Nifty chart: a midweek technical update (Dec 04, 2019)

FIIs have turned net sellers of equity during the first three trading days this week. Their total net selling was worth Rs 36.4 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 26.2 Billion, as per provisional figures.

The IHS Markit India Manufacturing PMI rose to 51.2 in Nov '19 from a two year low of 50.6 in Oct '19. A figure above 50 indicates expansion. India's GST collection rose to Rs 1.03 Trillion in Nov '19 against Rs 0.95 Trillion in Oct '19 and Rs 0.97 Trillion in Nov '18.

Passenger vehicle sales continued to disappoint. 262,892 units were sold in Nov '19 against 284,048 units in Oct '19 and 263,455 units in Nov '18. New product launches helped reduce steep double-digit decline in sales before the festive season.

For the past five weeks, the daily bar chart pattern of Nifty had been trading within a bearish 'rising wedge' pattern - from which a downward breakout occurred on Tue. Dec 3.

The index found support at its 20 day EMA, and pulled back to the lower edge of the 'wedge' on Wed. Dec 4. All three EMAs are rising, and Nifty is trading above them in a bull market.

Daily technical indicators are in bullish zones, but not showing any upward momentum. MACD is moving down below its falling signal line. RSI and Slow stochastic are falling towards their respective 50% levels. 

All three indicators showed negative divergences by failing to touch new highs with the index. A breach of the 20 day EMA can lead to a fall towards the support level of 11800. 

Nifty's TTM P/E is at 28.07, which is well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has moved up sharply to enter oversold zone, hinting at some near-term index upside.

Nifty rallied during Nov '19 on the back of strong FII buying. FIIs have now turned net sellers of equity during the first three trading days of Dec '19. If they continue to sell, the index can see more down side. 

The index is trading less than 1% below its lifetime high of 12159 (touched on Nov 28). Stay invested but avoid any bulk buying.

Sensex, Nifty charts (Nov 01, 2019): bullishness triggered by hopes of more reforms

For the month of Oct '19, FIIs were net buyers of equity after five straight months of net selling. Their total net buying was worth Rs 85.9 Billion. DIIs were net buyers of equity for the sixth month in a row. Their total net buying was worth Rs 47.6 Billion.

Confluence of major festivals and big discounts failed to bring much cheer to auto makers during Oct '19. Maruti and Volkswagen showed marginal sales growth over Oct '18. Renault showed good gains. Hyundai and Toyota showed single-digit de-growth. The rest - cars, 2-wheelers, CVs - showed double-digit de-growth.

IHS Markit India's Manufacturing PMI slipped to a 2-year low of 50.6 in Oct '19 from 51.4 in Sep '19. (A number above 50 indicates expansion.) GST collection in Oct '19 was Rs 954 Billion, which was 3.8% higher than Sep '19 figure of Rs 919 Billion but 5.3% lower than Rs 1.01 Trillion collected in Oct '18.

As per CMIE, India's unemployment rate in Oct '19 climbed to 8.5% - the highest since Aug '16 - from 7.2% in Sep '19. A thriving economy has been brought to its knees by a poorly planned demonetisation and a hastily implemented GST.

BSE Sensex index chart pattern

Bulls came charging out of the gate after the Diwali break. The daily bar chart pattern of Sensex broke out convincingly above the (blue) down trend line on Tue. Oct 29, and rose to touch a new intra-day high of 40392 on Oct 31.

Bulls failed to press home their advantage despite strong equity buying by FIIs. By the end of the week, the index formed a small bearish 'rounding top' pattern that can trigger a correction.

Daily technical indicators are in overbought zones. MACD and RSI are showing upward momentum. ROC and Slow stochastic are showing slight downward momentum. ROC touched a lower top when the index touched a new high. Some near-term index consolidation or a pullback towards the down trend line is likely.

All three EMAs are rising, and the index is trading above them in a bull market. However, the index failed to close above its Jun 3 '19 life-time closing high of 40268 despite touching a new intra-day high of 40392. Bears may use the opportunity to launch an attack.

Profit booking can be expected when an index approaches a previous high. Investors remember what happened after the previous high was touched. Cautious optimism should be the key words here - not aggressive bullishness. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed convincingly above the (blue) down trend line on the back of strong FII buying. FIIs and DIIs had turned net sellers of equity a week ago, causing the index to pullback to the down trend line. Such pullbacks often provide buying opportunities.

However, the index is trading close to a lifetime high. It is a good idea to become fearful when everyone else is turning greedy. The weak macroeconomic indicators are suggesting that the market is running ahead of itself.

Weekly technical indicators are looking bullish and overbought. MACD and RSI are rising in their respective bullish zones. ROC and Slow stochastic are well inside their respective overbought zones. Some index consolidation or correction may be around the corner.

Nifty's TTM P/E has moved up to 27.47 - which is well above its long-term average inside overbought zone. The breadth indicator NSE TRIN (not shown) is treading water in neutral zone. Near-term index consolidation is a possibility. 

Bottomline? Sensex and Nifty charts appear to have reversed 5 months long down trends. A cut in corporate taxes leading to better Q2 earnings has boosted bullish sentiments. Topline growth is tepid, and macroeconomic indicators remain weak. Stay invested. If you must buy, pick market-leading large-cap stocks.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sensex, Nifty charts (Sep 20, 2019): short covering causes euphoric upward breakouts

FIIs were net sellers of equity during the first four trading days of the week, but were net buyers on Fri. (Sep. 20). Their total net selling was worth Rs 33.7 Billion. DIIs were net buyers of equity on all five days of the week. Their total net buying was worth Rs 48.2 Billion, as per provisional figures.

After three disappointing 'booster' packages, the Finance Minister hit the ball out of the park by announcing a significant cut in corporate taxes on Fri. Sep 20. Sensex and Nifty soared - trapping unwary short sellers - and business leaders sang 'Hallelujah'. 

The GST council announced reduction in rates for hotels, outdoor caterers, precious/semi-precious stones but hiked rates for caffeinated drinks and railway wagons. No major relief was provided to auto and cement sectors.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex fell steadily on the back of sustained FII selling, and dropped to test support from the lower edge of the 'support zone' (between 35900 and 37100) on Thu. Sep 19.

There was a sea change in market sentiment after the FM announced corporate tax rate cut on Fri. Sep 20. The index did a sharp U-turn as traders rushed to cover their shorts. Sensex closed above its three EMAs in bull territory for the first time in nearly three months.

Daily technical indicators are turning bullish. MACD has crossed above its rising signal line in bearish zone. ROC has risen sharply to the edge of its overbought zone. RSI has moved above its 50% level. Slow stochastic has emerged from its oversold zone. Some more near-term upside is possible.

Small investors should avoid getting caught in the sudden euphoria. The devil is in the details. How many companies actually pay more than 25% tax? If they do, will they be willing to forego existing tax incentives? Will tax benefits be passed on to consumers, or used to pare debt? Will rural consumers rush out to buy two-wheelers, tractors and cars? Will MSMEs start opening new factories just because tax has been reduced by 3.5%?

Only time will provide answers to those questions. In the meantime, follow your asset allocation plan, continue SIPs, use the sentiment boost to get rid of non-performing stocks/funds and stay invested in good companies/funds for the long-term. That is the best way to build wealth - whether Sensex is falling or suddenly jumping northwards.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty breached the lower edge of the 'support zone' (between 10700 and 11100) intra-week, but bounced up sharply on Fri. Sep 20 to close above both its 50 week and 20 week EMAs for the first time since early Jul '19.

Reduction in corporate taxes - announced by the Finance Minister on Fri. Sep 20 - triggered a sharp technical bounce due to short-covering. Nifty closed at its highest level in eight weeks.

Weekly technical indicators are in bearish zones, but showing upward momentum. MACD appears to be forming a bullish 'saucer' pattern below its falling signal line. ROC has crossed above its falling 10 week MA. RSI has emerged from its oversold zone. Slow stochastic has started rising towards its 50% level. Expect some more near-term index upside.

Nifty's TTM P/E has moved up to 27.72 - which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating near the edge of its oversold zone, hinting at near-term index consolidation.

Bottomline? Sensex and Nifty charts have broken out upwards after consolidating sideways for seven weeks. Sharp short-covering bounces were triggered by a cut in corporate taxes, which may not boost consumer demand in the near term. Stay calm, and follow your investment plans.

Nifty chart: a long-term outlook

After Monday's holiday, FIIs were net sellers of equity on both trading days this week. Their total net selling was worth Rs 37.5 Billion. DIIs were net buyers of equity on both trading days. Their total net buying was worth Rs 25.6 Billion, as per provisional figures.

The IHS Markit India Manufacturing PMI slipped to a 15 month low of 51.4 in Aug '19 from 52.5 in Jul '19, but remained above 50 indicating growth. The Services PMI also declined to 52.4 in Aug '19 from 53.8 in Jul '19. The Composite (Manufacturing + Services) PMI moved down to 52.6 in Aug '19 from 53.9 in Jul '19.

GST collection in Aug '19 slipped to Rs 98.2 Billion from Rs 1.02 Trillion in Jul '19, but was 4.5% higher than Rs 93.9 Billion collected in Aug '18.

The weekly line chart of Nifty has breached two up trend lines drawn from the Feb '16 low (also called Fan Lines - marked FL1 and FL2). This is a sign that the long-term up trend is getting weak, but is not yet over.

As per Corrective Fan Principle, downward breach of a third up trend line - that has not yet been drawn on the chart - will technically confirm the reversal of the long-term up trend.

The index is struggling to hold on to the support level of 10800, and may move lower. A test of support from the 200 week EMA appears increasingly likely.

Weekly technical indicators are in bearish zones. MACD is showing downward momentum. RSI and Slow stochastic are moving sideways - hinting at near-term index consolidation.

Nifty's TTM P/E has moved down to 26.61, but remains inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone. Some near-term index up side is possible.

The market is hoping that a third round of economic booster 'package' - promised by the Finance Minister - will help stop the slide in the index. But the two earlier 'packages' have failed to revive bullish sentiment.

FIIs have intensified their selling after a weak Q1 GDP number and sliding auto sales. They may not turn buyers in a hurry.

Sensex, Nifty charts (Aug 02, 2019): bears have bulls on the ropes

FIIs continued their heavy net selling of equity during the week. Their total net selling was worth Rs 67.9 Billion. DIIs more than matched FII selling, but couldn't prevent sharp falls in Sensex and Nifty. Their total net buying was worth Rs 82.8 Billion, as per provisional figures.

The automobile sector remained in slide mode during Jul '19. Sales tumbled across categories due to weak consumer sentiment. Passenger vehicle sales fell over 30% - worse than the 24.6% fall back in Nov '08.

Gross GST collections during Jul '19 was Rs 1.02 Trillion - marginally up from Jun '19, and 5.8% higher than Jul '18 collection. 

Nikkei India's Manufacturing PMI rose to 52.5% in Jul '19 from 52.1% in Jun '19. A figure above 50% indicates expansion. Growth was driven by domestic demand, while growth in export orders slowed to its lowest level in 15 months.

BSE Sensex index chart pattern

The following comment appeared in last week's post on the daily bar chart pattern of Sensex: "A breach of the 200 day EMA will be quite bearish, and can drop the index to the support zone between 35900 and 37100."

On Mon. Jul 29, the index breached its 200 day EMA intra-day, but bounced up to close above it. The next day, the index fell and closed below its 200 day EMA in bear territory.

On Wed. Jul 31, the index dropped to test support from the 37100 level and bounced up to test resistance from its 200 day EMA. The next day, Sensex fell and closed inside the support zone between 35900 and 37100.

On Fri. Aug 2, the index formed a 'reversal day' bar (lower low, higher close) and bounced up to close just above 37100 - giving some respite to bulls.

Note that Sensex appears to be in the midst of a 'broadening top' pattern, which has bearish implications. If the pattern plays out, there could be a rally that propels the index to a new high. But the subsequent correction can be devastating. So, trade at your own peril.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line towards its oversold zone. ROC is facing resistance from its 10 day MA after emerging from its oversold zone. RSI has re-entered its oversold zone after briefly emerging from it. Slow stochastic is trying to emerge from its oversold zone. A technical bounce is a possibility.

There were rumours in the market on Friday about the government considering some tax relief for FIIs, which set off short-covering in an oversold market. Remember the market adage: Buy the rumour; sell the news.

NSE Nifty index chart pattern

The following comment appeared in last week's post on the daily bar chart pattern of Nifty: "A breach of the 50 week EMA will be quite bearish, and can drop Nifty to the support zone between 10700 and 11100."

As expected, the breach of its 50 day EMA by the index dropped it further to close inside the support zone between 10700 and 11100.

During the past four months. Nifty appears to have formed a bearish 'broadening top' pattern. If the pattern plays out, a rally to a new high followed by a deeper correction may occur. 

Weekly technical indicators are looking bearish and oversold. MACD has crossed below its signal line, and is falling rapidly in bullish zone. ROC faced resistance from its falling 10 week MA and has dropped inside its oversold zone. RSI and Slow stochastic have dropped to the edges of their respective oversold zones. 

Nifty's TTM P/E has moved down to 27.09 - but remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen well inside its oversold zone, and can trigger a near-term index bounce.

Bottomline? Sensex and Nifty charts are testing long-term (3.5 yr) up trend lines (not shown). Breach of the trend lines can trigger bear phases and lower levels on both indices. Small investors should remain cautious and concentrate on wealth protection.

Nifty chart: a midweek technical update (Jul 03, 2019)

FIIs were net buyers of equity on Mon. Jul 1, but were net sellers on Tue. and Wed. (Jul 2 and 3). Their total net selling was worth Rs 4.7 Billion. DIIs were net sellers of equity on Mon., but were net buyers on Tue. and Wed. Their total net buying was worth Rs 3.8 Billion, as per provisional figures.

Almost all auto makers in India recorded YoY decline in sales in Jun '19 owing to weak consumer sentiments. Maruti, Toyota, Tata Motors, Ashok Leyland, Honda showed double-digit declines. Hyundai, Bajaj Auto, TVS Motor showed single digit declines. M&M car sales grew 4%, but CV sales declined 15%.

Nikkei India's manufacturing PMI fell to 52.1 in Jun '19 from 52.7 in May '19 due to slower order growth leading to slower output and employment growth. A number above 50 indicates expansion.

GST collection in Jun '19 dipped to Rs 999.4 Billion from Rs 1 Trillion in May '19 and 1.13 Trillion in Apr '19. The government needs to collect more than Rs 1 Trillion every month to meet its fiscal target.

The following comment appeared in last week's technical update on the daily bar chart pattern of Nifty: "Is this the beginning of a pre-budget rally? If it is, it will provide a good opportunity to book some profits."

After closing just above its 20 day EMA on Tue. Jun 25, the daily bar chart pattern of Nifty used its short-term moving average as a support, and steadily climbed above the 11900 level. This may be a good time to book partial profits.

The 20 day EMA has formed a bullish 'rounding bottom' pattern. All three EMAs are rising, and the index is trading above them in a bull market. The 165 points upward 'gap' (formed on May 20) has remained unfilled. At some point, the index is likely to fall to partly or completely fill the 'gap'. 

Daily technical indicators are looking bullish. MACD has crossed above its falling signal line in bullish zone. RSI is above its 50% level but not showing much upward momentum. Slow stochastic has risen quickly to enter its overbought zone, and can trigger some correction or consolidation.  

Nifty's TTM P/E has moved up to 29.30, well inside overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has fallen sharply from its oversold zone. Near-term index upside may be limited.

Buying in a few large-cap stocks that have comparatively higher weightage in the index has pushed Nifty higher, while the broader market has lagged behind. If you own stocks of RIL, HDFC/HDFC Bank, TCS then your portfolio should be doing great.

Unfortunately, most small investors stay far away from such 'expensive' stocks. If most of your holdings are in mid/small cap stocks, you may have to undergo more pain. The budget on Jul 5 is unlikely to boost the 'animal spirits' of Indian entrepreneurs. 

Let us hope that the LTCG tax on shares/mutual funds gets abolished. That should give a temporary boost to Nifty - and provide a great profit-booking opportunity. Q1 (Jun '19) results are expected to dampen bullish sentiments further.

Sensex, Nifty charts (Mar 08, 2019): testing important resistance levels

FIIs were net buyers of equity on all four trading days. Their total net buying was worth Rs 41.2 Billion. DIIs were net buyers of equity on Tue. (Mar 5), but net sellers on the last three trading days. Their total net selling was worth Rs 16.9 Billion, as per provisional figures.

Government's indirect tax revenues will be under pressure during FY 2018-19 as there could be a further fall in GST revenue. Direct tax numbers are likely to be around the revised target. The fiscal deficit figure of 3.4% will be met as there will be some savings on expenditure.

Inflows into equity mutual funds (including ELSS) declined 17% in Feb '19 to Rs 51.2 Billion from Rs 61.6 Billion in Jan '19. The decline is almost 60% from Oct '18 inflow of Rs 126.2 Billion. However, SIP inflows have remained steady.

BSE Sensex index chart pattern

The following comments appeared in last week's post on the daily bar chart pattern of Sensex: "Sensex closed above its three EMAs in bull territory, but needs to move convincingly above the Fibonacci resistance zone if bulls are to regain control of the chart. Bears are doing their level best to ensure that doesn't happen any time soon."

In a holiday-shortened week, there was strong buying by FIIs. The index rose to test the upper edge of the Fibonacci resistance zone by touching an intra-day high of 36830 on Thu. Mar 7. Bears ensured that the index dropped to close about 140 points below the upper edge of the resistance zone.

The index can make another attempt to climb above the resistance zone, provided FIIs keep buying. Slowdown in the global economy and the ongoing BrExit saga may dampen their bullish fervour.  

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. ROC has fallen from its overbought zone towards its rising 10 day MA. RSI is moving up towards its overbought zone, but its upward momentum is weakening. Slow stochastic has started correcting inside its overbought zone.

Bulls have the advantage as all three EMAs are rising, and the index is trading above them in bull territory. However, a corrective move seems likely. Many mid-caps and small-caps rose sharply during the week, and can face profit booking.

The government is on a publicity overdrive - announcing grand schemes worth trillions and giving sops to different sections of citizens - before general election dates are announced. Hope it doesn't become a case of 'too little, too late'.

Thanks to satellite TV, Internet and the proliferation of mobile phones, information dissemination has become instantaneous. Voters have become more savvy. Bullish sentiment can get a beating in the unlikely event of Modi not getting a second term. So, don't go 'all in' just yet.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed higher for the third straight week, and is trading well above its 20 week and 50 week EMAs in bull territory. But it failed to move above the Fibonacci resistance zone.

The index touched an intra-week high of 11089 - testing the 61.8% Fibonacci retracement level of 11090 - but closed inside the resistance zone, with a weekly gain of 1.6%.

Weekly technical indicators are in bullish zones. MACD is starting to move up in neutral zone. ROC is facing resistance from its sliding 10 week MA. Slow stochastic is rising above its 50% level. However, RSI is falling towards its 50% level, and showing negative divergence by failing to rise with the index.

Nifty's TTM P/E has moved up to 27.05, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone, and can trigger a corrective move.

Bottomline? For more than 4 months, Sensex and Nifty charts have been stuck in sideways ranges after sharp corrections during Sep-Oct '18. Both indices closed above their long-term moving averages in bull territories, but faced strong resistances from the upper edges of their respective Fibonacci resistance zones. Index consolidations may continue till the general elections.

Sensex, Nifty charts (Nov 02, 2018): technical bounces from Fibonacci support zones face strong resistances

For the month of Oct 2018, FII were net sellers of equity worth a huge Rs 292 Billion. Their previous highest net selling in a month was back in Jan 2008 (Rs 294.5 Billion), which had triggered a 15 months long bear market. As per provisional figures, DIIs were net buyers of equity worth Rs 260.3 Billion, perhaps their highest net buying ever in a single month.

Auto sales during Oct '18 were quite good. Bajaj Auto, TVS Motor, HeroMoto, Escorts, M&M, Tata Motors, Ashok Leyland, Ford showed double-digit YoY sales growth. However, sales of Maruti, Toyota and Royal Enfield were flat. There are signs of moderation in heavy-duty truck sales.

GST collections crossed the Rs 1 Trillion mark in Sep '18, against Rs 944 Billion in Aug '18. The Finance Minister attributed the rise in collection to reduction in tax rates, higher compliance and negligible interference of tax officials.

BSE Sensex index chart pattern

The following comments appeared in last week's post on the daily bar chart pattern of Sensex: "All four indicators are showing positive divergences by touching higher bottoms while Sensex has dropped lower. Another technical bounce is likely."

The bounce was quite strong - on the back of DII buying. The index crossed easily above its falling 20 day EMA, but is facing resistance from its 200 day EMA. The falling 50 day EMA is just above the 200 day EMA, and is likely to provide additional resistance.

The index corrected about 5700 points (14.6%) from its Aug 29 top of 38990 to its Oct 26 low of 33292. A 38.2% Fibonacci retracement of the fall will take the index to 35470 - which is in the zone between the current levels of the 200 day EMA and the 50 day EMA. Expect bears to start selling to protect this zone.

What if the index manages to cross above its 200 day and 50 day EMAs back into bull territory? Bulls would do well to curb their enthusiasm. A 50% Fibonacci retracement of the 5700 points fall will take the index to 36140. To get there, Sensex would need to cross above the support/resistance level of 36000.

Just below 36000 is the 91 points downward 'gap' formed on Oct 4. Even if the 'gap' gets filled (partly or fully), the index will be expected to resume its downward move. In other words, the next 1000 points from the current level is a strong resistance zone, which the index may find very difficult to overcome.

Daily technical indicators are turning bullish, and hinting at more near-term upside. MACD has crossed above its signal line, and emerged from its oversold zone. ROC has crossed above its 10 day MA, and is rising in bullish zone. RSI and Slow stochastic have crossed above their respective 50% levels into bullish zones, but the upward momentum of RSI has stalled. 

Despite the nearly 15% correction from the Aug '18 top, index valuation remains well above its long-term average. If you have non-performers in your portfolios, don't wait to recover your 'buy price'. Use the rally to dump them, and wait for lower levels to enter better stocks.  

NSE Nifty index chart pattern

Oversold ROC, RSI and Slow stochastic technical indicators observed in last week's post triggered the sharp 520+ points technical bounce on the weekly bar chart pattern of Nifty.

However, the index failed to overcome strong resistance from its 50 week EMA. About 200 points above the 50 week EMA is the current level of the 20 week EMA. Expect the index rally to falter at any time, as bears are likely to defend the zone between the two weekly EMAs. 

Weekly technical indicators are in the process of correcting oversold conditions. MACD is still falling below its signal line in bearish zone. ROC is trying to emerge from its oversold zone. RSI has bounced up from the edge of its oversold zone. Slow stochastic is also trying to emerge from its oversold zone.

Nifty's TTM P/E has moved up to 25.40, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating in neutral zone, suggesting near-term volatility.

Bottomline? Both Sensex and Nifty charts have bounced up from Fibonacci support zones. Drop in oil prices and some strengthening of the Rupee against the US Dollar provided tailwind to a counter-trend rally. Both indices are facing strong resistance zones. Bears are lurking in the shadows.

Nifty chart: a midweek technical update (Aug 01, 2018)

FIIs were net buyers of equity on Tue. Jul 31, but net sellers on Mon. Jul 30 and today. Their total net buying was worth Rs 2.4 Billion. DIIs were net buyers of equity on Mon. and net sellers during the next two days. Their total net selling was worth Rs 8 Billion, as per provisional figures.

At the end of the three-day Monetary Policy Committee meeting, RBI hiked repo rate and reverse repo rate by 25 bps (0.25%) each today. The move was widely expected. Nifty closed just 10 points lower today after four straight days of rallying higher.

Revenue collection from GST rose to Rs 965 Billion in Jul '18 from Rs 956 Billion in Jun '18, thanks to increased compliance. However, it fell short of the Rs 1 Trillion per month target set by the government.

The daily bar chart pattern of Nifty touched a new high every day for five straight trading days. However, it closed lower today to form a small 'reversal day' bar (higher high, lower close).

All three EMAs are rising, and Nifty is trading above them, and above the (blue) up trend line, in a bull market. The index is in 'blue sky' territory with no known resistances.

Daily technical indicators are inside their respective overbought zones. MACD is rising above its signal line. ROC is above its 10 day MA, but has stopped rising. RSI and Slow stochastic are showing signs of correcting overbought conditions.

Nifty's TTM P/E has moved up to 28.14 - which is much higher than its long-term average and in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating just above its overbought zone. Expect some index consolidation or correction.

The index rally during the past 4 months has not been broad-based. A few large-cap stocks have propelled the index higher. Mid-cap and small-cap stocks have undergone profit booking, but their valuations still remain high.

If the index undergoes a correction - which is quite possible after a sharp rally - the mid-cap and small-cap stocks may correct even more. Any rally in mid-cap or small-cap stocks from here on can be used for partial profit booking.

Sensex, Nifty charts (Jul 20, 2018): bull rallies pause after upward breakouts

FIIs were net sellers of equity on three out of five trading days last week. Their total net selling was worth Rs 12.1 Billion. DIIs were net buyers of equity on three out of five trading days. Their total net buying was worth Rs 13 Billion, as per provisional figures.

The GST Council has given a monsoon bonanza to consumers by reducing tax rates on items like washing machines, refrigerators, vacuum cleaners, water coolers, water heaters, small TVs, electric irons, paints, varnish, handicraft items.

Trade issues and higher US interest rate could create outward capital flow pressure for India, but risks this year are more moderate compared with 2013, according to S&P Global Ratings. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex touched a new intra-day high of 36748 on Wed. Jul 18, but closed much lower - forming a 'reversal day' bar (higher high, lower close). The index traded within a 490 points range during the week, and lost 46 points on a weekly closing basis.

Daily technical indicators are in bullish zones, but looking overbought and not showing much upward momentum. Next week is F&O expiry week, so trading activity may remain muted.

All three EMAs are rising, and the index is trading above them in a bull market. However, a pullback towards the recently-breached down trend line remains a possibility.

The following comment was made in last week's post: "The broader market - particularly mid-cap and small-cap stocks - have not participated in the rally so far."

Actually, they have done much worse. (Thanks to reader Abhishek for pointing this out.) Take a look at almost identical BSE Midcap and BSE Smallcap chart patterns below:

BSE Midcap index & BSE Smallcap index chart patterns 

Both Midcap and Smallcap indices have touched lower tops and lower bottoms since their Jan '18 peaks, and have dropped into bear markets. All three EMAs are falling, and the indices are trading below them. 

The 'death cross'es (marked by light blue ovals of 50 day EMAs crossing below 200 day EMAs on both charts) have technically confirmed bear markets.

Daily technical indicators are in bearish zones, and not showing much upward momentum - but showing positive divergences by not falling lower with the indices. Some consolidation or technical bounces are possibilities.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty failed to make much progress after breaching the down trend line a week ago. The weekly bar formed a 'doji' candlestick that indicates indecision among bulls and bears. The index lost 9 points on a weekly closing basis.

Both weekly EMAs are rising, and the index is trading above them in a bull market. However, higher volumes on recent down-weeks are hinting at a pullback towards the down trend line.

Weekly technical indicators are in bullish zones but not showing much upward momentum. RSI and Slow stochastic are looking overbought. ROC has started correcting.

Nifty's TTM P/E is 27.36 - which is well above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) has dropped towards its overbought zone, and can limit near-term index upside.

Bottomline? Bulls are taking a breather after triggering breakouts above down trend lines on Sensex and Nifty charts. Some more consolidation or correction will enable both indices to move higher. Bear markets in Midcap and Smallcap indices are worrying signs.