Sensex, Nifty charts (Dec 04, 2020): keep rising as FIIs maintain buying momentum

FIIs continued with their strong buying momentum in a holiday-shortened trading week. They were net buyers of equity worth Rs 102.1 Billion. DIIs were net sellers of equity worth Rs 60.9 Billion. Both Sensex and Nifty gained more than 2% on a weekly closing basis.

IHS Markit India's Manufacturing PMI slipped to a 3 months low of 56.3 in Nov '20 from a 12 year high of 58.9 in Oct '20. India's Services PMI also dipped - to 53.7 in Nov '20 from 54.1 in Oct '20. (A reading above 50 indicates expansion.) The composite (Mfg. + Serv.) PMI dropped to 56.3 in Nov '20 from 58 in Oct '20.

As was widely expected, RBI's Monetary Policy Committee left interest rates unchanged and maintained an 'accomodative' stance at its last policy meeting in calendar year 2020.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex closed at a new high of 45080, as FIIs persisted with their strong buying momentum. The index has gained more than 19000 points (73.5%) from its Mar '20 closing low of 25981.

All three daily EMAs are rising, and the index is trading well above them in a bull market. As long as FIIs keep buying, expect the index to keep rising to new highs.

Daily technical indicators are looking bullish. MACD has merged with its signal line in bullish zone. ROC has crossed above its falling 10 day MA in neutral zone. RSI is about to re-enter its overbought zone. Slow stochastic is rising inside its overbought zone. 

Note that all four daily technical indicators are showing negative divergences by touching lower tops while the index touched a new high. However, large inflow of FII liquidity has been brushing aside all technical headwinds.

A bit of circumspection may be a good idea at this stage. Booking part profits and keeping some cash in hand can provide opportunities to enter at lower price points, as calendar year-end profit booking by FIIs can start at any time.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose for the fifth straight week to close at a new high of 13259. Strong buying by FIIs ensured that the index continued its upward climb in blue-sky territory with no known resistances. 

The index is trading well above its three rising weekly EMAs in a long-term bull market. However, such a strong rally may not sustain much longer. Also, year-end profit booking by FIIs may cause a pullback towards 12500.

Weekly technical indicators are looking overbought. MACD is rising above its signal line inside its overbought zone. ROC is rising above its 10 week MA in overbought zone. RSI has re-entered its overbought zone. Slow stochastic is inside its overbought zone but not showing any upward momentum. Some consolidation or correction may follow.

Nifty's TTM P/E touched a new high of 36.46 - which is way above its long-term average and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is moving sideways inside its overbought zone. Some near-term index consolidation or correction is possible.

Bottomline? Sensex and Nifty charts are continuing to climb to new highs on the back of FII liquidity inflow. Year-end considerations can lead to some profit booking by foreign fund houses. Book partial profits, or hold existing positions with trailing stop-losses.  

Sensex, Nifty charts (Feb 07, 2020): good recovery after budget disappointment

FIIs were net buyers of equity on Tue., Wed. and Fri. (Feb 4, 5 and 7) but net sellers on Mon. and Thu. (Feb 3 and 6). Their total net selling was worth Rs 9.8 Billion. DIIs were net buyers of equity during the first four trading days, but net sellers on Fri. Their total net buying was worth Rs 22.8 Billion, as per provisional figures.

India's Manufacturing PMI rose to 55.3 in Jan '20 from 52.7 in Dec '19. Services PMI also climbed to 55.5 in Jan '20 from 53.3 in Dec '19. (A figure above 50 indicates expansion.) The Composite PMI (Manufacturing + Services) rose to 56.3 in Jan '20 from 53.7 in Dec '19. This is good news for job seekers, as most of the demand came from the domestic market.

RBI maintained its accommodative stance while maintaining status quo on interest rates (repo and reverse repo). CRR was relaxed for a few specific sectors to boost growth.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex had dropped to seek support from its 200 day EMA on Feb 1 after the budget disappointed the stock market. An oversold Stochastic oscillator had hinted at a technical bounce. 

Short covering turned the expected technical bounce into a sharp rally that propelled the index above its 20 day and 50 day EMAs before Friday's pullback. The index is back above its three EMAs in a bull market.

Daily technical indicators are not looking all that bullish. MACD is facing resistance from its signal line in bearish zone. RSI is seeking support from its 50% level. (Since Nov '19, MACD and RSI have been showing negative divergences by forming bearish patterns of 'lower tops, lower bottoms'.) 

Slow stochastic has risen sharply to enter its overbought zone, and may not stay there for long. Some more correction or consolidation is possible. A breach of the Feb 3 low of 39563 - should it occur - will be quite bearish.

Small investors should remain cautious and ignore calls by experts to focus on mid-cap and small-cap stocks. Focus on the best performing large-cap stocks even though they may appear expensive. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty bounced up strongly after receiving good support from its 50 week EMA due to a short-covering rally. A bullish pattern of 'higher tops, higher bottoms' formed during the past 18 months remains intact.

The index closed above the psychological level of 12000, and is trading above its three weekly EMAs in a long-term bull market. However, caution is advised as a weak economy and the rapidly spreading corona virus may exert downward pressure on stock indices.

Weekly technical indicators are looking neutral to bearish. MACD has dropped from its overbought zone and crossed below its signal line. RSI has moved above its 50% level after falling below it last week. Slow stochastic dropped from its overbought zone after forming a 'double top' reversal pattern, and has fallen below its 50% level. 

Nifty's TTM P/E moved up to 27.03, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has dropped from its oversold zone. Some more near-term index consolidation  or correction is likely.

Bottomline? After touching lifetime highs in Jan '20, Sensex and Nifty charts have been in corrective modes. With hardly any positive triggers left for the stock market in the near-term, the indices may fall lower. A recent RBI Consumer Confidence survey findings temper any optimism about a growth turnaround. Investors should increase liquidity by booking profits wherever available.

Sensex, Nifty charts (Dec 06, 2019): correcting after touching lifetime highs

FIIs were net buyers of equity on Thu. Dec 5, but net sellers on the other four trading days. Their total net selling was worth Rs 38.6 Billion. DIIs were net sellers of equity on Thu. Dec 5, but were net buyers on the other four days. Their total net buying was worth Rs 24.2 Billion - as per provisional figures.

According to ACMA, auto component sales during Apr-Sep '19 declined 10% YoY to Rs 1.79 Trillion. However, exports grew 3% to Rs 514 Billion, and after-market sales grew 4% to Rs 351 Billion.

As per a Dun & Bradstreet report, India's GDP growth is expected to remain subdued in the near future as the slowdown has deepened and is likely to remain extended for a longer period than previously anticipated.

BSE Sensex index chart pattern

After touching lifetime intra-day and closing highs on Thu. Nov 28, the daily bar chart pattern of Sensex has been in a corrective mode. Profit booking often follows a new index top. Negative divergences visible on all four technical indicators - which failed to touch new tops - had also hinted at some consolidation or correction.

The index is trading well above its rising 200 day EMA in a bull market, but closed below its 20 day EMA for the first time in two months. The long-term technical structure of the index remains bullish. However, formation of back-to-back 'rounding top' patterns is a matter of concern for those holding long positions.

Daily technical indicators are looking bearish to neutral. MACD is falling below its signal line in bullish zone. ROC has dropped to its '0' line. RSI and Slow stochastic are seeking support from their respective 50% levels. Some more near-term index correction or consolidation may follow.

The stock market had expected a 25 bps (0.25%) interest rate cut by RBI on Dec 5. By maintaining status quo and downgrading full year GDP growth, RBI stated the obvious: monetary policy alone is not going to solve the growth problem. Instead of fiscal easing that could have boosted growth, there is talk about increasing GST tax rates, which will further burden consumers. Go figure!

Sensex may be in the process of forming a 'head and shoulders' reversal pattern, with a 'neckline' at 40000. The left 'shoulder' and 'head' have formed already - but the right 'shoulder' is yet to take shape. If the pattern does play out, the minimum downside target will be 38900.

Small investors would do well to sit on the sidelines and avoid value-buying in mid-cap and small-cap stocks.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty failed to close above its previous (Jun 7) top of 12103. That was just the excuse that bears needed to go on the attack. The index lost about 135 points (1.1%) on a weekly closing basis, but traded well above its three rising EMAs in a long-term bull market. 

Note that the index has formed a bullish pattern of 'higher tops, higher bottoms' during the past two years - keeping alive the long-term bull market. However, after each of the three previous index tops - in Feb '18, Aug '18, Jun '19 - Nifty corrected 11-15%. A pattern repeat can drop the index below 10800.

Weekly technical indicators are showing bearish signs. MACD is above its rising signal line in bullish zone, but its upward momentum has stalled. ROC has crossed below its 10 week MA, and dropped down from its overbought zone. RSI is seeking support from the edge of its overbought zone. Slow stochastic is moving sideways with a downward bias inside its overbought zone. Some more index correction or consolidation is possible.

Nifty's TTM P/E has moved down to 27.78 - but remains well above its long-term average inside overbought zone. The breadth indicator NSE TRIN (not shown) is rising sharply inside its oversold zone, and may limit near-term index downside.

Bottomline? Sensex and Nifty charts are undergoing corrections after touching lifetime highs. FIIs have started selling. Caution is advised due to the poor GDP number and a crisis of confidence among consumers.

Nifty chart: a midweek technical update (Jul 17, 2019)

FIIs were net sellers of equity during the first three trading days of the week. Their total net selling was worth Rs 6.8 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 14.4 Billion, as per provisional figures.

India's WPI-based inflation cooled to a 23 months low of 2.02% in Jun '19 from 2.45% in May '19 and 5.68% in Jun '18. Softening WPI has reinforced expectations of a further interest rate cut by RBI.

India's merchandise exports fell 9.71% YoY to US $25.01 Billion in Jun '19. Imports declined 9.06% YoY to $40.29 Billion - a 4 months low. Trade deficit narrowed 8% for the month to $15.28 Billion. Falling imports reflect weakness in demand and activity.

The following comment appeared in last week's technical update on the daily bar chart pattern of Nifty: "Slow stochastic has fallen sharply to enter its oversold zone, and can trigger a pullback towards the 50 day EMA." 

The index corrected and almost completely filled the 'GAP' (formed on May 20) as the stock market was disappointed with the budget provisions. The expected index pullback faced resistance from the 20 day EMA and closed just below the 50 day EMA today.

So far so good. What next? After touching a lifetime high of 12103 on Jun 3, Nifty has formed a bearish pattern of 'lower tops, lower bottoms'. If the pattern continues to play out, further upside ought to be limited. The next leg of the down move should follow.

Daily technical indicators are turning bullish. MACD is forming a 'rounding bottom' pattern below its falling signal line in bearish zone. RSI has moved up to its 50% level. Slow stochastic is rising after emerging from its oversold zone. Some near-term upside is likely.  

Nifty's TTM P/E has moved up to 28.58, which is well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling towards its overbought zone - hinting at limited near-term index upside.

Since Mar '19, Nifty has been trading above its rising 200 day EMA in a bull market. Which means 'buy the dips' should be the obvious strategy. However, there is nervousness in the market due to a slowing economy and a divergence in performance between the broader market and a few large-cap stocks.

Watch Q1 (Jun '19) results carefully. Be very selective and patient about what you buy. Near a market top, it is better to be cautious than adventurous.

Nifty chart: a midweek technical update (Feb 06, 2019)

FIIs were net sellers of equity on Mon. (Feb 4), but net buyers on Tue. and Wed. (Feb 5 and 6). Their total net buying was worth Rs 10.0 Billion. DIIs were also net sellers of equity on Mon., but net buyers on Tue. and Wed. Their total net buying was worth Rs 6.5 Billion, as per provisional figures.

After slipping to 53.2 in Dec '18, Nikkei India's Manufacturing PMI rose to 53.9 in Jan '19 - staying above the 50 mark (indicating growth) for the 18th straight month. However, Nikkei India's Services PMI declined to 52.2 in Jan '19 from 53.2 in Dec '18. The Composite PMI (Manufacturing+Services) was at 53.6 in Jan '19 - the same as in Dec '18.

Passenger vehicle sales remained sluggish in Jan '19. While Honda showed 23% growth, Maruti, Hyundai, M&M sales were flat. Tata Motors, Toyota, Ford Renault, Volkswagen showed degrowth. In Commercial Vehicles, Ashok Leyland and M&M showed sales growth; Tata Motors showed degrowth.

Bulls have turned the tables on bears during the first three trading days this week. The daily bar chart pattern of Nifty bounced up after receiving good support from its 20 day SMA (dotted blue line) and closed above the 11000 level after four months.

Combined net buying by FIIs and DIIs after the interim budget on Feb 1 has propelled the index above the 400 points trading range of the past couple of months. Buying in a few large cap stocks have led to Nifty's rally. 

A convincing close above 11090 - which is the Fibonacci 61.8% retracement level of the 1756 points correction from the Aug '18 top of 11760 to the Oct '18 low of 10004 - will put bulls firmly in control of Nifty's chart. 

Daily technical indicators are in bullish zones and showing upward momentum. MACD has crossed above its signal line and entered bullish zone. RSI is rising above its 50% level. Slow stochastic has entered its overbought zone. Some more upside is possible.

Note that MACD and Slow stochastic are showing negative divergences by touching lower tops. The index closed above the upper Bollinger Band today, which can cap the upside. Market breadth has been negative, with declines exceeding advancing shares. Bears are by no means out of the picture. 

Nifty's TTM P/E has moved up to 27.39 - its highest level in 2019 and much higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling in neutral zone - hinting at some near-term upside.

Possibility of an interest rate cut of 25 bps (0.25%) by RBI on Feb 7 appears to have enthused bulls. Bears may attack in case RBI maintains status quo on rates.

Nifty chart: a midweek technical update (Dec 05, 2018)

FIIs were net buyers of equity on Mon. (Dec 3) but net sellers on Tue. & Wed. (Dec 4 & 5). Their total net selling was worth Rs 1.2 Billion. DIIs were net sellers on all three trading days this week. Their total net selling was worth Rs 21.2 Billion, as per provisional figures.

Nikkei India's Manufacturing PMI rose to an 11 months high of 54.0 in Nov '18 from 53.1 in Oct '18. It was the 16th straight month of expansion (>50). Nikkei India's Services PMI also rose to 53.7 in Nov '18 from 52.2 in Oct '18. The Composite (Mfg. + Services) PMI rose to 54.5 in Nov '18 from 53.0 in Oct '18.

RBI announced an expected status quo on interest rates at its policy meeting today, but kept its calibrated tightening stance intact. However, SLR will be gradually decreased from 19.5% to 18% @25 bps (0.25%) per quarter for the next 6 quarters to increase liquidity for lending in banks.

The following comments appeared in last week's technical update on the daily bar chart pattern of Nifty: "If FIIs continue to buy, expect the 'gap' to be completely filled. The down move may resume even if the 'gap' gets filled."

On Thu. Nov 29, the index opened with a small upward 'gap' and rose to completely fill the downward 'GAP' of 89 points (formed on Oct 4) on the back of net buying by FIIs and DIIs.

On Mon. Dec 3, the index touched an intra-day high of 10941, but dropped to test support from the downward 'GAP' before closing at 10884. On the next two days, FIIs and DIIs turned net sellers. The index dropped below the 'GAP' intra-day, touching an intra-day low of 10748, but bounced up to close inside the 'GAP' today.

The index closed above its three EMAs in bull territory. So, did the index just pullback towards its 200 day EMA prior to resuming its up move? Or, has it resumed its corrective down move that started on Aug 29? 

Note that all three EMAs have converged together (marked by gray circle). A sharp move is likely to follow. Will it be upwards or downwards? 

Odds favour a down move. Why? Because, the index managed only a day's (Dec 3) close barely above 10882, which is the 50% Fibonacci retracement level of the 1756 points fall from the Aug 28 top to the Oct 26 low. Many a retracement has been observed to flounder at, or near, the 50% level. 

Daily technical indicators are in bullish zones, but turning bearish. MACD is above its signal line but its upward momentum has stalled. RSI and Slow stochastic have formed 'rounding top' reversal patterns. Slow stochastic is showing negative divergence by touching a lower top.

Nifty's TTM P/E is at 26.09, which is much higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating about the edge of its oversold zone - not giving any near-term directional indication.

The US-China trade war has not been resolved - only postponed for 3 months. The S&P 500 index had a huge fall on Dec 4. FIIs are unlikely to turn bulls if the US market continues to correct. 

RBI's cautious stance - despite moderating CPI inflation - was apparently not liked by the Indian market. Expect bears to drive home their advantage till state election results are announced on Dec 11.

A test - and a possible breach - of the Oct 26 low may be on the cards. Small investors waiting to enter may get better entry points if they wait a little longer.

Nifty chart: a midweek technical update (Aug 22, 2018)

FIIs were net sellers of equity on Mon. Aug 20 but net buyers on Tue. Their total net selling was worth Rs 2.3 Billion. DIIs were net buyers of equity on Mon. and Tue. Their total net buying was worth Rs 7.9 Billion, as per provisional figures.

The US government has announced a preliminary 50% anti-dumping duty on large diameter welded metal pipes imported from India. Last year's imports totalled US $295 Million. A higher duty of 133% has been imposed on China.

In a stern warning, the Finance Ministry has asked CEOs of PSU banks to check all non-performing accounts exceeding Rs 500 Million for fraud, or they could face criminal conspiracy charges.

In a holiday-shortened trading week, the daily bar chart pattern of Nifty rose to touch a new lifetime high on Tue. Aug 21, but formed a small 'hanging man' candlestick pattern that has bearish implications.

The index is trading well above its three rising EMAs in a bull market. However, the widening distance between the 20 day and 200 day EMAs is a sign of overbought conditions that can trigger a correction or consolidation at any time.

Daily technical indicators are looking overbought. MACD has crossed above its signal line in bullish zone. RSI and Slow stochastic have re-entered their respective overbought zones. All three are showing negative divergences by failing to rise higher with the index.

Nifty's TTM P/E has moved up to 28.29 - at its highest level this month and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is trying to move up in neutral zone, and can limit index upside.

Bullish sentiments have received a boost after better corporate Q1 (Jun '18) results. The market has already started discounting better Q2 (Sep '18) results - but whether the actual results will be better or not remains to be seen, as a higher base-effect will kick in.

Mid-cap stocks have started participating in the bull rally, which is a bullish sign. Macro headwinds - viz. high oil price, depreciated Rupee, widening trade deficit, rising interest rates - should induce caution rather than euphoria among small investors.

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Understanding the relationship between interest rates and the stock markets can help investors understand how changes might affect their investments and how to make better financial decisions."

Read more here.

Nifty chart: a midweek technical update (Jun 06, 2018)

FIIs were net buyers of equity on Mon. Jun 4 but net sellers during the next two trading days this week. Their total net buying was worth Rs 21.1 Billion. DIIs were net sellers of equity on Mon. Jun 4 but net buyers during the next two trading days. Their total net buying was worth Rs 4.7 Billion, as per provisional figures.

Rising rural demand and government's infrastructure push propped up sales of 2-wheelers and CVs in May '18. Tata Motors, Ashok Leyland, Bajaj Auto, Royal Enfield, Hero Moto, Maruti, Escorts, M&M showed double-digit sales growth.

RBI announced 25 bps (0.25%) increase in repo and reverse repo rates after a 3-day policy meeting today. Increase in interest rates occurred after 4.5 years. The stock market had anticipated the news, and rose on short covering and some value buying.

The daily bar chart pattern of Nifty is continuing to struggle in its efforts to cross above the downward 'gap' formed back in Feb 5.

On three consecutive trading days - May 31, Jun 1, Jun 4 - the index moved above the 'gap' intra-day, but failed to close above it. 

Nifty dropped to close below its 20 day EMA on Jun 4 and dropped further below its 50 day EMA intra-day on Jun 5, but pulled back towards the 'gap' today.

Daily technical indicators are looking neutral to bullish. MACD is entangled with its signal line, and moving sideways in bullish zone. RSI is just above its 50% level in neutral zone. Slow stochastic is trying to move up above its 50% level. Expect bears to resume selling at any time.

Nifty's TTM P/E is at 27.06 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is inside its overbought zone, and may limit near-term index up side.

The activity in the primary markets is set to pick up after a period of lull. More than half a dozen companies are looking to tap the market with their initial public offerings (IPOs) worth a cumulative Rs 200 Billion. That will divert cash from the secondary market.

Oil prices have come down a little, but may go up again post OPEC's meeting on Jun 22. The consolidation-cum-correction below the (purple) down trend line is likely to continue. A fall below the May 23 low of 10418 can lead to a test of support from the rising 200 day EMA.

Nifty chart: a midweek technical update (Feb 07, 2018)

FIIs have turned bears during the first three days of trading this week. Their net selling in equities crossed a huge Rs 46.1 Billion, as per provisional figures. DIIs were net buyers of equity worth Rs 33.2 Billion.

All gains made by Nifty since mid-Dec '17 got wiped out in the first 4 trading sessions in Feb '18. Such can be the severity of bull market corrections.

As was expected by market analysts, RBI Governor maintained interest rate status quo in the bi-monthly policy meeting today. Bears 'sold on news'. 

The daily bar chart pattern of Nifty had started correcting after touching a lifetime high of 11172 on Jan 29. Overbought technical indicators and rumours of re-introduction of long-term Capital Gains tax (LTCG) in the budget led to nervousness and profit-booking.

The rumours turned out to be true when FM announced a 10% LTCG on gains effective Apr 1 '18 on budget day (Feb 1). Strong selling followed by a sharp recovery caused only an 11 points drop.

Worse was to come on Fri. Feb 2, as Nifty succumbed to a global sell-off in stocks. On Mon. Feb 5, the index opened with a downward 'gap' of 33 points but recovered from the day's low.

On Tue. Feb 6, the index opened with a huge downward 'gap' below 10300 but recovered well on bargain-hunting to close the 'gap' during intra-day trading.

Today, the index opened with an upward 'gap' above 10600, but faced strong resistance from the 50 day EMA, and closed near the day's low as follow-up buying petered-off.

The index is trading more than 400 points above its rising 200 day EMA in a bull market. By touching an intra-day low of 10276 on Feb 6, the index has corrected 8% from its Jan 29 top. So, is this a good time to start buying?

Well, yes and no. Yes, if you have a long-term investment perspective of 3-5 years (in which case, you will be in a very small minority). No, for most others who have shorter-term perspective. Why?

Daily technical indicators are looking bearish, but not oversold. MACD is falling in bullish zone. RSI and Slow stochastic are falling in bearish zones, with Slow stochastic at the edge of its oversold zone. 

The 33 points downward 'gap' formed on Mon. Feb 5 can act as a resistance zone for future up moves. Also, any attempt to rally by the index will induce profit-booking by investors wishing to lock-in tax-free LTCG till Mar 31 '18.

A bull market correction can easily shave-off 10-15% from the top. A 15% correction - should it occur - can drop the index to 9500. A re-test of the Feb 6 low, or a test of support from the 200 day EMA may be more likely.

Nifty's TTM P/E has slipped down to 25.32 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply inside its oversold zone - and can limit index downside. 

With FIIs in sell-mode, expect Nifty to correct/consolidate till the end of FY 17-18. A little patience may get rewarded with better entry points.   

Nifty chart: a midweek technical update (Dec 06 ‘17)

During the first three days of trading this week, FIIs were net sellers of equity worth Rs 30.2 Billion. DIIs were net buyers of equity worth Rs 28.5 Billion, according to provisional figures. Nifty lost 78 points (~0.8%).

Low demand due to GST dropped the Nikkei India Services PMI to 48.5 in Nov '17 against 51.7 in Oct '17. (A number below 50 indicates economic contraction.) The Composite PMI (Manufacturing+Services) fell to a 3 months low of 50.3 in Nov '17 against 51.3 in Oct '17.

RBI Governor maintained status quo on interest rates at the MPC meeting today. Higher oil and vegetable prices and their effect on inflation were the main reasons for not reducing rates any further.

The daily bar chart pattern of Nifty had plunged below its 20 day and 50 day EMAs on Thu. Nov 30 & Fri. Dec 1 but had found support from the lower edge of the 'support/resistance zone' between 10200 & 10100.

Strong bear selling breached the support at 10100 intra-day on Tue. Dec 5. Today the index fell further to test support from its 100 day EMA. (Note that the index had earlier bounced up after receiving support from its 100 day EMA on Sep 27.)

Can the index bounce up from here? Technical signals (discussed below) are conducive, but a sharp rally - like the one during Oct '17 - seems unlikely.

Daily technical indicators are in bearish zones and showing downward momentum. Slow stochastic is inside its oversold zone and touched a slightly higher bottom while the index fell lower. The positive divergence can cause an upward bounce.

Nifty's TTM P/E has slipped to 25.7 - which is still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen vertically inside its oversold zone - to a level slightly higher than its Sep 27 level - and can limit index downside.

F&O settlement and RBI's policy meeting are out of the way. But uncertainty about the outcome of Gujarat state elections is keeping bulls on tenterhooks.

A likely technical bounce could face resistance from the 'support/resistance zone' and consolidate a little. If the NDA wins more than 100 seats in the 182 seats Gujarat assembly - which they probably will - expect the index to resume its rally. 

If the NDA wins less than 100 seats, a deeper correction towards the rising 200 day EMA (now at the support level of 9700) may ensue. Either way, the bull market remains intact and corrections can be used to add to existing holdings.

Sensex, Nifty charts (Mar 17, 2017): FII buying propels both indices to new highs

The US Fed increased interest rate by 25 bps (0.25%) last week, but hinted at only one or two more hikes this year. The dovish stance caused a dip in the US Dollar index. FIIs made merry and piled into emerging market stocks.

In a truncated trading week, FII net buying in equities crossed Rs 81.2 Billion. DIIs were net sellers of equity worth Rs 21.9 Billion, as per provisional figures.

Both Sensex and Nifty opened trading with big upward 'gaps' on Tue Mar 14, and continued to trade above the 'gaps' for the rest of the week.

After BJP's big wins in UP and Uttarakhand state elections, the government has stepped up economic reform activities, and is considering relaxation of rules for FDI in multi-brand retail. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex formed a 280 points upward 'gap' on Tue. Mar 14 (Mon. Mar 13 was a holiday) on the back of heavy FII buying that took the index above the blue up trend line.

The index continued its upward march for the rest of the week, touching a new 52 week high of 29825 on Fri Mar 17, but fell 200 points short of its lifetime intra-day high of 30025 (touched on Mar 4 '15). 

The index ended the week at a lifetime closing high of 29649, gaining nearly 2.5% for the week. Time to celebrate for bulls?

Not yet. The index has closed at a lifetime high. That means it is likely to move even higher. However, technical indicators are hinting at a pause in the rally. All four are looking overbought, and showing negative divergences by touching lower tops. A correction or consolidation is likely.

The index is trading 2200 points above its 200 day EMA. The last time the index was trading so far above its 200 day EMA was on Sep 8 '16. Technical indicators had shown negative divergences then, and a sharp correction had followed.

FII buying may take the index even higher. But some times one needs to choose between capital appreciation and capital preservation. 

Bravehearts can maintain a trailing stop-loss and enjoy the ride. Conservative investors can book partial profits.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty formed a rare weekly upward 'gap' (of 82 points) and rose to touch a new lifetime intra-day high of 9218. The index closed at a lifetime high of 9160 - gaining more than 2.5% for the week. 

Nifty is trading more than 700 points above its rising 50 week EMA. The last time it did that - in the week ending on Sep 9 '16 - a sharp correction had followed.  

Weekly technical indicators are overbought and showing negative divergences by failing to touch new highs with the index. Nifty's TTM P/E is almost at 23.8 - way higher than its long-term average. The breadth indicator NSE TRIN (not shown) has dived back inside its overbought zone. 

An overbought market can remain overbought for long periods - specially with FIIs buying heavily. Sometimes you need to turn your paper profits into cash. This may be such a time. 

Bottomline? Bulls are in complete control of Sensex and Nifty charts. Bears have been brushed aside in an avalanche of liquidity flows. Both indices are looking quite overbought. That doesn't mean they can't move even higher. But as Falstaff had said: "The better part of valour is discretion..."

Nifty chart: a midweek technical update (Mar 15 ‘17)

FIIs were net buyers of equity worth Rs 52.3 Billion during the first two days of a holiday-shortened trading week. DIIs were net sellers of equity worth Rs 13.9 Billion, as per provisional figures.

Excellent performance of the ruling NDA in the state elections ensured that Nifty opened with a huge upward 'gap' on Mar 14 and touched a new lifetime high of 9123 - just managing to cross above its Mar '15 top of 9119.

However, the index failed to close above the 9100 level and formed a 'doji' candlestick pattern that indicates indecision among bulls and bears. Today, the index touched a lower top and closed slightly lower - showing a lack of follow-up buying.  

The daily bar chart pattern of Nifty is trading well above its three rising EMAs in a bull market. The 85 points upward 'gap' formed on Mar 14 is looking like an 'exhaustion gap' that can trigger a correction.

There are several signs of worry for bulls - both technical and fundamental.

All three daily technical indicators are looking overbought, and showing negative divergences by touching lower tops when the index touched a new lifetime high.

Nifty's TTM P/E has crossed above the 23.5 mark - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is in neutral zone. 

Both WPI and CPI inflation are rising. WPI rose to 6.55% in Feb '17 - its highest level in three years - from 5.25% in Jan '17. CPI rose to 3.65% in Feb '17 from 3.17% in Jan '17.

Pent-up demand due to demonetisation can increase upward pressure on prices. RBI may be forced to maintain status quo on interest rates.

US Fed's likely interest rate hike announcement should boost the US Dollar index. That may induce FIIs to book profits.

Bull markets are supposed to climb a wall of worries. But Nifty has already climbed 1220+ points (15%+) from its Dec '16 low of 7894. It may be better to err on the side of caution.

Stay on the sidelines till there is clear evidence of follow-up buying that can take Nifty to a convincing close above 9119. (Note that Sensex is still 500 points short of testing its lifetime Mar '15 high.)

Gold and Silver charts: bulls retreat after facing strong bear attacks

Gold chart pattern

In the previous post on the daily bar chart pattern of Gold, technical indicators were looking overbought and showing negative divergences. The combination usually triggers a correction or consolidation.

A sharp correction ensued. Gold's price dropped 70 points (to 1195) in the space of 9 trading sessions - wiping out all the gains made during Feb '17. Is the bull rally over?

It certainly appears so. All three daily technical indicators have fallen inside bearish zones. Slow stochastic is trying to recover from its oversold zone, and may initiate an upward bounce.

Note that the rally from the Dec '16 low (of 1125) to the Feb '17 top (of 1265) covered 140 points. By falling 70 points, gold's price shows an exact 50% retracement of its recent gains. 

That happens to be a Fibonacci retracement level that often demarcates a battle line between bulls and bears. In other words, a fall below 1195 will hand the advantage back to bears.

Gold's price is trading below its three EMAs in bear territory. If bulls manage to prop gold's price above 1200, they may be able to regroup and mount another rally.

An impending interest rate hike by the US Fed, which is expected to boost the US Dollar index, can put a spanner in the works.

On longer term weekly chart (not shown), gold’s price formed a 'reversal bar' (higher high, lower close) and has closed below its three weekly EMAs in a long-term bear market. Weekly technical indicators are looking bearish, and showing downward momentum.

Silver chart pattern

The daily bar chart pattern of Silver attempted to cross above the 18.50 level on four consecutive trading sessions but failed.  All four daily technical indicators were inside their overbought zones.

That was just the opportunity that bears needed. Silver's price dropped sharply below 17 before recovering a bit. 

Silver's price is trading below its three EMAs in bear territory. The '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 in bearish zones. Slow stochastic is well inside its oversold zone, and may trigger an upward bounce. Expect bears to use the opportunity to sell again.

On longer term weekly chart (not shown), silver’s price faced resistance from its 200 week EMA, and dropped to close below its three weekly EMAs in a long-term bear market. Weekly technical indicators are looking bearish and showing downward momentum.

Why you should Invest in Stocks of Companies that pay regular Dividends

Most people who prefer investing in debt instruments or real estate do so because such investments are 'safer' compared to stocks. Stock prices tend to fluctuate wildly and are considered to be more 'risky'.

That logic reminds me of a departed uncle who refused to stir out of his home. He thought his home was 'safer' because it had less pollution and germs. Plus city roads were too 'risky' because of unruly traffic.

Debt instruments like bonds and bank fixed deposits may appear 'safer' but they carry risks too - from fluctuating inflation and interest rates. Real estate prices fluctuate also, putting your investment at risk.

One of the best reasons given by financial experts for investing in stocks is that they provide capital appreciation that can beat inflation. Younger people often flock towards growth stocks in the hope of quick 'multibagger' returns.

More experienced investors - who are in the game for the long haul - include stocks of dividend paying companies in their portfolios. But aren't such companies stodgy, slow-growth ones?

They often are. But not only do they pay regular dividends, such dividends tend to grow over time. Why? Because with lower growth opportunities, there is less need for capital expenditure.

So, the cash these companies keep generating through well-known branded products or services are distributed to shareholders. 

Those investors who are working regularly or earning from their business or profession may not really need the dividend income. But they can very well reinvest the dividend amounts in buying more stocks.

Over the years, 'dividend compounding' can lead to a substantial addition to your stock portfolio - leading to even more dividends that will become useful when you retire and are no longer earning a regular income.