its falling signal line in positive zone. RSI is above its 50% level, but turning down. Slow stochastic has risen sharply above its 50% level.
However, all three indicators are showing negative divergences by touching lower bottoms in May '16 while the index touched a higher bottom (marked by blue arrows).
That may encourage bears to step in and try to push the index down towards 7500-7600. Whether that can happen or not will depend on what stance the FIIs take.
On longer-term weekly chart (not shown), Nifty received good support from its rising 20 week EMA and has closed above all three EMAs in a long-term bull market. Weekly technical indicators are looking bullish. Dips can be used to add/enter.
India's manufacturing PMI dropped to 50.5 in April against 52.4 in March, but showed the 4th straight month of growth (as the number was above 50).
Sales of cars, vans and UVs grew 12% in April on a YoY basis. Maruti, Hyundai, M&M, Tata Motors, Renault, Ford showed growth in sales, thanks to launch of new models. Toyota, Honda, Volkswagen, Nissan showed decline in sales.
Data released by the commerce ministry showed the eight core industries — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity — had a cumulative growth of 2.7% in FY 2015-16. However, this was lower than 4.5% for FY 2014-15.
During the first three trading days of the month, FIIs were net sellers of equity worth around Rs 400 Crores; DIIs were net buyers of equity worth about Rs 300 Crores, as per provisional figures.
The daily bar chart pattern of Nifty had faced resistance from the 8000 level on Apr 28, formed a large 'reversal day' bar (higher high, lower close), and started correcting.
The index dropped below its 200 day EMA into bear territory - completely filling the upward 'gap' between 7717 and 7772 formed on Apr 13 '16. Bears may attempt to take the index even lower. But bulls can fight back at any time.
Daily technical indicators are looking bearish. MACD formed a large 'double top' reversal pattern inside its overbought zone, and started to fall in positive zone. Slow stochastic formed a smaller 'double top' reversal pattern inside its overbought zone and dropped below its 50% level. RSI faced resistance from the edge of its overbought zone, and has slipped below its 50% level.
Some more correction is likely. Expect the rising 50 day EMA to provide some downside support - as it had done in the past two months.
On longer term weekly chart (not shown), Nifty has dropped below its 50 week EMA, and is seeking support from its 20 week EMA. The index is trading 550 points above its 200 week EMA in a long-term bull market. The correction is providing an adding opportunity.
FIIs have been net buyers of equity worth Rs 1600 Crores this week, as per provisional figures, despite net selling of Rs 54 Crores on Tue. Mar 15. DIIs have been net sellers on all three days - their sales totalling almost Rs 1800 Crores.
WPI inflation for Feb '16 was negative for the 16th straight month at -0.91% against -0.9% in Jan '16. CPI inflation eased to a 4 months low of 5.18% against 5.69% in Jan '16. Lower food prices helped. RBI may now consider a rate cut in Apr '16.
Exports fell for the 15th month in a row by 5.66% to $20.73 Billion in Feb '16. Imports also fell, by 5.03% to $27.28 Billion. The trade deficit of $6.54 Billion was the lowest this fiscal year.
The 1 year closing chart pattern of Nifty 50 shows the importance of the long-term 'support/resistance' level of 7550. After acting as a support level in Sep '15, it has been providing strong resistance during the past 2 months.
A couple of recent attempts by the index to overcome the resistance have failed. Remember that a support or resistance level gets weakened by frequent tests.
So, will Nifty breakout upwards soon? Daily technical indicators are not giving much encouragement to bulls. Upward momentum on all three have stalled.
The 'double bottom' reversal pattern formed in Feb '16 may have ended the year-long down trend, but bears are in no mood to give up just yet.
The TRIN breadth indicator (not shown) is just above its overbought zone. The index is trading below its falling 200 day EMA in bear territory.
Odds are favouring a correction more than a rally. Bulls can take heart that every dip is being used as a buying opportunity - clearly indicating a change in sentiment.
Several companies are falling over each other in declaring interim dividends to beat the Apr 1 deadline for an additional tax on those receiving more than Rs 10 Lakh in dividends (viz. promoters).
Please don't rush in to buy such company stocks in the hope of dividend stripping. Do so only if fundamentals justify a buy.
Remain patient and stay focussed on your asset allocation plan and your own portfolio. As regular blog reader Eswar mentioned recently: Some times the best stock to buy is something you already own.
After 4 straight months of net selling in equities, FIIs have firmly turned bulls in Mar '16. Their net buying in equities was worth Rs 2700 Crores during the week, and Rs 8600 Crores during the first 8 trading days of the month.
DIIs have turned bears after 4 consecutive months of net buying in equities. Their net selling in equities was nearly Rs 3200 Crores during the week, and Rs 5600 Crores during the first 8 trading days of the month.
Both Sensex and Nifty have rallied more than 10% from their 52 week lows touched on Feb 29 '16, and closed with weekly gains for the 2nd week in a row, but are facing resistances from long-term support/resistance levels.
The IIP number in Jan '16 was -1.53%, against -1.18% in Dec '15. It was the 3rd straight month of contraction in factory output, due mainly to degrowth in manufacturing and capital goods. However, the cumulative figure for the first 10 months of the fiscal year (Apr '15 to Jan '16) was 2.7%, against 2.6% in the previous 10 months period.
"With young workforce and continuing policy reform, India has not only emerged as the fastest-growing economy, but its stars also shine bright amid the current global gloom", IMF Managing Director Christine Lagarde said earlier today.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex closed with a small weekly gain of 72 points, and managed to trade above its 20 day and 50 day EMAs in a holiday-shortened week.
But the index continues to trade below its falling 200 day EMA and the blue downtrend line in bear territory, and failed to cross above the long-term 'support/resistance' level of 24830.
All four daily technical indicators are in bullish zones. MACD and ROC are showing upward momentum, but RSI and Slow stochastic are not. ROC and Slow stochastic are well inside their overbought zones.
Expect some correction or consolidation in the zone between 23840 and 24830, before the index can gain sufficient technical 'strength' to rise higher.
If the index does manage to break out above 24830, it will face resistance from its falling 200 day EMA (currently at 25700), and twin resistances from the next 'support/resistance' level of 26300 and the downtrend line. On the downside, 23840 should provide support.
On longer term weekly chart (not shown), Sensex closed more than 1150 points above its rising 200 week EMA in a long-term bull market, but is facing resistance from its 20 week EMA. Weekly technical indicators are showing upward momentum, but remain in bearish zones.
NSE Nifty 50 chart pattern
The weekly bar chart pattern of Nifty 50 gained about 25 points on a weekly closing basis, but is facing twin resistances from the long-term 'support/resistance' level of 7540 and its sliding 20 week EMA.
If the index overcomes the twin resistances, expect more resistances from the falling 50 week EMA (currently at about 7800), the next 'support/resistance' level of 7950, and the blue downtrend line.
Weekly technical indicators have corrected oversold conditions, but remain in bearish zones. MACD, RSI and Slow stochastic are showing some upward momentum.
The NSE TRIN market breadth indicator (not shown) is looking overbought - hinting at a correction towards 7240. The likely dip will be an adding opportunity.
Bottomline? Chart patterns of Sensex and Nifty are facing strong resistances from long-term 'support/resistance' levels. Some correction or consolidation can be expected. Use the opportunity to enter fundamentally strong stocks. Long-term bull markets are in the process of recovering from year-long corrections.
After Monday's holiday, FIIs continued their buying in equities. Their net buying crossed Rs 1200 Crores on Tuesday and Wednesday, as per provisional figures. In a reversal of roles, DIIs have turned bears. Their net selling exceeded Rs 2150 Crores.
The salaried middle-class heaved a sigh of relief as the Finance Minister withdrew his budget proposal of taxing 60% of EPF savings made after Apr. 1, 2016. The Finance Bill will need to be amended accordingly.
Oil's price has been rising on speculation that major producers may agree to a cut in production. Meanwhile, Vijay Mallya has flown the coop as banks tried to pressurise him to honour his personal guarantees against huge loans taken by the now-defunct Kingfisher Airlines.
After touching a 52 week intra-day low of 6826 on Feb 29 '16, Nifty rallied sharply above its 20 day EMA, the 'support/resistance' level of 7240 and its 50 day EMA - gaining more than 700 points (10.3%).
All three daily technical indicators touched higher bottoms (marked by blue arrows) while the index dropped lower. The combined positive divergences had provided a technical trigger for the rally.
The possibility of the index facing resistance from the next 'support/resistance' level of 7540 was mentioned in last week's update.
What will Nifty do next? In the past 2 days, DII selling has exceeded FII buying. Slow stochastic is well inside its overbought zone. The TRIN market breadth indicator (not shown) has entered its overbought zone for the first time since the third week of Dec '16.
A correction towards 7240 may be just around the corner. The dip will be a good buying opportunity.
Some experts are suggesting that the index may fall below 7240 and test its Feb 29 low. That seems unlikely - unless there is a sudden global sell-off for some reason.
A third possibility is Nifty overcoming the resistance from the 7540 level and moving up to 7700, which is the next 'support/resistance' zone.
Can the index move even higher? Sure it can. But there is a limit to how far short-covering can propel this rally.
Eventually, fundamentals need to be conducive for the bull market to resume in earnest - such as, an interest rate cut by RBI in Apr '16 and better Q4 results from India Inc.
Till then, use every opportunity to get rid of any dud stocks from your portfolio, and switch to fundamentally stronger ones.
The Finance Minister stuck to the fiscal deficit target of 3.5% of GDP, and maintained status quo on long-term capital gains tax on equity holdings in his budget proposals.
FIIs were reassured - despite lack of clarity on retrospective taxation - and have turned buyers. During the first 4 days of Mar '16, their net buying in equities crossed Rs 5900 Crores, as per provisional figures. DIIs were net sellers of equity worth Rs 2400 Crores.
India's manufacturing PMI (Purchase Manager's Index) was 51.1% in Feb '16 - the same as in Jan '16. A number above 50% indicates growth. However, services PMI dropped to a 3 months low of 51.4% in Feb '16. It was 54.3% in Jan '16 - a 19 months high.
RBI relaxed capital adequacy requirements of banks by allowing 45% of readily-saleable property value and foreign currency translation reserves to be included in Tier - I capital calculations. This has come as a big relief for PSU banks struggling with huge NPAs.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex touched a new 52 week low of 22495 on budget day (Feb 29 '16) but recovered to close just above the 23000 level. It rallied during the next 3 days as FIIs suddenly turned bulls.
The index easily crossed above its 20 day EMA, the support/resistance level of 23840 and its 50 day EMA before facing resistance from the next support/resistance level of 24830.
All four daily technical indicators touched higher bottoms (marked by blue arrows) while the index dropped to a new low. The combined positive divergences was a technical trigger for the rally.
Is the year-long correction finally over? It may be a bit early to call. The index is still trading below its falling 200 day EMA and the blue downtrend line, and technically remains in a bear market. Things can change quickly if FIIs continue to buy.
What is Sensex likely to do next? Shorts have been covered and there are no immediate positive triggers for the market. RBI has hinted at a possible interest rate cut in April '16.
Till then, expect some consolidation in the zone between 23840 and 24830. A possible move can be a test of support from the 23840 level before the index tries to overcome resistance from the 24830 level. In that case, an 'inverse head and shoulders' reversal pattern will form.
Sensex can also breach the support at 23840 and re-test its Feb 29 low - but that seems a low probability event as of now. A third possibility is a continuation of the current rally past 24830, in which case the next resistance level will be 26300.
On longer term weekly chart (not shown) the index has closed 1100 points above its 200 week EMA, keeping the long-term bull market alive. If you missed buying on the rally, use any dips to add. Otherwise, stick to your asset allocation plan.
NSE Nifty 50 chart pattern
The weekly bar chart pattern of Nifty has formed a large 'reversal bar' on strong volumes, hinting that the year-long correction from the Mar '15 top is coming to an end.
The index needs to overcome overhead resistances from the support/resistance level of 7540, its falling 20 week and 50 week EMAs and the blue downtrend line before bulls can regain control of the chart.
Weekly technical indicators have recovered from oversold conditions and are showing good upward momentum, but remain in bearish zones.
On weekly closing chart (not shown), Nifty has formed a 'double bottom' reversal pattern and bounced up to close nearly 400 points above its 200 week EMA.
Bottomline? Chart patterns of Sensex and Nifty have bounced up to close well above their respective 200 week EMAs. The threat to long-term bull markets has been averted. With FIIs turning buyers, bullish sentiment is back in the market. Don't get caught up in the euphoria. Be patient, and stick to your investment plans.
During Feb '16, FIIs were net sellers of equity worth Rs 12500 Crores. DIIs were net buyers of equity worth Rs 10500 Crores. Nifty touched a new 52 week low of 6826 on the last day of the month and closed with a 7.6% loss for the month.
Budget proposals did not appear to be market-friendly despite only a token 0.5% increase in Service tax, and a less-then-expected increase in excise duty on cigarettes. Corporate tax was not reduced. The tax on EPF withdrawal came as a major shock to the salaried class.
Just when everyone expected the index to collapse, Nifty did the unexpected and jumped 550 points from its Feb 29 low. What happened? Have a look at the chart and analysis below to find out.
The following comments from last Sunday's post on Sensex and Nifty charts may be worth repeating:
"The door remains open for bears to push the index down to a new 52 week low, if the budget doesn't contain any market-friendly proposals."
"...if 6869 gets breached after the budget announcements, Nifty is likely to find strong support in the zone between 6647 and 6869."
"There are very little expectations from the budget on Feb 29 - which may turn out to be a contraindicator for a market rally."
The daily bar chart pattern of Nifty 50 did touch a new 52 week intra-day low on budget day, found support at 6826 and then rallied strongly. After crossing above its 20 day EMA on Mar 1 '16, the index faced resistance from the long-term support/resistance level of 7240.
That resistance was easily overcome with an upward 'gap' with good volume support today. The resistance level is likely to turn into a support level once more. The falling 50 day EMA is now providing resistance.
Is the worst over for the index? It would appear so from FII activity. They were net buyers of equity worth a huge Rs 4350 Crores on Mar 1 & 2. DIIs turned net sellers of equity worth Rs 1430 Crores, as per provisional figures. FIIs were reassured by the FM's decision of sticking to the fiscal deficit target of 3.5% of GDP.
Note that all three daily technical indicators touched higher bottoms while Nifty dropped to a new low (marked by blue arrows). The combined positive divergences was a technical trigger for the rally.
On the daily closing chart (not shown), Nifty has formed a 'double bottom' reversal pattern, and should continue to rally.
There is also a possibility that Nifty faces resistance from the next 'support/resistance' level of 7540, pulls back towards 7240, and then resumes its uptrend. That will provide a good buying opportunity.
In case 7240 gets breached again, Nifty may test its Feb 29 low - but such a possibility appears slim, and can only be triggered by some cataclysmic global event.
After a long time, shorts have been squeezed out. Time to start activating your 'buy list'.
Not quite 'acche din' yet - but getting there.
FIIs were net sellers of equity for the 4th month in a row, and have been sellers in 6 of the last 7 months. Their net selling during Feb '16 has nearly touched Rs 10500 Crores.
DIIs were net buyers of equity worth Rs 9000 Crores, as per provisional figures. That wasn't enough to prevent both Sensex and Nifty from touching new 52 week lows during the month, and losing 2.5% on a weekly closing basis.
The Railway Minister tried to walk a fine line between a populist and a realistic budget. The result was a bit of a damp squib, and questions were raised about resource generation for funding new projects.
The budget session has started on a combative mode, with the opposition pillorying the government for its ham-handed approach towards subduing various protest movements. There are very little expectations from the budget on Feb 29 - which may turn out to be a contraindicator for a market rally.
BSE Sensex chart pattern
The following comments were made in last week's post on the daily bar chart pattern of Sensex: "Bears may use the pullback to sell. Sensex is likely to test the Feb 12 low, and even breach it if budget proposals disappoint the market."
As expected, bears (i.e. FIIs) used the pullback towards the 23840 level (marked by 2nd red arrow) to sell. The index stopped short of testing the Feb 12 low of 22600 - thanks to short covering on Fri. Feb 26 '16.
On the Sensex chart above, green arrows point to intermediate bottoms that acted as support levels, which subsequently turned into resistance levels (marked by red arrows).
Three of the daily technical indicators - MACD, RSI, Slow stochastic - are in bearish zones and not showing any upward momentum. ROC is the only one looking bullish by crossing above its 10 day MA and managing to enter positive zone.
The door remains open for bears to push the index down to a new 52 week low, if the budget doesn't contain any market-friendly proposals.
All three EMAs are falling, and the index is trading below them in a bear market. Sensex has closed below its 200 week EMA (not shown) for the second time in three weeks - keeping long-term bulls on tenterhooks.
NSE Nifty 50 chart pattern
The weekly bar chart pattern of Nifty is showing an interesting, but not surprising, phenomenon. Resistance levels that are almost 2 years old (intermediate tops marked by the two red arrows on the left of the chart) got breached on the up side and subsequently turned into support levels (marked by green arrows).
The support levels (intermediate bottoms) were breached on the down side almost 2 years later and then turned into resistance levels (marked by red arrows on the right of the chart).
Reminds me of Miles Davis' famous composition: So what? Just a reminder that calculated levels - like Fibonacci retracement levels - tend to be less reliable than actual support/resistance levels.
What if a Fibonacci retracement level coincides with a previous support level? For e.g. the 61.8% retracement level of the entire 4000 points rise in Nifty (from 5119 in Aug '13 to 9119 in Mar '15) is 6647, which happened to provide support to the index during Apr. '14.
Well, 6647 is likely to be a stronger support level (may be even a turning point) than the support/resistance level of 6869 (corresponding to the Feb 12 low).
In other words, if 6869 gets breached after the budget announcements, Nifty is likely to find strong support in the zone between 6647 and 6869. Remember that technical levels are never exact, but mostly approximate.
What if 6647 also gets convincingly breached on the downside? All bullish bets should be taken off the table.
Weekly technical indicators are in bearish zones, and looking oversold. That doesn't mean Nifty can't correct some more. The index closed below its 200 week EMA (not shown) again after two weeks, but touched a higher bottom - keeping faint bullish hopes of a revival alive.
Bottomline? Chart patterns of Sensex and Nifty have again closed below their respective 200 week EMAs. The threat to long-term bull markets has been renewed. Remain extremely cautious, but keep faith in your investment plans.
Short covering, some amount of value buying and hopes of market-friendly announcements in the forthcoming budget may have triggered last week's rally in the stock market.
There was also a slight let-up in FII selling in equities. Their net selling, as per provisional figures, was Rs 2600 Crores - thanks to net buying of Rs 400 Crores on Thu. Feb 18. DII were net buyers of equity worth Rs 3700 Crores.
Sensex and Nifty gained more than 3% each on a weekly closing basis - their biggest weekly gains in 4 months - and pulled back to test resistance from their respective Jan '16 lows.
Can the resistances be overcome, or will both indices resume their downward journeys? A lot will depend on whether budget announcements are able to meet or exceed already low market expectations.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex pulled back to its Jan 20 '16 low of 23840, where it is facing resistance from its falling 20 day EMA. The reasons for a likely technical bounce were explained in last week's post.
In the chart above, green arrows have been used to indicate previous bottoms that acted as supports. Once these supports got breached, they turned into resistance levels (marked by red arrows) for subsequent up moves.
Observant readers may see similar patterns near the 26300 level - supports turning into resistances. The reverse also occurs - resistances, when breached, turn into supports during bull phases.
Daily technical indicators have recovered from oversold conditions, but remain in negative zones and are not showing much upward momentum. RSI is showing positive divergence by touching a higher bottom while Sensex touched a 52 week low of 22600 on Fri. Feb 12.
Bears may use the pullback to sell. Sensex is likely to test the Feb 12 low, and even breach it if budget proposals disappoint the market.
There is also a possibility - however slim - of the index forming an 'inverse head and shoulders' reversal pattern. The left 'shoulder' has already formed, and the 'head' is in the process of being formed. One has to wait about 5-6 weeks for the pattern to play out.
After dropping and closing below its 200 week EMA (not shown) last week, Sensex has pulled back to close above it. The threat to the long-term bull market has been averted - for now.
NSE Nifty 50 chart pattern
The following remarks appeared in last week's analysis of the weekly bar chart pattern of Nifty 50:
"A close below the 200 week EMA is considered very bearish. But a single week's breach should not cause panic. Faint bullish hopes were kept alive as the index closed the week within the 3% 'whipsaw' limit below its 200 week EMA."
Nifty pulled back to its Jan '16 low of 7241, and in the process, closed more than 100 points above its 200 week EMA (not shown).
Weekly technical indicators remain in negative zones, but RSI and ROC are showing signs of upward momentum. MACD is still sliding down. Slow stochastic is muddling along the edge of its oversold zone.
Bears (i.e. FIIs) remain in control of the chart, and they are not showing any signs of relinquishing it.
Bottomline? Chart patterns of Sensex and Nifty have pulled back to their Jan '16 lows, and managed to close above their respective 200 week EMAs. The threat to long-term bull markets has been temporarily averted. Remain watchful and cautious, but don't give up on your investment plans.
There has been no let up in FII selling. In the first three days of the week, their net selling in equities crossed Rs 2800 Crores. DIIs more than matched them with net buying in equities worth Rs 2950 Crores.
WPI inflation for Jan '16 was -0.9% - its 15th straight month of contraction. WPI was -0.73% in Dec '15 and -0.95% in Jan '15. However, rising food prices that led to an increase in CPI inflation remain a concern.
Exports fell by 13.6% to $21.1 Billion in Jan '16 against $24.4 Billion a year ago. It was the 14th straight month of contraction. Imports also fell - by 11% to $28.7 Billion in Jan '16 against $32.2 Billion in Jan '15. Trade deficit was at an 11 month low of $7.6 Billion.
The daily closing chart pattern of Nifty 50 seems to be in the throes of a 'dead cat bounce' after falling to a high-volume 'panic bottom' last Friday (Feb 12 '16). All three EMAs are falling, and the index is trading below them in a bear market.
Two of the three daily technical indicators - RSI and Slow stochastic - have corrected oversold conditions but remain in bearish zones. MACD is sliding deeper inside its oversold zone.
On longer term weekly chart (not shown), the index has pulled back to its 200 week EMA after falling below it on Friday.
The breadth indicator NSE TRIN (not shown) has dropped from its oversold zone. Some more correction and a re-test and possible breach of last Friday's low of 6869 is on the cards. 'Panic bottoms' seldom hold.
This isn't the time to be aggressive - as a bull or a bear. Just stick to your asset allocation plan and let the plan help you to decide what you should be doing.
Net selling in equities by FIIs this week has crossed Rs 1500 Crores. On Tue. Feb 9, DIIs joined the selling bandwagon, but they were net buyers on Mon. Feb 8. and Wed. Feb 10. Total DII net buying was Rs 300 Crores.
Falling oil prices, a poor IIP number from Germany, disappointing Q3 results from India Inc. have combined to scare away bulls.
India's GDP grew at 7.3% during Oct-Dec 2015, compared to 7.7% during Jul-Sep '15, but many economists are unable to correlate the numbers with the situation on the ground.
The daily closing chart of Nifty 50 dropped to a new 52 weeks low of 7216 today. The 200 day EMA has formed a 'rounding top' reversal pattern. Daily technical indicators are in bearish zones and showing downward momentum.
All three EMAs are falling and Nifty is trading below them. On a closing basis, the index is 19.8% below its Mar '15 closing high of 8996. A 20% fall from a top is technically considered a confirmation of a bear market.
That may just be of academic interest. The way FIIs are selling, it seems no low is low enough!
There is one tiny sliver of silver lining on the looming dark bearish clouds. All three technical indicators touched higher bottoms while the index dropped lower. The positive divergences can lead to a technical bounce.
How low can Nifty fall? Let us look at a longer term weekly chart:
An important point to note is that Nifty is still trading above its 200 week EMA, which is currently at 7096. A convincing breach of the 200 week EMA will negate the long-term bull market.
Just above that is the 7120 level - which is the 50% Fibonacci retracement of the entire rise from the Aug '13 low to the Mar '15 top.
Bear phases often find support near the 50% Fibonacci retracement level - since most technical traders know about such levels.
Between 7020 and 7067 is an unfilled 'gap' that was created on the daily bar chart (on May 13 '14 - on euphoria about Modi-led NDA victory in the general election). Such gaps often provide support.
The 100 point zone between 7020 and 7120 may become a good support zone. Below that, support levels are at 6840, 6360 and 6160. Remember that support (and resistance) levels are approximate and rarely exact.
Weekly technical indicators are looking a bit oversold, which can lead to a technical bounce. Bears (i.e. FIIs) will probably use it to sell again.
The advantage is clearly with the bears.
FIIs were net buyers of equity worth Rs 250 Crores on Feb 1 '16, but turned net sellers worth Rs 470 Crores on the next two days, as per provisional figures. DIIs were net sellers worth Rs 1000 Crores during the first three days of the month.
RBI Governor maintained interest rate status quo - as was the consensus expectation. Even then, Nifty faced strong selling post the announcement on Tue. Feb 2. The budget on Feb 29 will be the next trigger for the market.
Auto sales in Jan '16 were mixed. Maruti and Hyundai showed slight increase in domestic car sales, but exports slumped. M&M grew domestic and export sales. Tata Motors' M&HCV sales grew, but car sales fell. Eicher has a winner with the fast growing Royal Enfield, but Hero Moto showed only a marginal increase in 2-wheeler sales.
The following comment appeared in the previous post on Nifty: "... pullback to the 7540 level may be used as a selling opportunity by bears."
Nifty crossed above its falling 20 day EMA to touch an intra-day high of 7600 on Feb 1, but dropped to the 7540 level before closing slightly above the support level.
The index dropped well below its 20 day EMA and the 7540 level on Feb 2 due to combined FII and DII selling after the RBI interest rate announcement.
There was no sudden change in domestic or global economies. Probably the market was hoping for a cut in interest rate, or just looking for an excuse to sell.
Daily technical indicators are looking bearish. MACD is falling towards its signal line in negative zone. ROC has dropped sharply into its negative zone. RSI faced strong resistance from its 50% level, and is moving down. Slow stochastic dropped down after facing resistance from the edge of its overbought zone.
So, what can happen next? The index is likely to test its Jan 20 low of 7240. Will it bounce up with strong volumes? Seems unlikely, considering the way both FIIs and DIIs are selling.
What happens if the index falls below 7240? It will drop towards the 7120 level (which is the 50% Fibonacci retracement level of the entire rise of 3672 points from the Aug '13 closing low of 5285 to the Mar '15 top of 8957).
Another possibility is that the index consolidates within a 300 points range between 7540 and 7240 till the budget on Feb 29.
Which of the three options will Nifty choose? Your guess is as good as mine. Just stick to your asset allocation plan and invest your monthly savings accordingly.
The index is still trading above its rising 200 week EMA (not shown), which means the long-term bull market is intact.
Almost forgot to mention that the NSE TRIN - a market breadth indicator (not shown) - has ventured into extremely oversold region. A sharp technical bounce can occur at any time.
FII selling continued unabated this week. Their net selling in equities totalled almost Rs 3400 Crores, as per provisional figures. Interestingly, DIIs were net buyers of equity worth Rs 3900 Crores, but could not prevent Nifty from falling to a 19 months low.
Merchandise exports dropped for the 13th straight month, falling nearly 15% YoY in Dec '15 to $22.3 Billion. Imports fell by only 3.9% to $34 Billion.
For the Apr-Dec '15 period, trade deficit was lower at $99.2 Billion against $111.7 Billion in the same period in 2014, thanks mainly to lower import cost of oil.
The long-term closing chart pattern of Nifty 50 has completed a bearish 'rounding top' pattern by falling convincingly below the support level of 7550. The 'rounding top' is clearly visible on the 200 day EMA.
It may be a good time to take a relook at the blog post on Jan 6 where possible lower support levels were mentioned.
The important level to watch is 7120 (which is the 50% Fibonacci retracement level of the entire rise of 3672 points from the Aug '13 closing low of 5285 to the Mar '15 top of 8957).
The current level of the 200 week EMA (not shown) is 7085. A convincing breach of that level may mark the end of the long-term bull market.
All three daily technical indicators are looking oversold. The TRIN breadth indicator is approaching extremely oversold conditions.
Nifty looks ripe for a technical bounce. But continued FII selling can negate technicals.
Caution should be the watchword. Next week has F&O expiry and Republic Day holiday. Better to stay away for now and let the dust settle.
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