S&P 500 and FTSE 100 charts (Sep 14, 2018): bears trying to spoil the bull party

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 had touched a high of 2916.50 on Aug 29. In the process, the index had penetrated its upper Bollinger Band. As often happens after such an event, a corrective move followed.

The index received good support from its 20 day SMA (marked by blue dotted line) and bounced up to close above the 2900 level in bull territory. A convincing move above the Aug 29 top will restore control to bulls. A failure to do so will encourage bears to go on the offensive.

Daily technical indicators are looking bullish. MACD is about to cross above its signal line in bullish zone. RSI has bounced up after receiving support from its 50% level. Slow stochastic had dropped below its 50% level but has since moved above it.

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are looking overbought. MACD is rising above its signal line inside its overbought zone. RSI is hovering just below its overbought zone. Slow stochastic is sliding down inside its overbought zone. 

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 had been correcting inside a downward-sloping trading channel after touching a lifetime high of 7903.50 on May 22 '18. On Sep 5, the index breached the lower edge of the channel, and dropped to close below 7300 on Sep 7.

On Sep 11, the index touched a low of 7220.50 but formed a 'dragonfly doji' candlestick pattern, which has bullish implications. However, the 7300 level is providing strong resistance. The imminent 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a return to a bear market.

Daily technical indicators are looking bearish. MACD is below its falling signal line in bearish zone. RSI has bounced up a bit after receiving support from the edge of its oversold zone. Stochastic is trying to emerge from its oversold zone.

On longer term weekly chart (not shown), the index closed below its 20 week and 50 week EMAs but above its 200 week EMA in a long-term bull market. Weekly MACD is below its falling signal line and has entered bearish zone. RSI is below its 50% level. Stochastic is moving up inside its oversold zone.

Sensex, Nifty charts (Jun 08, 2018): bulls try to charge but bears lurk in the shadows

FIIs were net buyers of equity worth Rs 13.7 Billion during the week. All their net buying occurred on Mon. Jun 4, when ESOP allottments at HDFC Bank brought down FII threshold limit, allowing them to add to their HDFC Bank holdings. They were net sellers during the rest of the week.

DIIs were net buyers of equity worth Rs 21.3 Billion, as per provisional figures. They were net sellers on Mon. Jun 4, and net buyers during the rest of the week. Sensex and Nifty gained about 0.6% each on a weekly closing basis.

Nikkei India Services PMI declined to 49.6 in May '18 from 51.4 in Apr '18. Service sector output dipped into contraction (below 50) for the first time in three months. The Composite PMI (Manufacturing + Services) slipped to 50.4 in May '18 from 51.9 in Apr '18.

The Serious Fraud Investigation Office (SFIO) has drawn up a list of more than 113,000 shell companies as the government prepares for another onslaught on black money. The database compiled by SFIO has red-flagged more than 80,000 companies suspected to be shell entities while it has confirmed illegal activities in 16,537 of them.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex corrected during the first two days of the week, falling below its 20 day EMA and the 132 points downward 'gap' intra-day on Tue. Jun 5 before managing to close just inside the 'gap'.

The index bounced up the next day - despite an interest rate hike by RBI - and ended the week above its three rising EMAs in bull territory.

Daily technical indicators are in bullish zones. MACD is about to cross above its signal line. RSI is rising towards its overbought zone. Slow stochastic has entered its overbought zone. ROC, however, has turned down after facing resistance from the edge of its overbought zone.

Sensex is trading below the down trend line (drawn through the Jan 29 and May 15 tops), keeping bulls in check. A bearish 'hanging man' candlestick formed on Fri. May 8. The index has been trading within a bearish 'rising wedge' pattern for the past three weeks.

Bears are not giving up just yet. A fall below the 'rising wedge' may lead to a test of support from the 'Support/Resistance zone'. The balance can swing toward bulls if the index moves above the down trend line.

The rising 200 day EMA is a clear indication that the long term structure of the chart remains bullish.

NSE Nifty index chart pattern

After three weekly closes below the 33 points downward 'gap', the weekly bar chart pattern of Nifty managed to close above the 'gap', and is trading above its rising weekly EMAs in a bull market. 

However, the index is still below the down trend line, and formed a weekly 'dragonfly doji' bar that can set off a corrective move.

Weekly technical indicators are in bullish zones. MACD has managed to cross above its signal line. RSI is moving above its 50% level. Slow stochastic is just below its overbought zone. But ROC is looking a bit bearish by starting to correct inside its overbought zone.

Nifty's TTM P/E has moved up to 27.27 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is trying to emerge from its overbought zone, and can trigger a correction.

Bottomline? Bulls are trying to regain control of Sensex and Nifty charts but bears are making their task difficult. Some more consolidation or correction seems likely. Some times it can be a prudent strategy to stay on the sidelines till a clear trend emerges in the near term. Long term chart structures are bullish. 

Sensex, Nifty charts (Feb 23, 2018): bulls protecting the down side

FIIs were net sellers of equity worth a huge Rs 57.8 Billion during the week gone by. DIIs more than matched them with their net buying worth Rs 59.7 Billion, as per provisional figures.

For the third straight week, Sensex and Nifty traded below the downward 'gaps' formed on Feb 5, but bulls worked hard to protect the downside. Both indices gained about 0.4% on a weekly closing basis.

The amount of fraud at PNB is expected to climb from the estimated Rs 114 Billion. Another fraud estimated at Rs 4 Billion has been unearthed at Oriental Bank. As Buffett once said: There's never just one cockroach in the kitchen.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex continued to consolidate sideways below the 132 points downward 'gap' formed on Feb 5. The index may be forming a 'symmetrical triangle' pattern from which the likely breakout will be downwards.

The index dropped inside the 'support/resistance zone' between 32250 and 33800 during the first four trading days of the week, but bounced up on short covering to close with a weekly gain on Fri. Feb 23.

The sliding 20 day and 50 day EMAs are merging and can provide overhead resistance to any follow-up buying next week.

Daily technical indicators are correcting oversold conditions, but remain in bearish zones. MACD is below its signal line but showing signs of turning up. ROC has crossed above its 10 day MA and moving up towards neutral zone. RSI and Slow stochastic have emerged from their oversold zones.

Any attempt by the index to pullback towards the 'gap' may induce more bear selling. There is unlikely to be any respite for bulls in the near term, as investors will resort to 'sell on rise' to take advantage of zero LTCG tax till Mar 31 '18.

The long-term trend remains bullish, as the index is trading above its rising 200 day EMA. But the near-term bearish sentiment is not going away in a hurry.

Earnings growth of India Inc. in Q3 (Dec '17) has failed to set the bourses on fire. Bullish optimism about Q4 (Mar '18) results are fading by the day. 

Expect the index to limp along and correct some more. At some point, valuations will start looking reasonably attractive again. Be very selective, and enter quality large-caps slowly. They will withstand the downside better.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty spent another week below the 33 points downward 'gap' formed on Feb 5. The index closed above its two weekly EMAs in a bull market.

The weekly bar closed exactly at the 'support/resistance' level of 10490 and formed a 'dragonfly doji' candlestick, which can lead to a pullback towards the 'gap'.

Weekly technical indicators have corrected overbought conditions, but only RSI is showing some upward momentum by bouncing up from its 50% level. MACD is falling below its signal line in bullish zone. ROC is falling below its 10 week MA in bullish zone. Slow stochastic has dropped inside bearish zone.

Nifty's TTM P/E has moved up to 25.75 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is plummeting towards its overbought zone, and may limit index upside. 

Bottomline? Sensex and Nifty charts are undergoing month-long corrections after 13 months long bull rallies. The downward 'gaps' formed on Mon. Feb 5 have acted as resistance zones. Any pullbacks towards the 'gaps' may trigger more selling and likely lower levels in both indices. Use a 'sell on rise' strategy in the near-term.

Nifty chart: a midweek technical update (Apr 05 ‘17)

FIIs were net buyers of equity worth Rs 8.74 Billion during the two days of trading this week. DIIs were net sellers of equity worth Rs 1.61 Billion, as per provisional figures.

Nifty crossed above the psychological barrier of 9200, its previous (Mar 17) top of 9218, and rose to touch new intra-day and closing highs.

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to a 5 months high of 52.5 in Mar '17, from 50.7 in Feb '17. A figure above 50 indicates expansion.

The RBI Governor is likely to keep interest rates unchanged in the policy meeting tomorrow in a continued effort to contain inflation.

The daily bar chart pattern of Nifty has resumed its up move after partly filling the upward 'gap' that formed on the chart on Mar 14 (refer last week's post). The index is trading well above its three rising EMAs in a bull market.

Daily technical indicators are looking bullish. However, RSI and Slow stochastic have re-entered their overbought zones. All three indicators are showing negative divergences by failing to touch new highs with the index. 

Nifty formed a 'dragonfly doji' candlestick pattern today, which is a sign of indecision. Also, the distance between the index and its 200 day EMA has increased to 740 points - making the chart technically susceptible to a correction.

Nifty's TTM P/E remains above its long-term average at 23.49. The breadth indicator NSE TRIN (not shown) is turning down near the upper edge of its neutral zone - hinting at some more upside.

A stronger Rupee against the US Dollar and reasonably stable oil prices is attracting FII inflows, which is helping the index to move higher.

Some one holding long positions from lower levels can continue to hold, but with a trailing stop-loss. Partial profit booking may also be a good idea. Any corrections can then be used to add. New entrants can enter in SIP mode. 

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 29, 2016

Stock markets worldwide reacted bullishly to economic stimulus announcements by ECB and China and a cut in interest rate (to -0.1%) by Japan. 

All is not well on the economic front, as India's GDP growth rates for FY14 was revised down to 6.6% from 6.9% and for FY15 to 7.2% from 7.3%.

As per provisional figures, FIIs were net sellers of equity worth Rs 14350 Crores in Jan '16. The figure exceeded their combined sales in Nov '15 and Dec '15. DIIs were net buyers of equity worth Rs 12900 Crores.

A combination of short covering and value buying at lower levels ensured that both Sensex and Nifty made weekly gains for the first time in Jan '16.

BSE Sensex chart pattern

The daily bar chart pattern of Sensex, which had twice received support from the 24830 level (in Sep '15 and Dec '15 - marked by green arrows), breached the support level and dropped to a low of 23840 last week - correcting more than 20% from the Mar '15 top of 30025.

The index formed a small 'double bottom' pattern and pulled back to the 24830 level (marked by red arrow). The likelihood of a counter-trend move and resistance from the 24830 level were explained in last week's post.

Daily technical indicators are turning bullish. MACD has crossed above its signal line in negative zone. ROC has entered positive zone. RSI has moved up to its 50% level. Slow stochastic has climbed above its 50% level.

Bears (read FIIs) are still dominating in the near term, and will continue to do so as long as the index trades below it falling 200 day EMA and the blue down trend line.

However, the long-term bull market is intact because Sensex is trading more than 1300 points above its 200 week EMA. 

If the pullback to the 24830 level is used as a selling opportunity by bears, the index will fall into 'attractive valuation' zone.

NSE Nifty 50 chart pattern

The weekly bar chart pattern of Nifty had received good support from the 7540 level in Sep '15 and Dec '15 (marked by green arrows). The support level got broken and the index dropped to an intra-week low of 7241 in the week ending on Jan 22 '16 - correcting more than 20% from its Mar '15 peak of 9119.

A 20% correction from an index top is often considered a confirmation of a bear market by technical analysts. So, last week's pullback to the 7540 level may be used as a selling opportunity by bears.

Bulls may point to the weekly bar of the previous week, which formed a 'dragonfly doji' candlestick pattern. The pattern has bullish implications when formed at the bottom of an intermediate down move.

Weekly technical indicators are looking bearish, but showing faint signs of reversal. MACD below its signal line in negative zone but stopped falling. ROC is facing resistance from its 10 week MA at the edge of its oversold zone. RSI has bounced up weakly from the edge of its oversold zone. Slow stochastic is trying to emerge from its oversold zone.

Bulls need to muster a lot of buying support if they wish to turn the pullback into a full-fledged rally.

Bottomline? Chart patterns of Sensex and Nifty have pulled back to previous support levels. Bears may use the opportunity to sell. Long-term bull markets are still intact, as both indices are trading above their rising 200 week EMAs (not shown), and near long-term P/E averages, which make them fairly valued.
 

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 22, 2016

There seems to be no let up in FII selling. Last week, their net selling in equities crossed Rs 5900 Crores as per provisional figures. DIIs more than matched them as their net buying in equities crossed Rs 6075 Crores.

However, both Sensex and Nifty closed marginally lower for the week after completing bearish 'rounding top' patterns. Can Friday's (Jan 22) technical bounce lead to a trend reversal? Or, can more downside be expected?

The charts below are showing some interesting developments that may go in favour of bulls.

BSE Sensex chart pattern

The daily bar chart pattern of Sensex dropped to test support from the 'gap' (of 156 points between 23573 and 23729) formed on the chart in May '14 following the euphoria of Modi-led victory in the general elections.

Most 'gaps' formed on charts get filled quickly, but some don't get filled for a long time and often become 'support/resistance' zones. The May '14 'gap' has remained unfilled for 20 months.

So, will the 'gap' continue to act as a 'support' zone for the index, as it did last week? It may, or it may not - but it shouldn't really matter for bulls. Why?

After an upward 'gap' gets filled, the previous up move - during which the 'gap' had formed - tends to resume. (The same holds true for a downward 'gap', i.e. the down move usually resumes after the 'gap' is filled.)

Are there any other technical indications of a reversal of the intermediate down trend? The answer is: Yes. Three of the four technical indicators have formed reversal patterns inside their respective oversold zones. 

ROC has formed a small 'inverse head and shoulders' pattern. RSI and Slow stochastic have formed 'double bottom' patterns. (Please right click on the chart and open it in a new window or tab to see the patterns more clearly.)  

Note that the index is trading below its three falling EMAs and the blue down trend line in bear territory. The 24830 level, which had acted as a 'support' level in Sep '15 and Dec '15 may provide 'resistance' to a continuation of Friday's technical bounce.

On longer-term weekly chart (not shown), Sensex continues to trade more than 900 points above its still rising 200 week EMA in a long-term bull market. The correction has provided an opportunity to buy fundamentally strong stocks at fair prices.

NSE Nifty 50 chart pattern

The weekly bar chart pattern of Nifty has formed a 'dragonfly doji' pattern (in candlestick parlance), which has bullish implications. 

A 'doji' usually indicates indecision among bulls and bears. But a 'dragonfly doji' formed at the bottom of a 3 months long intermediate downtrend may be hinting at a trend reversal.

There is no guarantee that the index won't fall lower - specially with FIIs still in selling mode. However, the 7120 level is likely to provide strong support. (Significance of the 7120 level was explained in a post 2 days ago.)

All four weekly technical indicators are looking bearish and oversold. ROC is showing some upward momentum in an effort to emerge from its oversold zone. The other three are still showing downward momentum.

The index looks ready for a counter-trend move, but that may not happen during F&O settlement week.

Bottomline? Chart patterns of Sensex and Nifty are near important long-term support levels. Technical indicators are suggesting a counter-trend move. Long-term bull markets are still intact, as both indices are trading above their rising 200 week EMAs (not shown). Use the dip to gradually buy fundamentally sound stocks. Deploy 15-20% of your savings on 2/3 different stocks instead of going 'all in' on one.

Nifty chart: a midweek update (Jan 13 ‘16)

The Indian economy seems to be taking one step forward and two steps back. Domestic passenger car sales during Dec '15 grew almost 13% YoY - its 14th straight month of growth. Sales of M&HCVs grew 19%, but two-wheeler sales declined 3%. 

However, IIP showed degrowth of 3.2% in Nov '15 YoY - its worst show in 4 years - against a revised 9.9% growth in Oct '15. CPI inflation inched up to 5.61% in Dec '15 YoY against 5.41% in Nov '15. Further interest rate cuts by RBI is unlikely any time soon.

This week, FII net selling in equities has crossed Rs 1930 Crores. DIIs were net buyers of Rs 1660 Crores, as per provisional figures. Month-to-date in Jan '16, FII net selling has crossed Rs 5200 Crores, while DII buying has touched Rs 3100 Crores.

The long-term closing chart pattern of Nifty 50 may be forming a 'rounding top' reversal pattern (more clearly visible on the 200 day EMA). Bulls have so far managed to defend the long-term support level of 7550 - despite a day's close below it on Tue. Jan 12 '15.

Today's price recovery late in the trading day, with strong volume support, may have brought some temporary respite for bulls. On the daily bar chart pattern of Nifty below, a 'reversal day' pattern (lower low, higher close) has formed. That may end the intermediate downtrend - like it did exactly a month ago.

Candlestick pattern experts (not me) may identify today's price bar as a 'dragonfly doji' or a 'hammer', both of which have bullish implications when formed at the end of a down move.

The importance and significance of the 7550 level was explained in last week's update. Lower support levels in case of a convincing breach of 7550 were also mentioned in last week's update.

Note that 7550 did get breached on a closing basis yesterday (Jan 12 '15). But it wasn't a 'convincing breach'. Why? Because of the 3% 'whipsaw' rule. What is that?

It is a simple rule that differentiates a token breach from a convincing one. A convincing breach - particularly of a long-term support (or resistance) level - requires a close beyond 3% of the actual support (or resistance) level.

In this case, a convincing breach would require Nifty to close below 7323 (i.e. 7550 - 3% of 7550). That gives bulls another 225 odd points to play with.

There is no guarantee that FIIs will stop selling - though their net selling today was overshadowed by DII buying. So, Nifty may very well close below 7323 and fall even further.

Daily technical indicators - which look oversold - are showing some signs of upward momentum. It will require considerable buying support to break the bear stranglehold on Nifty's chart.

So, are you getting paralysed by fear, or getting ready to jump into the market feet first? Do neither. Remain circumspect, but maintain your SIPs and/or accumulate good stocks with suitable stop-losses.

As I have been harping for a while, the long-term bull market is intact.

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