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 (Mar 20, 2020): in strong bear grips

FIIs were net sellers of equity on all five trading days. Their total net selling was worth a whopping Rs 209.09 Billion. DIIs were net buyers of equity on all five days. Their total net buying was worth Rs 164.72 Billion, as per provisional figures.

India's WPI-based inflation softened to 2.26% in Feb '20 from 3.1% in Jan '20 and 2.93% in Feb '19 - thanks to cheaper food and vegetables prices. 

On Friday, Mar 20, SEBI announced a few steps to ease market volatility by limiting short positions in F&O segment, increasing margins on non-F&O stocks and revising marketwide positions limits for stock derivative contracts. (These measures will come into effect from Mon. Mar 23.)

BSE Sensex index chart pattern

Note the following comment from last week's post on the daily bar chart pattern of Sensex:

"Since 'panic bottoms' seldom hold, expect Friday's intra-day low of 29389 will be tested and breached."

It came as no surprise that the index closed well below 29389 on Wed. Mar 18, and dropped further to touch a new low of 26714 on Thu. Mar 19. 

Friday's sharp rally on short-covering and some value buying was typical of bear market rallies, and should be treated as a 'dead-cat bounce'. That means, if the index tries to rally higher, expect bears to 'sell on rise'.

Sensex appears to be correcting the 11 year gain of some 34000 odd points from the Mar '09 low to the Jan '20 top. A 50% Fibonacci retracement will drop the index to about 25100. Thursday's low came within 1600 points of this critical level.

Daily technical indicators are looking bearish and oversold. MACD is falling deeper inside its oversold zone. RSI is trying to emerge from its oversold zone. Slow stochastic is oscillating about the edge of its oversold zone. Remember that a stock market can remain oversold for long periods during a bear phase. 

The Corona virus may have been contained in China, but is spreading rapidly in Europe, USA, Australia. India will not escape its tentacles easily - whether you clap your hands on Sunday or not. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new 3 year low of 7833, and closed well below its 200 week EMA for the second straight week. The 20 week EMA has crossed below its 50 week EMA for the first time in 3 years, and both weekly EMAs are falling towards the 200 week EMA.

The long-term bullish structure of the chart has been dismantled by bears. FIIs have pulled out more than Rs 510 Billion from their equity holdings during the past three weeks, and may continue with their exit strategy.

Note that the past two weeks' steep correction, which has been blamed on the Corona virus by experts, was preceded by three weeks of correction that had dropped Nifty close to its 200 week EMA. The virus only exacerbated the already bearish mood. 

Weekly technical indicators are looking bearish and oversold. MACD is falling inside its oversold zone. RSI is also falling inside its oversold zone. Slow stochastic has bounced up a bit from the edge of its oversold zone. Friday's short-covering bounce may not last long before bears resume their selling. 

Nifty's TTM P/E has moved down further to 19.72, but remains above its long-term average. The breadth indicator NSE TRIN (not shown) has slipped down from its oversold zone, hinting at some near-term index pullback or consolidation.

Bottomline? Sensex and Nifty charts have closed well below their respective 200 week EMAs for the second straight week - signalling the end of long-term bull markets. A rapidly spreading corona virus has compounded bearish sentiment about weak economic growth and fiasco in the financial sector. Small investors should stay on the sidelines and curb any urge for bottom-fishing.

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.