Sensex, Nifty charts (Oct 01, 2020): in 5 weeks long down trends after 5 months long rallies

After 4 straight months of net buying, FIIs were net sellers of equity during Sept '20. Their total net selling was worth Rs 114.11 Billion. DIIs were net buyers of equity during Sept '20. Their total net buying was worth Rs 1.1 Billion.

During Apr-Aug '20, India's fiscal deficit was Rs 8.7 Trillion, which was 109.3% of the annual budget estimate of Rs 7.96 Trillion. The fiscal deficit was 78.7% of the annual budget estimate during Apr-Aug '19.

The IHS Markit India Manufacturing PMI increased to 56.8 in Sept '20 from 52 in Aug '20. It was the second straight month of expansion (a reading above 50) after 4 months of contraction.

India's merchandise exports rose 5.3% YoY to US $27.4 Billion in Sep '20 while imports declined 19.6%, leaving a trade deficit of $2.91 Billion against $11.67 Billion in Sep '19. During Apr-Sep '20, exports were down 21.43% to $125.1 Billion while imports were down 40.1% to $148.7 Billion on a YoY basis.

BSE Sensex index chart pattern

In a holiday-shortened trading week, bulls took the initiative on the daily bar chart pattern of Sensex. After facing resistance from its 20 day EMA during the first three trading days, the index formed a 174 points upward 'gap' and closed above its three EMAs in bull territory.

Bears may not give up their fight easily. Note that the index not only remained below the 335 points downward 'gap' formed back on Feb 28th, it also traded below the (blue) down trend line (drawn through its Aug 31 and Sep 16 tops).

Daily technical indicators are looking neutral to mildly bullish. MACD is trying to cross above its signal line in neutral zone. ROC has moved above its 10 day MA in neutral zone. RSI is at its 50% level. Slow stochastic has crossed above its 50% level.

Several IPOs and FPOs have been hitting the market in quick succession. Most have been oversubscribed by large percentages and have subsequently listed on the stock exchanges at huge premiums to their issue prices. 

These are signs of a market top, as large amounts of money are getting sucked out of the secondary market. Expect more index consolidation till Q2 (Jul-Sep '20) corporate results are announced from mid-Oct '20. 

With the festival season approaching fast, there is anecdotal evidence that malls are getting crowds and people are overcoming their virus fears to visit restaurants and bars. That is worrying because similar opening up in western countries led to a second wave of virus infections. Stay safe, wear masks and use hand sanitisers.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above the 'support-resistance zone' between 11000-11250 - gaining more than 360 points (3.3%) on a weekly closing basis, but remained below the (purple) down trend line for the 5th straight week.

The index has formed a bearish pattern of 'lower tops, lower bottoms' during the past 5 weeks after a sharp rally from the Mar '20 low. But bears are not yet in control. All three weekly EMAs are rising, and Nifty is trading above them in a long-term bull market.

Weekly technical indicators are in bullish zones but not showing much upward momentum. MACD is moving sideways above its signal line in overbought zone. RSI is sliding down towards its 50% level. Slow stochastic has dropped down from its overbought zone. Some more correction/consolidation is likely. 

Nifty's TTM P/E has moved up to 33.18, its highest level since Sep 16th and well above its long-term average deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is moving down inside its oversold zone - hinting at near-term index consolidation or correction.
 
Bottomline? Sensex and Nifty charts are in 5 weeks long down trends after sharp rallies from their Mar '20 lows. Expect more consolidation or correction during the next couple of weeks. Wait for Q2 (Jul-Sep '20) corporate results before committing fresh money to individual stocks.

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

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

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

BSE Sensex index chart pattern

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

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

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

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

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

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

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

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

NSE Nifty index chart pattern

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

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

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

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

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

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

Sensex, Nifty charts (Sep 18, 2020): consolidation continues after sharp rallies

FIIs were net sellers of equity on Thu. Sep 17, but were net buyers during the other days of the week. Their total net buying was worth Rs 16.89 Billion. DIIs were net sellers during all five days. Their total net selling was worth Rs 23.97 Billion.

Total vehicle registrations at Regional Transport Offices during Aug '20 fell 26.81% YoY. While tractor registrations grew 27.8%, PV, 2W, CV and 3W registrations fell 7.1%, 28.7%, 57.4% and 69.5% respectively.

CPI based retail inflation slipped a bit to 6.69% YoY in Aug '20 from 6.73% in Jul '20. It was at 3.28% in Aug '19. WPI based wholesale inflation turned positive in Aug '20 for the first time since Mar '20, rising to 0.16% YoY in Aug '20 from -0.58% in Jul '20.

Exports fell 12.7% YoY in Aug '20 while imports were down 26%, resulting in a lower trade deficit of US $6.77 Billion against $13.86 Billion a year ago.

BSE Sensex index chart pattern

During the week, the daily bar chart pattern of Sensex consolidated sideways while trading above its three daily EMAs in a bull market. However, bears put up a good fight at the 335 points downward 'gap' (formed on Feb 28) - continuing to frustrate efforts by bulls to push the index higher for the third straight week.

A foray inside the 'gap' zone on Wed. Sep 16 could not be sustained despite buying by FIIs. On a weekly basis, the index closed flat. The hurdle of the 'gap' will need to be overcome before bulls can resume control of the chart. 

Daily technical indicators are looking neutral to bullish. MACD is moving sideways after merging with its signal line in bullish zone. ROC has moved above its 10 day MA in neutral zone. RSI has just crossed above its 50% level. Slow stochastic is rising above its 50% level.

US stock indices closed lower for the third straight week, as a tech-led sell-off intensified. If current restrictions on short selling are not extended beyond Sep 24, expect selling to intensify in Indian stock indices as well.

After 50% gains from its Mar '20 low, do not expect Sensex to surge much higher. Stocks like RIL, which has gained more than 100% since its Mar '20 low, HDFC twins, HUL fuelled the index rally. 

Now midcap and smallcap stocks are coming to the forefront and several IPOs are in the pipeline. Small investors should be extra cautious not to fall into the trap of making easy money with little effort. 

Wealth building in the stock market requires knowledge, discipline, patience and a lot of time for the magic of compounding to take effect. Quick profits are here today, gone tomorrow.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty had bounced up after dropping inside the 'support-resistance zone' between 11000-11250 in the previous week. Despite FII buying, the index failed to make much upward progress - gaining about 40 points (0.35%) on a weekly closing basis.

Convincing breach of an up trend line is often a sign of trend reversal. But bears are still on the back foot, since all three weekly EMAs are moving up and the index is trading above them in long-term bull territory. 

Weekly technical indicators are in bullish zones but not showing any upward momentum. MACD is above its signal line inside its overbought zone. RSI is moving sideways above its 50% level. Slow stochastic is sliding down towards the edge of its overbought zone. 

After touching a new high of 33.03 on Tue. Sep 15, Nifty's TTM P/E has moved down a bit to 32.98, which is well above its long-term average and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped sharply from its oversold zone. Some more near-term index consolidation or correction is possible.
 
Bottomline? After breaching 5 months long up trend lines on Sensex and Nifty charts, both indices have been consolidating near resistance zones. Some more consolidation or correction is likely. Stay on the sidelines. Wait for better entry opportunities.

Sensex, Nifty charts (Sep 11, 2020): consolidating after sharp rallies from Mar '20 lows

FIIs were net sellers of equity during the first three days of the week, but were net buyers on Thu. and Fri. (Sep 10 and 11). Their total net selling was worth Rs 83.6 Million. DIIs were net buyers of equity on Tue. (Sep 8), but net sellers on the other four days. Their total net selling was worth Rs 15.01 Billion.

India's Index of Industrial Production (IIP) contracted 10.4% YoY in Jul '20, against an expansion of 4.9% in Jul '19. It was the fifth straight month of contraction. IIP had contracted 15.7%, 33.8%, 57.3% and 16.7% in Jun '20, May '20, Apr '20 and Mar '20 respectively. 

Rapid spread of the Covid 19 pandemic is likely to affect recovery of industrial production for much longer than expected earlier. There is no sign of the 'V' shaped recovery touted by the CEA and Finance Ministry.

BSE Sensex index chart pattern

The 335 points downward 'gap' (formed on Feb 28) on the daily bar chart pattern of Sensex continued to act as a strong resistance for bulls. The index spent the first three days of the week below its 20 day EMA, the next two days above its 20 day EMA, but all five days below the 'gap'.

After the previous week's trend line breach, bears were able to hold back charging bulls for a second straight week. However, the chart structure remains bullish. The 20 day EMA is above the 50 day EMA and the 50 day EMA is above the 200 day EMA. Both the 50 day and 200 day EMAs are rising. The index is trading above all three EMAs in a bull market.

A convincing move above the Feb 28 'gap' is required if the bulls are to wrest back control. Bears will try to ensure that does not happen before a proper correction.

Daily technical indicators are looking neutral to bearish. MACD is moving sideways below its signal line in bullish zone. ROC is sliding down below its 10 day MA in neutral zone. RSI is seeking support from its 50% level. Slow stochastic has bounced up from its oversold zone.

The index may consolidate some more before making a clear directional move. Most of the good news have already been 'discounted'. The bad news have been kept hidden or camouflaged - whether it is the current state of the economy or the actual on-ground situation at the Chinese border.

Pliant TV stations have been used to raucously divert attention of the public from real issues like unemployment, farmer suicides, clampdown on any form of dissent and inept handling of a raging pandemic by focussing on the dark underbelly of Bollywood.

By now, it is clear that a combination of easy liquidity and several hundred thousand first-time traders are behind the sharp index rally from the Mar '20 low. For the rally to sustain, corporate earnings will need to catch up fast. Otherwise, the high index valuation will revert to mean. 

In such a market, small investors need to be extremely stock specific - preferably in defensive sectors like pharma, IT, FMCG. Quick profits have a tendency of disappearing like a mirage.

NSE Nifty index chart pattern

After touching a high of 11794 in the previous week, the weekly bar chart pattern of Nifty had formed a large weekly 'reversal' bar (higher high, lower close) and closed well below the (purple) up trend line drawn from the Mar '20 low. The index bounced up after dropping inside the 'support-resistance zone' between 11000-11250. (The possibility was mentioned in last week's post.)

Convincing breach of an up trend line is often a sign of trend reversal. The pullback from a 'support-resistance zone' may provide bears with a selling opportunity. Note that all three weekly EMAs are moving up and the index is trading above them in long-term bull territory. 

Weekly technical indicators are in bullish zones but not showing any upward momentum. MACD is above its signal line inside its overbought zone. RSI is moving sideways above its 50% level. Slow stochastic is sliding down inside its overbought zone. 

Nifty's TTM P/E has moved up to 32.86, which is well above its long-term average and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) has moved up to the edge of its oversold zone. Some near-term index upside or consolidation is likely.
 
Bottomline? After breaching 5 months long up trend lines on Sensex and Nifty charts in the previous week, both indices consolidated near resistance zones. Some more consolidation or correction is likely. Avoid the urge to buy. Better entry levels may be available for those who are patient.

Sensex, Nifty charts (Aug 28, 2020): moving higher on FII buying

FIIs were net buyers of equity on all five trading days during the week. Their total net buying was worth Rs 54.5 Billion. DIIs were net sellers of equity on all five trading days, but could not keep pace with FII buying. Their total net selling was worth Rs 30.56 Billion. 

SEBI had introduced certain restrictions on F&O trading to curb volatility on Mar 20. These restrictions, including limits on holding short positions, have been extended till Sep 24. Bulls are expected to drive home their advantage.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex moved up relentlessly on the back of strong FII buying and closed at its highest level in 6 months. Bears have been pushed back to the last ditch - a 335 points downward 'gap' that had formed on Feb 28th, a few days before the index crashed.

The index has already closed just above the 'gap' zone. It appears unlikely that bears will be able to put up much of a fight. An index up move to a new lifetime high may occur sooner than later.

All three EMAs are rising, and the index is trading above them - and above the (blue) up trend line - in a bull market. The 'golden cross' (of the 50 day EMA above the 200 day EMA - marked by light blue circle) had technically confirmed a return to a bull market. Bears are on the verge of throwing in the towel.

Daily technical indicators are looking bullish and a bit overbought. MACD is moving sideways after merging with its signal line in bullish zone. ROC is rising above its 10 day MA in bullish zone. RSI has just entered its overbought zone. Slow stochastic is moving sideways well inside its overbought zone.

Despite poor Q1 (Apr-Jun '20) corporate earnings and a likely contraction in GDP, analysts are projecting higher earnings two years forward to justify current stretched index valuations. 

Small investors should remain wary, because no one really knows how long the pandemic will continue to devastate the already slowing economy and what corporate earnings will look like two years down the road.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs in long-term bull territory for the 8th straight week. The index moved above the psychological 11500 to its highest level in 6 months.

The 20 week and 50 week EMAs are moving up after forming bullish 'rounding bottom' patterns. The 200 week EMA is also moving up after forming a shallower saucer-like pattern. Bulls are gaining significant ground against bears.

Weekly technical indicators are looking bullish and overbought. MACD is rising above its signal line and has entered its overbought zone. RSI continues its gradual rise above its 50% level. Slow stochastic is moving sideways well inside its overbought zone. 

Nifty's TTM P/E touched a new lifetime high of 32.92, which is well above its long-term average and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is falling sharply in neutral zone, hinting at some more near-term index upside.
 
Bottomline? Bulls are regaining control on Sensex and Nifty charts. Bears are clearly on the back foot - thanks to SEBI restrictions on short selling. Some more upside is likely. Stay on the sidelines and wait for better entry opportunities on dips.

Sensex, Nifty charts (Aug 21, 2020): bears give ground grudgingly as bulls try to charge ahead

FIIs were net sellers of equity on Thu. Aug 20, but were net buyers of equity on the four other trading days. Their total net buying was worth Rs 20.68 Billion. DIIs were net sellers of equity on all five trading days. Their total net selling was worth Rs 21.17 Billion.

The Nomura India Business Resumption Index (NIBRI), a weekly tracker of the pace at which economic activity normalises, rose to 73.7 in the week ending on Aug 16 against 72.3 in the previous week. Though this indicated an improved momentum over the moderation in July, a rising spread of virus infections continued to hinder recovery. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex shows a tough fight for domination between bulls and bears near the 640 points downward 'gap' formed on Mar 6th.

On Mon. Aug 17th, the index dropped to the lower edge of the 'gap' intra-day but bounced up after receiving twin support from the (blue) up trend line and the 20 day EMA. The next day, the index rose to close above the 'gap' on the back of strong buying by FIIs.

Trading on Wed. Aug 19th was very interesting. The index rose above its previous (Jul 29) top of 38617 intra-day, but failed to close above it by a whisker. The next day, the index dropped back inside the 'gap' but found support from the up trend line. On Fri. Aug 21, the index just about managed to close above the 'gap' zone.

All three EMAs are now rising, and the index is trading above them in a bull market. The 'golden cross' (of the 50 day EMA above the 200 day EMA - marked by light blue circle) has technically confirmed a return to a bull market. But bears are refusing to give up the fight.

Daily technical indicators are looking bullish to neutral. MACD is moving sideways after merging with its signal line in bullish zone. ROC has merged with its 10 day MA, and is moving sideways in neutral zone. RSI is poised to enter its overbought zone. Slow stochastic has dropped to the edge of its overbought zone after re-entering it.

The Indian stock market is trying to track the rising US market, even though economic recovery may be far away. Since US stock indices are on the verge of new highs, expect Sensex to follow suit - at least as long as FIIs remain bullish.

However, the risk on the upside is increasing by the day. Watch out when the last of the bears throw in the towel and turn bulls. That is when a proper correction will happen. Till then, book partial profits, or ride the rally with trailing stop-losses.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs in long-term bull territory for the 7th straight week. After struggling for the past four weeks, it managed to close above the 'support-resistance' zone between 11000-11250. 

The 20 week and 50 week EMAs are moving up after forming bullish 'rounding bottom' patterns. The 200 week EMA has formed a shallower saucer-like pattern. Bulls are regaining control after a brief hiatus.

Weekly technical indicators are in bullish zones. MACD is rising above its signal line and is headed towards its overbought zone. RSI is gradually rising above its 50% level. Slow stochastic is moving sideways inside its overbought zone. 

Nifty's TTM P/E touched a new lifetime high of 32.09 on Wed. Aug 19 before slipping to 32.08, which remains deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is rising in neutral zone, and can limit near-term index upside.
 
Bottomline? Bulls appear to be regaining control on Sensex and Nifty charts. Bears are giving ground grudgingly. Some more upside can't be ruled out, but this isn't a good time to buy. Hold cash, stay on the sidelines and wait for better entry opportunities.

Sensex, Nifty charts (Aug 14, 2020): bears keep bulls on a leash

FIIs were net buyers of equity on all five trading days. Their total net buying was worth Rs 21.30 Billion. DIIs were net sellers of equity on all five trading days. Their total net selling was worth Rs 44.21 Billion.

India's CPI-based retail inflation rose to 6.93% in Jul '20 from 6.23% in Jun '20. CPI remained above 6% for the fourth straight month. Food inflation was 9.62%, thanks to supply disruptions. WPI-based wholesale inflation was -0.58% in Jul '20 against -1.81% in Jun '20.

After a US $790 Million trade surplus in Jun '20, India's trade deficit was US $4.83 Billion in Jul '20. Exports were down 10.21% to $23.64 Billion, while imports were down 28.4% to $28.47 Billion. Trade deficit was $13.43 Billion in Jul '19.

BSE Sensex index chart pattern

Note the following comment from last week's post on the daily bar chart pattern of Sensex: "Sensex needs to convincingly move above its Jul. 29th top of 38617 for the bullish pattern of 'higher tops, higher bottoms' to continue."

Despite FII buying throughout the week, the index tested but failed to move above 38617. On Fri. Aug 14, the index formed a 'reversal day' bar (higher high, lower close) and dropped to close near the lower edge of the 640 points downward 'gap' formed back on Mar 6th.

Should bulls be worried? Not yet. Though the index slipped below its 20 day EMA intra-day on Fri., it received support from the (blue) up trend line and bounced up. Remember that a trend line gets stronger with each successful test (unlike support/resistance levels, which get weakened with frequent tests).

The 'golden cross' (marked by light blue circle) of the 50 day EMA above the 200 day EMA is a technical confirmation of a return to a bull market. Does that mean bears have been vanquished, and all dips are buying opportunities?

Not quite. Sensex may be forming a small 'double top' reversal pattern that will be technically confirmed on a fall below the Aug 3rd low of 36911. In case the index does confirm the 'double top', the downward target will be 35250 (which just happens to fall inside the downward 'gap' formed back on Mar 12th).

Daily technical indicators are looking bullish to neutral. MACD is moving sideways after merging with its signal line in bullish zone. ROC has merged with its 10 day MA, and is moving sideways along its '0' line. RSI has dropped to its 50% level. Slow stochastic has dropped from its overbought zone after re-entering it.

Why are FIIs still buying after the index has already gained more than 45% from its Mar '20 low? One of the reasons may be the US Dollar index, which had peaked at 104 on Mar 23rd but is now languishing at 93. DIIs are clearly in profit-booking mode, and they have often outsmarted FIIs at or near market tops. So, caution is advised for those holding long positions.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs in long-term bull territory for the 6th straight week, but again failed to close above the 'support-resistance' zone between 11000-11250. Bear resistance forced a fourth weekly close inside the 'support-resistance' zone.

The 20 week and 50 week EMAs are moving up after forming bullish 'rounding bottom' patterns. The 200 week EMA has also started to move up. Bulls remain on top. However, failure of the index to close above the 'support-resistance' zone has kept bears in the game. A correction down to the 200 week EMA (at 10291) is possible.

Weekly technical indicators are in bullish zones. MACD is rising above its signal line and is well inside bullish zone. RSI is moving sideways above its 50% level. Slow stochastic is sliding down inside its overbought zone. 

Nifty's TTM P/E touched a new lifetime high of 31.42 on Thu. Aug 13 before slipping a bit to 31.09, which remains deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) dropped to the edge of its overbought zone, only to bounce up a little. Some more correction or consolidation is likely.
 
Bottomline? Counter-trend rallies on Sensex and Nifty charts have failed to move above resistance zones after re-entering bull territories. Bulls still have the advantage, but bears have kept them on a leash during the past four weeks. Time to book some profits.

Sensex, Nifty charts (Aug 07, 2020): bulls and bears reach a stalemate

FIIs were net sellers of equity on Wed. Aug. 5, but were net buyers on the other four trading days. Their total net buying was worth a huge Rs 94.97 Billion - thanks to Bandhan Bank owner holding divestment on Mon. Aug 3. DIIs were net sellers of equity on all five trading days. Their total net selling was worth Rs 21.34 Billion.

The IHS Markit India Manufacturing PMI dropped to 46 in Jul '20 from 47.2 in Jun '20. (A reading below 50 indicates contraction.) It was the fourth straight month of contraction. The Services PMI was 34.2 in Jul '20 against 33.7 in Jun '20. The Composite (Mfg. + Serv.) PMI slipped to 37.2 in Jul '20 from 37.8 in Jun '20.

India's Consumer Confidence index plummeted to 53.8 in Jul '20, well below the 100 mark that represents the dividing line between optimism and pessimism. Inflation expectations of households are rising, which may be one of the reasons why RBI maintained status quo on interest rates at its Aug '20 MPC meeting.

BSE Sensex index chart pattern

Despite strong buying by FIIs, the daily bar chart pattern of Sensex failed to move above the 640 points downward 'gap' formed back on Mar 6th. Bears are putting up a strong last-ditch resistance.

On Mon. Aug 3, the index dropped to close below its 20 day EMA for the first time in more than two months. Bulls used the dip to buy - as they have been doing for more than four months.

The index closed just below the 'gap' on Tue. and Wed. (Aug 4 and 5), but entered and remained within the 'gap' during the next two days. The 50 day EMA is on the verge of crossing above the 200 day EMA - the 'golden cross' will technically confirm a return to a bull market.

Daily technical indicators are looking bullish to neutral. MACD is moving sideways below its signal line in bullish zone. ROC is below its 10 day MA, and moving sideways along its '0' line. RSI is falling towards its 50% level. Slow stochastic has bounced up a bit after falling towards its 50% level.

The (blue) up trend line - currently at 37000 - remains intact and untested for the past two months. Any breach of the trend line may be followed by a drop to the 200 day EMA (currently at 36050).

Sensex needs to convincingly move above its Jul. 29th top of 38617 for the bullish pattern of 'higher tops, higher bottoms' to continue. That should not be a problem if FIIs continue their buying.

After touching 103 in mid-March '20, the US Dollar index had been declining steadily, but has bounced up a little after finding a bottom at 92.5. A fall in the Dollar index may be partly responsible for FII flows into emerging markets. The flows can reverse if the Dollar index starts rising.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs for the fifth straight week, but failed to move above the 'support-resistance' zone between 11000-11250. Bear resistance forced a third weekly close inside the 'support-resistance' zone.

The 20 week and 50 week EMAs are moving up after forming bullish 'rounding bottom' patterns. Bulls have the upper hand. However, failure of the index to move above the 'support-resistance' zone has kept the door open for a correction down to the 200 week EMA (at 10282).

Weekly technical indicators are in bullish zones. MACD is rising above its signal line and has entered bullish zone. RSI is moving sideways above its 50% level. Slow stochastic is moving sideways well inside its overbought zone. 

Nifty's TTM P/E has moved up to 30.72, a new lifetime high and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is in neutral zone, hinting at some more consolidation or correction.
 
Bottomline? Counter-trend rallies on Sensex and Nifty charts have stalled at resistance zones after re-entering bull territories. Bulls have the advantage, but bears are trying their best to hold them back. Stay invested, but avoid fresh buying.

Sensex, Nifty charts (Jul 31, 2020): a temporary pause or a trend reversal?

FIIs were net buyers of equity on Tue. and Thu. (Jul. 28 and 30), but were net sellers on the other three trading days. Their total net selling was worth Rs 13.11 Billion. DIIs were net buyers of equity on Fri. Jul. 31, but were net sellers on the first four trading days. Their total net selling was worth Rs 24.45 Billion.

During Jul. '20, FIIs were net buyers of equity worth Rs 24.9 Billion - thanks to their strong buying during the week of Jul. 20-24. It was their third straight month of net buying. DIIs were net sellers of equity worth Rs 100.08 Billion during Jul. '20. It was their heaviest monthly selling since Mar. '19.

The index of eight core sector industries contracted 15% in Jun '20, compared with 22% in May '20 and 37% in Apr '20. During Q1 (Apr-Jun '20), the index contracted 24.6%. Only fertilisers showed 4% growth. The other seven (coal, crude oil, natural gas, refinery products, steel, cement, electricity) contracted between 6 to 34%.

Gross tax revenue shortfall of 32.6% during Q1 (Apr-Jun '20) widened India's fiscal deficit to Rs 6.62 Trillion, which is 83.2% of the Rs 7.96 Trillion budget estimate for FY 2020-21. This is the highest fiscal deficit in percentage terms since Q1 (Apr-Jun 1998)

BSE Sensex index chart pattern

An interesting tussle between bulls and bears is evident on the daily bar chart pattern of Sensex. Despite buying pressure from FIIs, bears continued their last-ditch resistance at the 640 points downward 'gap' formed back on Mar 6th.

On Tue. Jul. 28, the index closed above the 'gap' zone. However, formation of a 'reversal day' bar (higher high, lower close) on Wed. Jul. 29 provided a psychological boost to bears. The index corrected during the rest of the week, and closed just below the 'gap'.

What next? Technically, the balance remains tilted towards bulls. The index is trading above its three daily EMAs in bull territory. The up trend line - drawn through Mar '20 and May '20 lows - remains intact. The 50 day EMA is poised to cross above the 200 day EMA - the 'golden cross' will technically confirm a return to a bull market.

Bears are not out of the game yet. As per 'gap' theory, part or complete filling of a 'gap' is usually followed by a resumption of the trend prior to formation of the 'gap'. That means the down trend that started from Wed. Jul. 29 can continue.

On the downside, the wide range between 35700 (level of 50 day EMA) and 37200 (level of 20 day EMA) can provide good support. However, a convincing breach of the up trend line (at 36500) will confirm a trend reversal.

Daily technical indicators are in bullish zones, but starting to show downward momentum. MACD is moving sideways but has slipped below its signal line. ROC has crossed below its 10 day MA. RSI and Slow stochastic have dropped down from their respective overbought zones.

There is no rush to buy the dip. It is possible that the index will test support from the up trend line. Add if the index bounces up from trend line support. Book profits if the trend line gets breached.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs for the fourth straight week, but formed a weekly 'reversal' bar (higher high, lower close) that stalled the upward momentum of the rally from its Mar '20 low.

The index moved above the 'support-resistance' zone between 11000-11250 intra-week, but failed to sustain above 11250. Bear resistance forced a second weekly close inside the 'support-resistance' zone.

The 20 week EMA has crossed above the 200 week EMA after forming a bullish 'rounding bottom' pattern. The 50 week EMA is in the process of forming a 'rounding bottom' pattern. So, bulls have no reason to panic just yet. However, a test of support from the 200 week EMA (at 10273) may be on the cards.

Weekly technical indicators are in bullish zones. MACD is rising above its signal line and has entered bullish zone. RSI is above its 50% level. Slow stochastic is well inside its overbought zone. 

Nifty's TTM P/E has moved up to 30.2, a new lifetime high and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is in neutral zone, hinting at more consolidation or correction.
 
Bottomline? Counter-trend rallies on Sensex and Nifty charts have expectedly stalled at resistance zones after re-entering bull territories. The current dip may not be a buying opportunity. Sometimes, staying on the sidelines can be a good strategy.