Sensex, Nifty charts (Nov 27, 2020): soaring to new highs on a tsunami of FII liquidity inflow

A tsunami of FII liquidity inflow boosted Sensex and Nifty to new highs past 44000 and 13000 levels respectively. During Nov '20, FIIs were net buyers of equity worth Rs 653.2 Billion - their highest ever monthly net buying. DIIs were net sellers of equity worth Rs 483.2 Billion - their highest monthly net selling ever. 

The situation on the economic front is improving, but remains grim. India's Q2 (Jul-Sep '20) GDP contracted by a less-than-expected 7.5% following an unprecedented decline of 23.9% in Q1 (Apr-Jun '20). GDP had expanded by 5.2% in previous Q2 (Jul-Sep '19).

India's fiscal deficit during Apr-Oct '20 came in at Rs 9.5 Trillion, which is almost 120% of the FY 2020-21 annual target of Rs 7.96 Trillion. The lag in revenues continues to outpace the government's efforts at expenditure compression.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex touched a new intra-day high of 44825 on Wed. Nov 25, but formed a large 'reversal day' bar (higher high, lower close) and closed nearly 1000 points lower. The index recovered a little to close at 44150 by the end of the week - gaining more than 4500 points (11.4%) for the month.

All three daily EMAs are rising, and the index is trading above them in a bull market. Sideways consolidation during the past two weeks have helped to correct overbought conditions of technical indicators.

Daily technical indicators are turning bearish. MACD has slipped below its signal line in bullish zone. RSI has dropped from its overbought zone. Slow stochastic has fallen below its 50% level. Some more consolidation or correction is likely.

Q2 (Jul-Sep '20) corporate results were a pleasant surprise, though top line growth was minimal and bottom line improvement was helped by tax cuts and cost curtailments. Q3 (Oct-Dec '20) results will either confirm that business recovery is for real or that the improvement in Q2 was due to pent-up demand following the long lock down.

Strong bullish sentiment in the market may be hinting that business recovery is in full swing. Anecdotal evidence suggests otherwise. The larger and more established companies are grabbing market share from MSMEs. 

That is not conducive for a broad-based economic growth and employment generation in the long run. Small investors who prefer mid-cap and small-cap stocks may face rough times unless they realign their portfolios towards large-cap stocks.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose for the fourth straight week to breach the 13100 level intra-week before closing at a new high of 12969. Huge buying by FIIs ensured that the index continued to soar in blue-sky territory. 

Bulls remain 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 as the index has gained a whopping 75% in just 8 months (from its Mar '20 low to the Nov '20 high).

Such a strong rally is unlikely to sustain much longer. Expect year-end profit booking by FIIs, which will help improve the technical 'health' of the chart.

Weekly technical indicators are looking overbought. MACD is rising above its signal line inside its overbought zone. RSI is hovering at the edge of its overbought zone. Slow stochastic is inside its overbought zone but showing slight downward momentum that is hinting at likely consolidation or correction.

After touching a new high of 35.9 on Tue. Nov 24, Nifty's TTM P/E has slipped down a bit to 35.66 - which is way above its long-term average and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped and remained inside its overbought zone since Nov 11. Some near-term index consolidation or correction is possible.

Bottomline? Sensex and Nifty charts are climbing to new highs on a tidal wave of FII liquidity inflow. Year-end considerations can lead to some profit booking by foreign fund houses. Upside risk is increasing by the day. Hold existing positions with trailing stop-losses, or take some profits home. 

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 (Oct 09, 2020): 5 weeks long down trends reversed by FII buying

FIIs were net sellers of equity on Fri. Oct 9, but were net buyers during the first four trading days of the week. Their total net buying was worth Rs 33.7 Billion. DIIs were net buyers of equity on Thu. and Fri. (Oct 8 and 9), but were net sellers during the first three trading days. Their total net selling was worth Rs 23.89 Billion.

IHS Markit's India Services PMI rose to 49.8 in Sep '20 from 41.8 in Aug '20, but remained below the 50 mark - indicating contraction. The Composite (Mfg. + Serv.) PMI expanded for the first time in 6 months, rising from 46 in Aug '20 to 54.6 in Sep '20.

After its bi-monthly MPC meeting from Oct 7-9, '20 RBI decided to keep the repo and reverse repo rates unchanged at 4% and 3.35% respectively. RBI also forecast a GDP contraction of 9.5% for FY 2020-21.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex shows how a sudden gush of FII money has blown away technical resistances. Expectation of a second round of stimulus in the US may have turned FIIs into bulls.

The 5 weeks long down trend (marked by blue down trend line) has been reversed and strong resistance from the 335 points downward 'gap' formed on Feb 28 has been overcome. Bears had no place to hide. Their short-covering helped the week's sharp 1800 points rally. 

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. ROC has climbed to the edge of its overbought zone. RSI is rising towards its overbought zone. Slow stochastic is well inside its overbought zone, and can trigger a pullback towards the 335 points downward 'gap' of Feb 28.

Q2 (Jul-Sep '20) corporate results have started hitting the market, with TCS releasing a decent set of numbers and announcing a share buyback. Wipro also announced a share buyback. 

Dividends exceeding Rs 5000 received by shareholders now attract a 7.5-10% tax. (Earlier, companies had to pay a dividend distribution tax.) Promoters holding large chunks of stock may prefer to opt for buybacks - which reduce equity capital and thereby enhance EPS.

If you are thinking about tendering shares to a company offering a buyback - think again. You may offer 500 shares, but the company may accept only 170. Also, buybacks attract capital gains tax - so you might as well sell in the market.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above the 11900 level for the first time in more than 7 months - gaining nearly 500 points (4.3%) on a weekly closing basis.

The bearish pattern of 'lower tops, lower bottoms' formed during the past 5 weeks have been negated - thanks to FII buying. All three weekly EMAs are rising, and Nifty is trading above them in a long-term bull market.

Weekly technical indicators are in bullish zones and showing some upward momentum. MACD is rising above its signal line in overbought zone. RSI is rising above its 50% level. Slow stochastic is moving up towards its overbought zone after dropping down from it. Some more index upside is possible. 

Nifty's TTM P/E has moved up to 34.71, its highest level ever and well above its long-term average deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped sharply from its oversold zone - and can limit near-term index upside.
 
Bottomline? Sensex and Nifty charts have reversed 5 weeks long down trends on the back of FII buying. Bulls are back in control. However, caution is advised as the broader market didn't participate during the week's rally. Check Q2 (Jul-Sep '20) corporate results before committing fresh money to individual stocks.

Sensex, Nifty charts (Sep 25, 2020): bears making their presence felt

FIIs were net sellers of equity on all five trading days of the week. Their total net selling was worth a huge Rs 104.91 Billion. DIIs were net sellers of equity on Mon. Sep 21, but were net buyers during the next four days. Their total net buying was worth Rs 42.49 Billion.

The National Council for Applied Economic Research (NCAER) has made a revised projection that India's GDP growth will contract 12.7% in Q2 (Jul-Sep '20), 8.6% in Q3 (Oct-Dec '20) and 6.2% in Q4 (Jan-Mar '21). For FY 2020-21, GDP contraction will touch 12.6%. A thumb rule definition of recession is two straight quarters of contracting GDP.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex shows that bulls have stumbled at the last hurdle - a 335 points downward 'gap' formed on Feb 28 - in their efforts to propel the index to a new high.

After moving well above the 'gap' to touch an intra-day high of 40010 on Aug 31, the index had formed a large 'reversal day' bar (higher high, lower close) that marked an intermediate top.

Since then, Sensex faced strong resistance from the 'gap', and failed to close above the 'gap' even for a single day. It has formed a bearish pattern of 'lower tops, lower bottoms'. 

On Thu. Sep 24, the index closed below its 200 day EMA for the first time since Jul 1, but bounced up to close above the 200 day EMA in bull territory by the end of the week. Any respite for bulls may be short-lived.

The 20 day EMA has formed a bearish 'rounding top' pattern. The 50 day EMA is also forming a similar pattern. Both EMAs may provide resistance to any upward move by the index. 

Daily technical indicators are looking neutral to bearish. MACD is sliding below its signal line in neutral zone. ROC is in bearish zone, moving up towards its sliding 10 day MA. RSI has bounced up from the edge of its oversold zone. Slow stochastic is trying to emerge from its oversold zone.

The sudden lockdown with 4 hours notice in Mar '20 had created a supply shock for the Indian economy. Millions of job losses, shattered MSMEs and a raging pandemic are now providing a demand shock to the economy, from which it may take 2-3 years to recover.

All prognostications of a 'V' shaped economic recovery should be ignored. An economic recession is hardly conducive to a booming stock market. Small investors should focus on protecting their profits and capital. 

NSE Nifty index chart pattern

The following remark was made in last week's post on the weekly bar chart pattern of Nifty: "Convincing breach of an up trend line is often a sign of trend reversal." 

After crossing the 11750 level on Aug 31, the index had breached the (pink) up trend line, and has formed a bearish pattern of 'lower tops, lower bottoms' since then.

Nifty dropped sharply below the 'support-resistance zone' between 11000-11250 and fell below its 20 week and 50 week EMAs intra-week, before bouncing up to close just inside the 'support-resistance zone' - losing 455 points (3.95%) during the week. 

Bears are not in control yet, since the index managed to close above all three weekly EMAs in long-term bull territory. However, a test of support from the 200 week EMA may be in the offing.

Weekly technical indicators are in bullish zones but showing downward momentum. MACD is above its signal line but forming a bearish 'rounding top' pattern. RSI is falling towards its 50% level. Slow stochastic has slipped down from its overbought zone - hinting at some more correction/consolidation. 

Nifty's TTM P/E has moved down to 32.12, which remains well above its long-term average and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) has moved up sharply inside its oversold zone. Some near-term index consolidation or correction is likely.
 
Bottomline? After breaching 5 months long up trend lines on Sensex and Nifty charts, both indices continue to consolidate near resistance zones. Some more correction or consolidation is likely. Wait for lower levels to add defensive sector stocks you may already own.

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.

Sensex, Nifty charts (May 08, 2020): correcting after false breakouts above rising wedge patterns

FIIs were net sellers of equity on the first three days of the week but net buyers on the next two days. Their total net buying was worth a whopping Rs 185.9 Billion - due entirely to the GSK-HUL bulk deal on Thu. May 7. DIIs were net buyers of equity on Wed. and Thu. (May 6 and 7), but net sellers on the other three trading days. Their total net buying was worth Rs 9.18 Billion, as per provisional figures.

Thanks to the countrywide virus lock-down, India's Manufacturing PMI fell to an all-time low of 27.4 in Apr '20 from 51.8 in Mar '20. (A number below 50 indicates contraction.) Services PMI plunged to an unprecedented low of 5.4 in Apr '20 from 49.3 in Mar '20. Composite (Manufacturing + Services) PMI plummeted to 7.2 in Apr '20 from 50.6 in Mar '20.

As per Moody's, India's GDP growth will be nil during FY 2020-21 because of the deep shock triggered by the coronavirus outbreak. Downside risks to growth will increase if the lockdown is extended beyond May 17th.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex had broken out above the 'rising wedge' pattern with an upward 'gap' on Apr 30, and closed above its falling 50 day EMA - appearing to negate the bearish pattern.

On May 4, the index opened trade with a downward 'gap' below its 50 day EMA, and broke out below the 'wedge' (as had been expected earlier). In the process, Nifty formed an 'island reversal' pattern that ended the pullback rally.

The index oscillated about its 20 day EMA during the rest of the week, giving bulls some hope. That does not mean dips will be opportunities to buy. A global economic recession is looming ahead, and India is not in a fiscal position to escape it. 

Daily technical indicators are looking neutral to bearish. MACD is moving along its '0' line in neutral zone. RSI is moving along its 50% level. Slow stochastic is trying to emerge from its oversold zone, and can trigger a technical bounce.

The stock market is expecting some good news in the form of a bailout package for small businesses. Even if it comes, it will likely be too little too late. A government more concerned with optics and stifling dissent appears to have lost its coronavirus fight long ago with its twisted priorities. 

The prolonged lockdown may have delayed the spread of the virus, but without adequate testing/tracing facilities and a creaking healthcare infrastructure, the worst is ahead of - not behind - us. Not a conducive environment for a rising stock market. Small investors should conserve cash to fight another day.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty had broken out above the 'rising wedge' pattern in the previous week, but the breakout turned out to be a 'false' one. The index dropped to close below the 'wedge' - losing more than 600 points (6.2%) for the week.

The unexpected upward breakout had appeared to negate the bearish 'rising wedge' pattern. The week's trade has restored the empirical order (of a downward breakout from a 'rising wedge' pattern).

The 20 week EMA has crossed below the 200 week EMA. All three weekly EMAs continue to fall, 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 giving bearish signals. MACD is below its signal line inside its oversold zone, and its upward momentum has stalled. RSI is falling inside bearish zone. Slow stochastic has dropped to the edge of its overbought zone. 

Nifty's TTM P/E has moved down to 21.28 but remains above its long-term average. The breadth indicator NSE TRIN (not shown) bounced up from the edge of its overbought zone, hinting at near-term index correction or consolidation.

Bottomline? Sensex and Nifty charts continue to trade below their respective 200 day and 200 week EMAs in bear markets. Extension of the corona virus lockdown is showing signs of pushing an already weak economy into a recession. Small investors can continue with their SIPs, but should avoid any bargain hunting. 

Sensex, Nifty charts (Feb 28, 2020): bears take charge

FIIs were net sellers of equity on all five trading days of the week. Their total net selling was worth a huge Rs 113.69 Billion. DIIs were net buyers of equity on all five days. Their total net buying was worth a massive Rs 159.86 Billion, as per provisional figures - thanks to a big bulk deal on Adani Gas on Fri. Feb 28. 

India's fiscal deficit for the Apr '19 to Jan '20 period touched Rs 9.86 Trillion, which was 128.5% of the revised deficit target of Rs 7.67 Trillion for FY 2019-20. Expenditure stood at Rs 22.68 Trillion (84.1%) while revenue receipts were Rs 12.82 Trillion.

India's GDP growth during Q3 (Oct-Dec '19) slipped to a nearly 7 year low of 4.7% on a YoY basis due to contraction in manufacturing output. However, on a QoQ basis, there was a slight improvement from Q2 (Jul-Sep '19) figure of 4.5%. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex clearly shows bear domination during the week. After breaking down below a 'diamond' pattern on Mon. Feb 24 (the possibility was mentioned in last week's post), downward momentum of the index intensified.

The 200 day EMA - that technically separates bull and bear markets - was easily breached. More worrisome for bulls is the 336 points downward 'gap' formed on Fri. Feb 28 (marked by light grey area on chart). Such a 'gap' occurring in the midst of a down move can be a 'measuring gap' - with a downward target of about 37100. 

Any index pullback towards the 200 day EMA may partially or completely fill the downward 'gap'. The corrective down move can be expected to resume thereafter. (Remember that a 'gap' can sometimes remain unfilled for long periods.) 

Daily technical indicators are in bearish zones and looking oversold. MACD is falling towards its oversold zone. RSI and Slow stochastic are inside their respective oversold zones. A technical bounce towards 39000 is a possibility.

Global stock markets are in risk-off mode due to concerns about effect of the rapidly spreading corona virus on economic growth. The virus appears to have been contained in China - though their data should be taken with a pinch of salt - but it is spreading in several other countries.

Small investors should not feel adventurous. Avoid averaging down or bottom fishing. Every index fall need not be a buying opportunity. Concentrating on capital protection at such times will let one live to fight another day.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty plummeted below a 'diamond' reversal pattern, and closed well below its 20 week and 50 week EMAs with a weekly loss of 7.3%. However, a bullish pattern of 'higher tops, higher bottoms' - formed during the past 18 months - is still intact.

The index continues to trade above its rising 200 week EMA in a long-term bull market. The rapidly spreading corona virus may take the wind out of bullish sails, as FIIs are falling over each other as they head for the exit doors.

Weekly technical indicators are looking bearish and showing downward momentum. MACD is falling sharply below its signal line in bullish zone. RSI and Slow stochastic have dropped below their respective 50% levels. The correction is not over yet. 

Nifty's TTM P/E has moved down to 25.49, its lowest level for the month of Feb '20 but above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has dropped down from its oversold zone, hinting at a possible near-term index pullback.

Bottomline? After touching lifetime highs on Jan 20th, Sensex and Nifty charts have wiped out all gains made in the previous 4 months since Sep 20th (the day corporate tax cuts were announced). Widening fiscal deficit and weak GDP number have added fuel to the fire of bearishness in global stock markets. Investors should remain extremely cautious and protect their capital. Think about buying after the correction plays out.

Sensex chart: a midweek technical update

FIIs have been heavy net sellers of equity on all three trading days this week. Their total net selling was worth Rs 68.13 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 48.67 Billion, as per provisional figures. 

As per former Niti Aayog Vice Chairman Arvind Panagriya, India's economic slowdown has bottomed out. In FY '20-21, GDP growth is expected to be 6%, and get back to 7-8% thereafter.

The daily bar chart pattern of Sensex has broken out sharply below a 'diamond' pattern to breach the 200 day EMA and the psychological level of 40000. (Readers were warned of such a possibility in this post.)

The previous occasion when the index dropped sharply to breach the 200 day EMA (in green) was on budget day (Feb 1). A sharp technical bounce had followed. Can that pattern repeat?

Daily technical indicators are in bearish zones and showing downward momentum. Slow stochastic has fallen well inside its oversold zone, and can trigger a technical bounce.

Note that the merged 20 day and 50 day EMAs (in red and blue) are just below the 41000 level. The breakout point of the index from the 'diamond' pattern (which is like a head-and-shoulders pattern with a bent neckline) is also just below 41000. 

That means 41000 is likely to provide strong resistance to any index pullback. A convincing move above 41000 is necessary for bulls to wrest back control. But chances of that happening soon seem unlikely.

On the downside, there is some support in the zone between 38500 and 39000. If the Sensex falls there and bounces up, the 200 day EMA can provide resistance. In the near-term, expect bears to remain in control.

Rapid spreading of the corona virus and its possible negative effect on supply chains is causing concern in global stock markets. Small investors should avoid bottom-fishing, as a deeper correction appears likely. 

Sensex, Nifty charts (Dec 20, 2019): at new lifetime highs

FIIs were net buyers of equity on all five trading days. Their total net buying was worth Rs 48.9 Billion. DIIs were net sellers of equity on all five trading days. Their total net selling was worth Rs 37.5 Billion - as per provisional figures.

According to a CARE Ratings report, production of consumer non-durables (i.e. FMCG products) moderated to 4% in FY 2018-19 from 10.5% growth in FY 2017-18 due to a sluggish economy and limited growth in employment. However, 14 items among the 36 taken into consideration showed increase in growth.

Fitch Ratings have cut India's GDP growth forecast to 4.6% for FY 2019-20 from the previous estimate of 5.6% due to significant growth deceleration in the past few quarters - thanks to credit squeeze and deterioration in business and consumer confidence.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex rose to touch new intra-day (41810) and closing (41682) highs during the week on the back of strong buying in equities by FIIs. The index is trading well above its three rising EMAs in a bull market.

Daily technical indicators are looking bullish and a bit overbought. MACD has crossed above its signal line in bullish zone. ROC has crossed above its 10 day MA and entered its overbought zone. RSI is hovering just below the edge of its overbought zone. Slow stochastic is well inside its overbought zone, and can trigger a correction or some consolidation.

Bull markets are supposed to climb 'a wall of worries' - and there are plenty of worries for Indian investors. Apart from a sliding economy and rising inflation with a possibility of stagflation, divisive forces have now been unleashed by the government's determined effort to implement CAA and NRC.

That may be a great tactic to win votes in upcoming state elections after a few recent setbacks and divert the nation's attention from gross mismanagement of the economy. But nationwide protests have added to the fear and uncertainty that have already damaged business and consumer confidence.

The lack of buying euphoria is an indication that Sensex may climb even higher. But without investor participation in the broader market (i.e. mid-cap and small-cap stocks), the rally in a few large-cap stocks will peter out sooner than later. Hold on to good large-cap stocks, but avoid buying them at current elevated valuations.

NSE Nifty index chart pattern

After struggling for three weeks, the weekly bar chart pattern of Nifty broke out and closed above its Jun 7 top of 12103, and touched new intra-week (12294) and closing (12272) highs. 

The index is trading well above its three rising weekly EMAs in a long-term bull market, and gained 185 points (1.5%) on a weekly closing basis. However, small investors should not get carried away by a rising index.

Note that Nifty has been trading within a large 'rising wedge' pattern for the past three months. Such a pattern has bearish implications - particularly when it forms at an index top. Falling volumes during the past three weeks is another concern for bulls.

Weekly technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. ROC has crossed above its 10 week MA to re-enter its overbought zone. RSI has bounced up from the edge of its overbought zone. Slow stochastic is moving sideways inside its overbought zone. Bulls appear to be in complete control.

Nifty's TTM P/E has moved up to 28.57 - its highest level for the month and well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has plunged inside its overbought zone, and can trigger some near-term index consolidation or correction.

Bottomline? Sensex and Nifty charts have touched lifetime highs on the back of strong FII buying. Rising CPI inflation, poor GDP and IIP numbers, a crisis of confidence among consumers and nationwide protests against the Citizen Amendment Act (CAA) do not justify a soaring stock market. Stay invested, but book partial profits wherever available, and avoid buying near lifetime high index levels.