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.

Nifty chart: a midweek update (Feb 17 '16)

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.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 22, 2016

S&P 500 index chart

The following comments appeared in last week's post on the daily bar chart pattern of S&P 500: "...the fall has been a bit too steep. Daily technical indicators are looking bearish and oversold, which can lead to a technical bounce."

On Wed. Jan 20 '16, the index dropped even lower with high volumes to touch a new 52 week low of 1812 - confirming a bearish pattern of 'lower tops and lower bottoms' since Jul '15.

However, Wednesday's price action formed a 'hammer' pattern (in candlestick parlance) that has bullish implications when formed at the end of a down move. The index bounced up sharply to end the week with a gain of nearly 1.5%.

Is the correction over? Or, was it just a 'dead cat bounce'? It may be a bit early to call. Daily technical indicators are recovering from oversold conditions, but remain in bearish zones.

Expect bulls to make an effort to turn the technical bounce into a proper rally. But the scale is tilted towards bears despite the 95 points recovery from the mid-week low.

The drop to 1812 last week corrected 15% from the May '15 top of 2135. So, an important condition of a bear market, viz. a 20% correction from the top, has not been met yet - though the 'death cross' of the 50 day EMA below the 200 day EMA earlier in the month confirmed an impending bear phase.

On longer term weekly chart (not shown), the index bounced up strongly after receiving support from its rising 200 week EMA, and formed a bullish 'hammer' candlestick pattern. The long-term bull market is still intact. Weekly technical indicators are in bearish zones.

FTSE 100 index chart

The following comment appeared in last week's post on the daily bar chart pattern of FTSE 100: "Daily technical indicators are again looking oversold. That doesn't mean that the index won't fall lower."

The index dropped to a new 52 week (and 3 year) low of 5640 on Wed. Jan 20 '16 with strong volumes, but bounced up sharply to close exactly at 5900 - gaining more than 1.6% on a weekly closing basis.

FTSE continues to trade below its three falling EMAs in a bear market. By falling to 5640, the index corrected more than 20% from its Apr '15 top of 7123 - further confirming a bear market.

The 20 day EMA is providing the immediate overhead resistance. Daily technical indicators are recovering from oversold conditions, but remain in bearish zones.

Expect bears to pounce if the technical bounce from oversold conditions tries to turn into another bear market rally.

On longer term weekly chart (not shown), the index closed well below its three weekly EMAs in a bear market, but has formed a bullish 'hammer' candlestick pattern. The imminent 'death cross' of the 50 week EMA below the 200 week EMA will technically confirm a long-term bear market. Weekly technical indicators are in bearish zones.

Gold and Silver charts: bears trying to stop the rot

Gold chart pattern

The daily bar chart pattern of gold had touched a high-volume ‘panic bottom’ of 1080, which led to the following comment in the previous post: “A ‘panic bottom’ seldom holds. That means the Jul 20 ‘15 low of 1080 is likely to be breached.”

A ‘dead cat bounce’ to 1110 on the next day was followed by an intra-day drop to a 3 years low of 1072 and then a high-volume bounce to 1100 on Jul 24.

Gold seems stuck in a sideways consolidation within a small ‘symmetrical triangle’. Since triangles are usually continuation patterns, a downward break out is likely.

All three EMAs are falling, and gold’s price is trading below them in a bear market. Daily technical indicators have corrected oversold conditions but remain bearish. Any rally will provide a selling opportunity.

On longer term weekly chart (not shown), all three weekly EMAs are falling and gold’s price is trading well below them in a long-term bear market. Weekly technical indicators are in bearish zones. MACD is falling below its signal line. RSI and Slow stochastic are moving sideways.

Silver chart pattern

The daily bar chart pattern of silver touched an intra-day low of 14.30 on Jul 24 and then bounced up to touch an intra-day high of 15 a week later.

Resistance from the falling 20 day EMA proved too strong for the brief rally. Silver’s price closed below 14.50 deep inside bear territory – a 3 years low on a closing basis.

Daily technical indicators have corrected oversold conditions but remain in bearish zones.

Bears are desperately trying to stop the rot. Still there is no sign of bottom formation.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones and showing downward momentum.

Gold and Silver charts: an update

Gold chart pattern

The daily bar chart pattern of gold collapsed on heavy volumes after breaching the previous support level of 1140, and formed a ‘panic bottom’ at 1080. A ‘dead cat bounce’ took gold’s price to the 1100 level, but the worst may not be over.

A ‘panic bottom’ seldom holds. That means the Jul 20 ‘15 low of 1080 is likely to be breached. Gold’s price has the next support at 1000. What if 1000 level gets breached also? The next support is at 700 – but the probability of going down there is low.

Why the sudden price crash? Some blamed it on the strong US Dollar index. Others pointed to rallies in global stock markets. Dumping by Chinese investors was another reason put forward. Technically, 1180-1200 was a strong support zone. Once that zone got breached, a drop to 1000 has been on the cards.

All three technical indicators are inside their oversold zones, but two of them – MACD, Slow stochastic – are showing positive divergences by touching higher bottoms than those touched in Mar ‘15.

Any attempt at a rally is going to invite bear selling. So, continue to avoid bottom fishing.

On longer term weekly chart (not shown), all three weekly EMAs are moving down, and gold’s price is trading well below them in a long-term bear market. Weekly technical indicators are in bearish zones, but MACD and RSI are showing positive divergences by touching slightly higher bottoms.

Silver chart pattern

The daily bar chart pattern of silver touched a low of 14.50 - breaching the high volume ‘panic bottom’ of 14.60 touched on Jul 7 ‘15, and proving the market adage that ‘panic bottoms seldom hold’.

Note that silver’s price had bounced up sharply after touching the ‘panic bottom’, and crossed above its falling 20 day EMA on Jul 13 – only to lose steam near its falling 50 day EMA. It has been all downhill since then.

Daily technical indicators have entered their respective oversold zones. RSI is showing positive divergence by touching a slightly higher bottom, but don’t expect a big price recovery.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones.

WTI and Brent Crude Oil charts: an update

WTI Crude chart

In the previous post, bears seemed to have total control of the daily bar chart pattern of WTI Crude oil. Positive divergences visible on technical indicators had raised some bullish hopes of a recovery. But such hopes were soon snuffed out.

Oil’s price continued to plummet and touched an intra-day low of 84 - easily achieving the lower target of 85. A day’s bounce stopped at the 86 level, followed by a plunge on huge volumes to an intra-day low of 80.

A ‘dead cat bounce’ took oil’s price to the 85 level. But that only provided another selling opportunity to bears. Can oil’s price fall even lower?

Daily technical indicators are suggesting further downside. MACD is below its signal line and inside its oversold zone. It has stopped falling, but not showing any signs of moving up. RSI emerged from its oversold zone, but is sliding down again. Slow stochastic managed to come out of its oversold zone, but its upward momentum is weak.

On longer term weekly chart (not shown), oil’s price has closed below its 200 week EMA for seven straight weeks. Weekly technical indicators are in their respective oversold zones. The 20 week EMA has crossed below the 200 week EMA. A test of the Jun ‘12 low of 77.50 appears likely. The long-term bull market is coming to an end.

Brent Crude chart

The daily bar chart pattern of Brent Crude oil is resembling a waterfall due to its increasing downward momentum. The Jun ‘12 low of 88 was easily breached.

Oil’s price touched an intra-day low of 83, followed by a ‘dead cat bounce’ to 88. Bears used the opportunity to sell again.

Daily technical indicators are trying to correct oversold conditions. MACD is well inside its oversold zone, but trying to move up. RSI has formed a bullish ‘inverse head-and-shoulders’ pattern inside its oversold zone. Slow stochastic has just emerged from its oversold zone.

On longer term weekly chart (not shown), oil’s price has closed below its 200 week EMA for ten weeks in a row. Weekly technical indicators remain oversold. The 50 week EMA is about to cross below the 200 week EMA, and technically confirm a bear market.

WTI and Brent Crude Oil charts: an update

WTI Crude chart

The 1 yr daily bar chart pattern of WTI Crude oil had been trying to stay in bullish territory since the beginning of this year. But a sharp high-volume drop below all three EMAs and the Mar ‘13 low has put paid to bullish hopes.

Note that oil’s price has bounced up from the edge of a support zone between 84 and 86. Will the support hold – like it did during Oct – Dec ‘12, or is it just a ‘dead cat bounce’? Bearish daily technical indicators seem to suggest the latter.

MACD is below its signal line in negative territory. RSI has bounced up from the edge of its oversold zone, but remains below its 50% level. Slow stochastic is trying to emerge from its oversold zone.

If oil’s price drops below 84, it is likely to test the next support zone between 77 and 81.

Brent Crude chart

The following were the concluding comments in an analysis of the daily bar chart pattern of Brent Crude oil two weeks back: “Oil’s price may attempt to bounce up, but bears are likely to sell again. Strong volumes on down days indicate such a possibility.”

An attempt to move up to 106 was met with heavy selling by bears, and a drop below 97. Another upward bounce is in progress, but receding volumes indicate that the bounce is probably due to short covering.

Daily technical indicators have recovered from oversold conditions, but remain bearish. Oil is in a bear market. Every rise will be a selling opportunity for bears. A drop to 90 is a possibility.

Stock Index Chart Patterns – S&P 500 and FTSE 100 – May 18, ‘12

S&P 500 Index Chart

The S&P 500 index breached the support level of 1340 and dropped sharply below the 200 day EMA. Such a possibility had been hinted at by the bearish technical indicators. It may be worth repeating the observations made in last week’s analysis: “Even if the index falls below the 200 day EMA – like it did back in Dec ‘11 - there is a good possibility that the bulls may fight back. 1250 – 1300 is a long-term support zone.” At the time of writing this post, the index is seeking support from the 1300 level.

Bulls should be concerned about the rising volumes as the index fell. The good news is that the technical indicators are looking oversold, which may lead to an upward bounce. The MACD is falling below its signal line in negative territory. Both the RSI and the slow stochastic are well inside their oversold zones. Note what happened when the RSI last entered its oversold zone back in Aug ‘11. The index has dropped too far below its falling 20 day EMA, which is usually a precursor to a bounce up.

How strongly can the bulls fight back? The disappointing listing of the much-hyped Facebook IPO suggests bearishness. Expect resistance to any up moves from the 200 day EMA (at 1314) and the falling 20 day EMA (at 1348). Bears will try to retain their upper hand by selling on the rise. Technically, a bear market won’t be confirmed unless the 50 day EMA crosses below the 200 day EMA.

FTSE 100 Index Chart

The previous week’s ‘dead cat bounce’ on the FTSE 100 index chart was followed by renewed selling by the bears last week. The drop below the 5300 level on Friday, May 18 ‘12 was supported by a sharp volume spike not seen in nearly 2 months (not shown in chart above), which may indicate a temporary selling exhaustion.

The index has dropped too far below its falling 20 day EMA and all three technical indicators are looking oversold. The MACD is below its signal line and falling deeper into negative territory. Both the RSI and the slow stochastic are in their oversold zones. There is a good possibility of an upward bounce due to short-covering and investment buying. But the bounce is likely to be short-lived. It is only a matter of time before the ‘death cross’ of the 50 day EMA below the 200 day EMA technically confirms a return to a bear market.

The (UK) economy has deep structural weaknesses and has been through a colossal banking crisis that has caused the deepest recession since the 1930s. With the Greek debt crisis casting a pall of gloom over the Eurozone, things are unlikely to get better any time soon. The FTSE 100 chart is reflecting that.

Bottomline? The bears are beginning to take complete control over the chart patterns of the S&P 500 and FTSE 100 indices. Hold on to your cash and wait for the tide to turn.

Stock Index Chart Patterns – S&P 500 and FTSE 100 – May 11, ‘12

S&P 500 Index Chart

Last week, the following comments were made about the chart pattern of the S&P 500 index: “A fall below the 1358 level – the intra-day low touched three times in Apr ‘12 – will form a bearish pattern of lower tops and lower bottoms. That may lead to a deeper correction.”

Investors were recommended to book some profits, or hold with a stop-loss at 1340. It was the state of the technical indicators that led to the short-term bearish view. Note that the S&P 500 chart is playing out as per expectations. The index dropped below the 1358 level on intra-day basis – forming a bearish pattern of lower tops and lower bottoms. The bulls put up a decent fight but could not prevent a weekly close below the 1358 level. At the time of writing this post, the index was testing support from the suggested stop-loss level of 1340.

The technical indicators are looking bearish. The RSI is falling below its 50% level, and seems ready to drop into its oversold zone. The MACD is below its signal line, and both are falling inside negative territory. The slow stochastic has slipped into its oversold zone. A fall below 1340 can lead to a test of support from the 200 day EMA.

Are the bulls in tactical retreat or have they been vanquished? Note that the 20 day EMA is touching the 50 day EMA and both have started falling. While that may mean that the near term outlook is bearish, both EMAs are still well above the 200 day EMA. Even if the index falls below the 200 day EMA – like it did back in Dec ‘11 - there is a good possibility that the bulls may fight back. 1250 – 1300 is a long-term support zone.

FTSE 100 Index Chart

The 6 months bar chart pattern of the FTSE 100 index shows that the bulls have taken a solid battering from the bears. The fall from the bearish ‘rising wedge’ pattern was sharp and backed by strong volumes (not shown in chart). The 5500 level was easily breached, followed by a ‘dead cat bounce’. Bears have used the brief bounce to renew their attack. At the time of writing this post, the FTSE 100 is trading close to the 5450 level.

The technical indicators are bearish. Note that all three indicators touched slightly higher bottoms as the index touched last week’s low of 5464 (on May 9 ‘12). The positive divergences caused only a brief bounce – which indicates the strength of bear selling.

The RSI is below its 50% level, but trying to turn up. The MACD is falling below its signal line in negative territory. The slow stochastic has emerged from its oversold zone, but may drop back. The 20 day EMA has dropped to the 200 day EMA. The 50 day EMA is falling towards the 200 day EMA. Things aren’t looking good for the bulls.

Bottomline? The chart patterns of the S&P 500 and FTSE 100 indices show that the bears are tightening the screws. The bulls are at a distinct disadvantage in the US market, and totally on the run in the UK market. This isn’t a good time to play contrarian. Preserve cash.

Stock Chart Pattern - Indraprastha Gas (An Update)

The previous update (date marked by gray vertical line on the chart below) to the technical analysis of the stock chart pattern of Indraprastha Gas (IGL) was concluded with the following cautionary statements: “… there may be more selling pressure on the stock. Partial profit booking may be prudent. New entrants should bide their time.”

The stock was trading at 310, after correcting from a peak of 374 (reached on Jan 3 ‘11). The correction continued till the stock price dropped below all three EMAs to an intra-day low of 285 on Feb 25 ‘11. The final leg of the spectacular bull run in the stock culminated with a small head-and-shoulders reversal pattern that touched an intra-day peak of 453 on Sep 7 ‘11.

Regular readers may be aware that barring a few exceptions, PSU stocks are not my favourites. Most are not investment-worthy because of their poor performances – whether due to management incompetence or government apathy. The few that do perform well often turn sick because the government either treats them as ATMs to withdraw cash from, or because of decisions that give priority to politics over economics.

Indraprastha Gas (IGL) was one such exception, because of its monopoly status as gas supplier in the Delhi-NCR area, as well as its good growth, low debt and strong cash flows. The past tense suggests that it is no longer an exception. An impractical order by PNGRB, which has since been challenged in court by IGL, has put a huge question mark over the company’s future.

If you thought that the PNGRB order and the subsequent price crash had pushed the IGL stock deep into a bear market, then you will be only partially correct. A look at the bar chart pattern of Indraprastha Gas for the 15 months period from Feb ‘11 to Apr ‘12 will clearly show that the stock was already in a firm bear grip:

The small head-and-shoulder reversal pattern that formed during Aug-Sep ‘11 was the first signal of a likely change of trend. But that wasn’t the only technical signal to sell. A series of five ‘rising wedges’ – which are bearish consolidation patterns – gave ample opportunities to investors to book their profits.

Note that shortly after the stock price broke down below the 4th rising wedge, the ‘death cross’ of the 50 day EMA below the 200 day EMA (marked by small blue circle) technically confirmed a bear market. The 5th and final rising wedge formed after the technical confirmation.

Even more interesting is the fact that the stock price broke down below the 5th rising wedge on Apr 9 ‘12 – the day before the PNGRB ruling hit the stock market. I can’t think of a better example that proves that technical analysis works, and a combination of fundamental and technical analysis can give investors an edge in the market.

The high volume fall with a big gap on Apr 10 ‘12 – the day of the PNGRB ruling – touched a ‘panic bottom’ at 170, followed by a ‘dead-cat bounce’. A text book example in technical analysis. What is special about 170? It acted as a strong resistance during Aug-Oct ‘10, before the stock price climbed above it. Since panic bottoms seldom hold, the stock price can be expected to fall below 170.

Three of the four technical indicators – MACD, RSI, ROC - reached extremely oversold levels. Not so for the slow stochastic, which is at the edge of its oversold zone. The stock is deep inside a bear market, so all upward bounces are likely to attract selling.

Bottomline? The stock chart pattern of Indraprastha Gas was already in a bear market when the PNGRB ruling caused a price crash. Investors should not rush to enter. Unless the court ruling favours the company, the stock price will not be able to recover its lost glory.