FIIs
were net sellers of equity on all five trading days. Their total net selling was worth Rs 69.2 Billion. DIIs
were net sellers of equity on Mon. and Fri. (May 18 and 22), but net buyers on the other three trading days. Their total net buying was
worth Rs 39.38 Billion, as per provisional figures.
RBI preponed the MPC meeting to reduce repo rate by 40 bps (to 4%) in a bid to inject more liquidity into the monetary system, after the market was disappointed by PM's Rs 20 Trillion 'stimulus' announcement. Rising food inflation and looming recession can lead to stagflation.
India's crude oil imports in Apr '20 fell 12.4% YoY to 17.28 million tonnes, thanks to low demand during the corona virus lockdown. Oil product imports dropped 6.5% to 3.35 million tonnes. However, refined products exports rose 37% YoY to 6.04 million tonnes.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex fell sharply on Mon. May 18 and slipped below the psychological 30000 level intra-day. It rallied for the next three days, but failed to overcome resistance from the sliding 20 day EMA. The index closed 425 points (1.4%) lower for the week.
Sensex had touched an intermediate top of 33887 on Apr 30, retracing
49.6% of its fall from the Jan 20 top (42274) to the Mar 24 low (25639). By stopping just short of the 50% Fibonacci retracement level, and forming an 'island reversal' pattern thereafter, the bear market rally got
terminated.
All three EMAs are falling, and the index is trading below them. The bear market has completed three months, and there are still no signs of bottom formation. Corporate performance during the first half of the financial year will not be good. The second half will depend on how well the corona virus gets contained.
Daily
technical indicators are giving mixed signals. MACD has slipped below its signal line in neutral zone. RSI has hovering below its
50% level. Slow stochastic has risen sharply from its oversold zone and crossed above its 50% level. Some near-term index upside is a possibility.
RIL's huge rights issue at a substantial premium is open for subscription till June 9th. Don't expect the index to fall much till then.
Many analysts are already calling a bottom at the Mar '20 low. Previous bear markets have never ended at the first low. Small investors should be prepared for a long haul. If you have spare cash, invest in small tranches.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty gave a thumbs down to FM's explanations about the so-called Rs 20 Trillion economic stimulus, and closed below its three weekly EMAs for the 11th straight
week. The index lost about 98 points (1.1%) on a weekly closing basis.
The
sharp bear market rally from the Mar '20 low of 7511 to the
Apr 30th intermediate top of 9889 retraced 48.3% of the fall from the
Jan '20 top. Nifty fell just short of the 50% Fibonacci retracement
level - terminating the rally. It has since closed lower for three consecutive weeks, but managed to stay above the psychological 9000 level.
The
20 week EMA crossed below the 200 week EMA some time back. All three weekly EMAs are falling, which is a sign of a long-term
bear market. The 'death cross' of the 50 week EMA below the 200 week
EMA - which will technically confirm a long-term bear market - is awaited but appears imminent.
Weekly technical indicators are in bearish zones. MACD is moving sideways below its falling signal line inside oversold zone. RSI is sliding down in bearish zone. Slow stochastic has dropped sharply below its 50% level. Some more index downside is likely.
Nifty's TTM P/E has remained flat at 20.97 but above its long-term average.
The breadth indicator NSE TRIN (not shown) is rising inside neutral zone, hinting at near-term index correction or consolidation.
Bottomline? Sensex and Nifty charts are trading well below their respective 200 day and 200 week EMAs in bear markets. Positive corona virus cases continue to increase rapidly after easing of lockdown restrictions. India's economy is slipping into a recession. Protect your cash. Invest only in small quantities.
FIIs
were net buyers of equity on Mon. May 11, but net sellers during the next four days. Their total net selling was worth a Rs 59.51 Billion. DIIs
were net sellers of equity on Mon.. and Tue., but net buyers on the next three trading days. Their total net buying was
worth Rs 10.75 Billion, as per provisional figures.
India's factory output contracted a record 16.7% in Mar '20 (thanks to the lockdown) against an expansion of 4.62% in Feb '20. For FY 2019-20, industrial production contracted 0.7% against 3.8% expansion in FY 2018-19.
Merchandise exports in Apr '20 contracted 60% to US $10.36 Billion. Imports also contracted 59% to $ 17.12 Billion. Trade deficit shrank to $6.76 Billion from $15.33 Billion a year ago.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex has formed a bearish pattern of 'lower tops, lower bottoms' after forming an 'island reversal' pattern on May 4th. The index closed below its three daily EMAs in a bear market.
By touching an intermediate top of 33887 on Apr 30, the index retraced 49.6% of its fall from the Jan 20 top (42274) to the Mar 24 low (25639) - falling just short of the 50% Fibonacci retracement level that often terminates a bear market rally.
An interesting technical pattern occurred on Wed. May 13 after PM's grand announcement of a 'stimulus package' the previous evening. The index opened with an upward 'gap' above its 20 day EMA, partly closing the downward (island reversal) gap formed on May 4, but failed to overcome the resistance from its falling 50 day EMA.
Part/full closing of a 'gap' is often followed by a continuation of the previous trend. A downward 'gap' below the 20 day EMA formed on Thu. May 14 - confirming the 'rule' and putting bulls in their place. A series of explanations by the FM about details of the stimulus package failed to stimulate the market.
Daily
technical indicators are looking neutral to bearish. MACD is about to cross below its signal line in neutral zone. RSI has slipped below its 50% level. Slow stochastic is moving down towards its oversold zone after emerging from it.
What next for Sensex? Expect bulls to remain active till the massive RIL rights issue hits the market on May 20th. The main purpose of the issue is to retire high cost debt with 'no cost' loan from investors. The CMP was pumped up after poor results. The 'discounted issue price' (at a huge premium) is a trap. Here is a history lesson: Why rely on Reliance?
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty took the grand announcement of PM's Rs 20 Trillion economic stimulus in stride, and closed below its three weekly EMAs for the 10th straight week. The index lost about 115 points (1.2%) on a weekly closing basis.
The sharp bear market rally from the Mar '20 low of 7511 terminated at the Apr 30 intermediate top of 9889 - retracing 48.3% of the fall from the Jan '20 top. By falling just short of the 50% Fibonacci retracement level that often terminates bear market rallies, Nifty's chart remained under bear domination.
The
20 week EMA crossed below the 200 week EMA some time back. All three weekly EMAs are falling, which is a sign of a long-term
bear market. The 'death cross' of the 50 week EMA below the 200 week
EMA - which will technically confirm a long-term bear market - is awaited but should occur soon.
Weekly technical indicators are looking bearish. MACD is moving sideways below its falling signal line inside oversold zone. RSI is falling inside bearish zone. Slow stochastic has dropped sharply from its overbought zone.
Nifty's TTM P/E has moved down to 20.98 but remains above its long-term average.
The breadth indicator NSE TRIN (not shown) is oscillating about the edge of its overbought zone, hinting at near-term index consolidation or correction.
Bottomline?
Sensex and Nifty charts continue to trade below their respective 200 day
and 200 week EMAs in bear markets. Positive corona virus cases are increasing rapidly. Any easing of lockdown restrictions can start a second wave of infections. Small investors should stay on the sidelines and protect their cash.
FIIs
were net sellers of equity on the first three days of the week but net
buyers on the next two days. Their total net buying was worth a whopping Rs 185.9 Billion - due entirely to the GSK-HUL bulk deal on Thu. May 7. DIIs
were net buyers of equity on Wed. and Thu. (May 6 and 7), but net sellers on the other three trading days. Their total net buying was worth Rs 9.18 Billion, as per provisional figures.
Thanks to the countrywide virus lock-down, India's Manufacturing PMI fell to an all-time low of 27.4 in Apr '20 from 51.8 in Mar '20. (A number below 50 indicates contraction.) Services PMI plunged to an unprecedented low of 5.4 in Apr '20 from 49.3 in Mar '20. Composite (Manufacturing + Services) PMI plummeted to 7.2 in Apr '20 from 50.6 in Mar '20.
As per Moody's, India's GDP growth will be nil during FY 2020-21 because of the deep shock triggered by the coronavirus outbreak. Downside risks to growth will increase if the lockdown is extended beyond May 17th.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex had broken out above the 'rising wedge' pattern with an upward 'gap' on Apr 30, and closed above its falling 50 day EMA - appearing to negate the bearish pattern.
On May 4, the index opened trade with a downward 'gap' below its 50 day EMA, and broke out below the 'wedge' (as had been expected earlier). In the process, Nifty formed an 'island reversal' pattern that ended the pullback rally.
The index oscillated about its 20 day EMA during the rest of the week, giving bulls some hope. That does not mean dips will be opportunities to buy. A global economic recession is looming ahead, and India is not in a fiscal position to escape it.
Daily
technical indicators are looking neutral to bearish. MACD is moving along its '0' line in neutral zone. RSI is moving along its 50% level. Slow stochastic is trying to emerge from its oversold zone, and can trigger a technical bounce.
The stock market is expecting some good news in the form of a bailout package for small businesses. Even if it comes, it will likely be too little too late. A government more concerned with optics and stifling dissent appears to have lost its coronavirus fight long ago with its twisted priorities.
The prolonged lockdown may have delayed the spread of the virus, but without adequate testing/tracing facilities and a creaking healthcare infrastructure, the worst is ahead of - not behind - us. Not a conducive environment for a rising stock market. Small investors should conserve cash to fight another day.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty had broken out above the 'rising wedge' pattern in the previous week, but the breakout turned out to be a 'false' one. The index dropped to close below the 'wedge' - losing more than 600 points (6.2%) for the week.
The unexpected upward breakout had appeared to negate the bearish 'rising wedge'
pattern. The week's trade has restored the empirical order (of a downward breakout from a 'rising wedge' pattern).
The
20 week EMA has crossed below the 200 week EMA. All three weekly EMAs continue to fall, which is a sign of a long-term
bear market. The 'death cross' of the 50 week EMA below the 200 week
EMA - which will technically confirm a long-term bear market - is still
awaited.
Weekly technical indicators are giving bearish signals. MACD is below its signal line inside its oversold zone, and its upward momentum has stalled. RSI is falling inside bearish zone. Slow stochastic has dropped to the edge of its overbought zone.
Nifty's TTM P/E has moved down to 21.28 but remains above its long-term average.
The breadth indicator NSE TRIN (not shown) bounced up from the edge of its overbought zone, hinting at near-term index correction or consolidation.
Bottomline?
Sensex and Nifty charts continue to trade below their respective 200 day
and 200 week EMAs in bear markets. Extension of the corona virus lockdown is showing signs of pushing an already weak economy into a recession. Small investors can continue with their SIPs, but should avoid any bargain hunting.
FIIs were net buyers of equity on Tue. (Jun 18), but were net sellers on Mon. and Wed. (Jun 17 and 19). Their total net selling was worth about Rs 4 Billion. DIIs were net sellers of equity on Wed., but were net buyers on Mon. and Tue. Their total net buying was worth Rs 13.3 Billion, as per provisional figures.
According to data compiled by Bloomberg, India's non-bank finance companies (NBFCs) have a record Rs 1.1 Trillion of local currency bonds due next quarter. Refinancing the obligations may pose a challenge.
India recorded FDI inflow of US $61 Billion during FY 2017-18 against $60.2 Billion in FY 2016-17, according to the Ministry of Commerce & Industry.
Note the following comments from last week's technical update on the daily bar chart pattern of Nifty: "Charts don't 'like' unfilled gaps. Most gaps get filled sooner than later - though some gaps may never get filled. A part or complete filling of the May 20 'gap' will make the chart technically 'healthy', enabling the index to rise higher."
Nifty had formed a 165 points upward 'gap' on May 20, and rose to touch a lifetime high of 12103 on Jun 3. It has since corrected all the way down towards the 'gap'.
The 50 day EMA has provided good support this week. The index continues to trade well above its rising 200 day EMA in a bull market.
A part or complete filling of the 'gap', followed by a resumption of the bull rally is the more likely Nifty direction. However, a remote bearish possibility should also be kept in mind: If Nifty forms a downward 'gap' and falls below the May 20 upward 'gap', a bearish 'island reversal' pattern will get formed.
Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. (Note that the signal line has formed a bearish 'rounding top' pattern.) RSI is moving sideways below its 50% level. Slow stochastic has fallen inside its oversold zone, and can trigger an index pullback towards the 20 day EMA.
Nifty's TTM P/E has moved down to 28.91, but remains in overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has re-entered its oversold zone, hinting at some near-term index upside.
A delayed monsoon is adding to the growth woes of the economy. Some out-of-the box thinking and reform measures are required to push the economy back onto the growth track. But it may be better to have moderate expectations from the current regime.
FIIs were net buyers of equity on Mon. (May 27), but were net sellers during the next two days. Their total net buying was worth Rs 4.1 Billion. DIIs were net sellers of equity on Mon. and Wed. (May 29), but were net buyers on Tue. Their total net selling was worth Rs 2.5 Billion, as per provisional figures.
The 2nd NDA government has its task cut out as India is facing one of the worst job crisis in several decades. According to an analysis based on data from Centre for Monitoring Indian Economy (CMIE), nearly 5 million people lost their jobs during 2016-18.
According to an ICRA report which analysed the Q4 results of 300 odd companies, weakness in consumer spending and lower commodity prices have led to a revenue growth of 10.7% during Jan-Mar '19 - a 6-quarter low.
After forming a 165 points upward 'gap' on May 20, the daily bar chart pattern of Nifty rose to touch a lifetime high of 12041 on May 23 (the day election results were announced). But it formed a large 'reversal day' bar (higher high, lower close), and dropped to test support from the 'gap' zone (shaded in grey).
Though the index bounced up, and touched a new closing high of 11929 on Tue. May 28, it has failed to test its May 23 top so far. The index is trading well above its three rising EMAs in a bull market - so rising to a new high may be just a matter of time.
Daily technical indicators are in bullish zones, but not showing much upward momentum. MACD is rising above its signal line in overbought zone. RSI is moving sideways above its 50% level, but appears to be forming a small 'rounding top' reversal pattern. Slow stochastic is moving sideways after re-entering its overbought zone.
All three indicators continue to show negative divergences by failing to touch new highs with the index. Some consolidation or correction may follow.
Nifty's TTM P/E has moved up to 29.44, which is in overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has fallen sharply from its oversold zone, hinting at some near-term consolidation.
A correction that partly or completely fills the May 20 'gap' will improve the technical 'health' of the chart, enabling Nifty to rise much higher. But corrections hardly ever happen if you wish for them.
There is a remote possibility of Nifty forming an 'island reversal' pattern - if it falls below the upward 'gap' of May 20 with a downward 'gap'. In such an unlikely event, the outcome will be very bearish. Not saying such a rare reversal pattern will actually form - but forewarned is forearmed.
S&P 500 index chart pattern
The daily bar chart pattern of S&P 500 brushed aside technical headwinds by opening with a small upward 'gap' on Mon. Aug 27, and rose to touch a new high of 2916.50 on Wed. Aug 29.
A bit of profit booking dropped the index below the 2900 level, but by end of trade on Fri. Aug 31, the index closed just above 2900 with a weekly gain of 0.9%. The index is trading above its three rising EMAs in a bull market.
There can be three possible index moves here onwards - two bullish and one bearish. The index can remain above Monday's small 'gap' and continue upwards. It can correct a bit more to fill the 'gap' and then resume its up move.
However, the index can correct to form a downward 'gap' that overlaps Monday's upward 'gap'. In which case, the entire trading above the small 'gap' will form a bearish 'island reversal' pattern. Such a pattern is rare - hence has a low probability of forming.
Nevertheless, investors should be aware of the possibility. Daily technical indicators are in the process of correcting overbought conditions. MACD is above its signal line in overbought zone, but has stopped rising. RSI has slipped down after entering its overbought zone. Slow stochastic has started correcting inside its overbought zone.
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 showing upward momentum but looking overbought. The index penetrated its upper Bollinger Band (not shown). The last time it did that was in the last week of Jan '18. A sharp corrective move had followed.
FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 continued with its sideways consolidation within a downward-sloping trading channel.
The index dropped below the 7500 level and closed below its 200 day EMA in bearish zone. (At the time of writing this post, the index is pulling back towards 7500.)
Daily technical indicators are looking bearish. MACD is below its falling signal line in bearish zone. RSI is falling below its 50% level. Stochastic has dropped inside its oversold zone, and may trigger a technical bounce.
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 falling below its signal line in bullish zone. RSI is falling towards its 50% level. Slow stochastic has dropped inside its oversold zone.
S&P 500 index chart pattern
The following comments were made in last week's post on the daily bar chart pattern of S&P 500: "There is also a possibility of the entire trading above the 'gap' forming an 'island reversal' pattern should the index fall with a downward 'gap' during the next few days."
Note that the index opened with a downward 'gap' on Mon. Jan 30 - turning the previous three trading bars into an 'island' (marked by grey ellipse). Though the index dropped sharply below its 20 day EMA and the 2270 level intra-day, it bounced up to close above 2280.
During the next three days, the index consolidated sideways - dropping below its 20 day EMA intra-day but closing above it. On Fri. Feb 3, the index opened with an upward 'gap' and closed above 2290 - filling Monday's downward 'gap' and negating the 'island reversal' pattern.
However, the appearance of any 'reversal' pattern should be treated with respect. Though all three daily technical indicators are in bullish zones, they are showing negative divergences by touching lower tops even as the index touched its highest level of the week on Fri.
All three EMAs are rising and the index is trading above them in a bull market. The Jan 26 lifetime high of 2301 is within handshaking distance. The index should cross above it. This isn't a good time to buy due to the negative divergences visible on the technical indicators.
On longer term weekly chart (not shown), the index closed at a new lifetime high of 2297, and is trading well above its three weekly EMAs in a long-term bull market for the 48th straight week. All three weekly technical indicators are bullish but looking overbought.
FTSE 100 index chart pattern
The following remarks were made in last week's post on the daily bar chart pattern of FTSE 100: "Note that by touching a low of 7131, the index has retraced about 33% of its 675 point rally from the Dec 2 '16 low to the Jan 16 '17 top of 7354. A Fibonacci retracement of 38.2% can drop the index to 7100. Some support can be expected there."
Price charts don't understand arithmetic, but technical traders certainly do. That is the reason why Fibonacci retracement is used to calculate support or resistance levels.
On Mon. Jan 30, the index plummeted below the 7150 level but stopped just above 7100. On the next two days, the 7100 level provided good support to the index, while the 20 day EMA offered resistance.
On Thu. Feb 2 the index slipped down to 7094 intra-day, tested support from its rising 50 day EMA and bounced up to close at its highest level of the week - forming a 'reversal day' bar (lower low, higher close).
That was just the trigger bulls needed to attack. On Fri. Feb 3, the index rose sharply above the 7150 level and its 20 day EMA to close at its highest level in two weeks.
Daily technical indicators are beginning to turn bullish. MACD is below its sliding signal line in positive zone, but has stopped falling. RSI has moved above its 50% level. Slow stochastic is about to emerge from its oversold zone.
The index is trading above its three EMAs in a bull market. Expect bulls to press home their technical advantage.
On longer term weekly chart (not shown), the index has formed a 'reversal bar' (lower low, slightly higher close) and closed well above its three rising weekly EMAs in a long-term bull market for the 32nd week in a row. Weekly technical indicators have corrected overbought conditions but remain in bullish zones.
S&P 500 index chart pattern
The daily bar chart pattern of S&P 500 has formed a few interesting patterns that will enthuse both bulls and bears.
The index broke out above the small 'symmetrical triangle' pattern with good volume support on Tue. Jan 24. The next day, it formed an upward 'gap' with strong volumes.
On Thu. Jan 26, the index touched a new lifetime high of 2301 but formed a small 'reversal day' bar by closing lower. It slipped down a little more on Fri. Jan 27, but closed with a weekly gain of 1%.
All three EMAs are rising and the index is trading well above them in a bull market. But don't count the bears out just yet.
Note that the three daily technical indicators touched lower tops when the index touched a new lifetime high. The combined negative divergences can trigger a correction or consolidation.
The upward 'gap' formed on Wed. Jan 25 may be the proverbial dark cloud on the horizon. It can be an 'exhaustion gap' that forms after a strong rally.
There is also a possibility of the entire trading above the 'gap' forming an 'island reversal' pattern should the index fall with a downward 'gap' during the next few days.
An 'island reversal' pattern may not form at all, and the index will probably keep soaring higher.
The reason for raising a 'red flag' is due to the widening distance between the 50 day EMA and the 200 day EMA and the fact that the index is trading more than 130 points above its 200 day EMA.
A similar pattern had occurred back in Aug '16 - triggering a two month long correction.
On longer term weekly chart (not shown), the index closed at a lifetime high of 2295 in a long-term bull market for the 47th straight week. All three weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index.
FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 dropped below its 20 day EMA and touched an intra-day low of 7131 on Mon. Jan 23. It was the lowest level touched during Jan.
However, the index managed to close above the 7150 level by the end of the day. For the rest of the week, the index consolidated sideways in a 50 points range between 7150 and 7200, and closed just 14 points lower for the week.
Is the worst over for bulls? Daily technical indicators are looking a little bearish. MACD is falling below its signal line in positive zone. RSI received good support from its 50% level and is trying to move up. Slow stochastic is trying to emerge from its oversold zone.
Some more correction or consolidation is likely.
Note that by touching a low of 7131, the index has retraced about 33% of its 675 point rally from the Dec 2 '16 low to the Jan 16 '17 top of 7354. A Fibonacci retracement of 38.2% can drop the index to 7100. Some support can be expected there.
On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market for the 31st week in a row. Weekly technical indicators are in bullish zones but showing downward momentum.
FIIs were net buyers of equity on Monday and Wednesday (worth Rs 400 Crores), but turned net sellers on Tuesday (worth Rs 1150 Crores). DIIs did the exact opposite. They were net sellers on Monday and Wednesday (worth Rs 480 Crores), but were net buyers on Tuesday (worth Rs 780 Crores).
The result of all this buying and selling? Nifty went nowhere - trading within a 70 points range, and closing just 3 points lower than Friday's close. Bulls and bears were kept on tenterhooks ahead of the US Fed's interest rate policy announcement.
India's Current Account Deficit for Q1 (Jun '16) was $300 Million (0.1% of GDP) against expectations of a surplus. The figure was much lower than the deficit of $6.1 Billion (1.2% of GDP) in Q1 (Jun '15).
During the past 3 months, the daily bar chart pattern of Nifty has been quite active in forming different technical patterns. It formed a couple of 'runaway gaps' (marked 2&3) followed by a 7 weeks long consolidation within a 'rectangle' pattern.
The upward breakout from the 'rectangle' was followed by an 'exhaustion gap' on Sep 6 and then a downward 'breakaway gap' on Sep 12 - turning the four days of trading between Sep 6 & 9 into an 'island reversal' pattern.
After dropping and staying below the 20 day EMA for three consecutive trading sessions, the index bounced up with strong volumes (not shown) on Fri. Sep 16 and formed a 'long-legged doji' candlestick pattern (indicating indecision) that completely filled the 'exhaustion gap' of Sep 6 and the 'breakaway gap' of Sep 12.
Miles Davis would have said: So what? Here are three possible scenarios - two bearish and one bullish:
1. The 'island reversal' pattern raises the possibility of a retracement of the previous minor/intermediate up move. That means a likely filling of either 'Runaway Gap3' or 'Runaway Gap2' or both.
2. The filling of the downward 'breakaway gap' of Sep 12 should lead to a resumption of the corrective downward move.
3. The technical setup of the chart is bullish. All three EMAs are rising; Nifty is trading above them and receiving support from the 20 day EMA for the past four trading sessions. The up move may resume at any time.
Confusing? You bet. Daily technical indicators appear confused too! MACD is falling below its signal line in positive zone, and showing negative divergence. RSI is moving sideways just above its 50% level. Slow stochastic is oscillating about its 50% level.
Nifty's TTM P/E remains well above its long-term average at 24.11. The breadth indicator NSE TRIN (not shown) is about to emerge from its overbought zone, and hinting at a correction.
The index is in suspended animation because FIIs are not sure whether the US Fed will announce an interest rate hike or not. This is typical of the short-term outlook of stock market participants.
The hike won't be more than 25 bps (0.25%), which is unlikely to have much impact on the economy or the stock market but will indicate that the US economy is on a firm footing. Lack of a hike will indicate otherwise.
Nifty should not be affected either way - unless FIIs go on a profit-booking spree. In which case, use the dip to add. But don't be in a hurry to do so.
Sometimes, stepping back and watching events unfold is far better than hectic activity.
FIIs and DIIs were both net sellers of equity in another holiday-shortened trading week. FII net selling was worth only Rs 65 Crores. They turned net buyers on the last two days of the week, as per provisional figures.
DII net selling was worth Rs 690 Crores. Both Sensex and Nifty closed about 1% lower for the week, but their up-trends from Feb '16 lows remain intact.
India's macroeconomic worries continue. WPI inflation rose to a two years high of 3.74% in Aug '16, against 3.55% in Jul '16 and -5.06% in Aug '15 - thanks to a spike in prices of pulses, potatoes and some manufactured items.
Merchandise exports fell for the second straight month, contracting -0.3% in Aug '16 against -6.84% in Jul '16. There was some talk about a Rupee devaluation to boost exports - but the step would be ill-advised as cost of imports will go up.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex opened trading on Mon. Sep 12 with a big 274 points downward 'gap' and dropped below its 20 day EMA, but received support from the blue up-trend line (drawn from its Feb 12 '16 low).
The index continued to receive good support from the up-trend line during the next two trading sessions as it continued to hover near its 20 day EMA.
Opening with a 40 points upward 'gap' on Fri. Sep 16 - thanks to strong FII buying - Sensex rose to touch an intra-day high of 28779. Monday's downward 'gap' got completely filled.
However, the index could not sustain near the day's high and dropped down to close just below the long-term 'support-resistance' level of 28600. What are the technical consequences of these downward and upward 'gaps'?
Note that in the previous week (on Tue. Sep 6), Sensex had opened trading with a 50 points upward 'gap'. The downward 'gap' of 274 points on Mon. Sep 12 overlapped the previous week's upward 'gap' - turning the previous week's trading into an 'island reversal' pattern.
Such a reversal pattern does not necessarily signify a change of trend, but can cause a retracement of the entire intermediate rally. When did the intermediate rally begin? From the 63 points upward 'gap' formed on Jul 11 '16.
How likely is it for Sensex to drop and close the Jul 11 'gap'? Not very - though the possibility can't be ruled out entirely.
The blue uptrend line, the rising 50 day EMA and the 27600 level are expected to provide good support should the index fall further. Only if 27600 is breached convincingly can the possible filling of the Jul 11 'gap' be taken into consideration.
Daily technical indicators have corrected overbought conditions but remain in bullish zones. MACD is moving sideways below its signal line in positive territory. ROC crossed below its 10 day MA but bounced up after receiving support from its '0' line. RSI is rising towards its overbought zone. Slow stochastic has bounced up from its 50% level.
The index is trading above its three EMAs in a bull market. Bears are trying to stand their ground and prevent the index from rising to a new high. But they may be fighting for a lost cause.
NSE Nifty index chart pattern
Overbought technical indicators and high TTM index valuation had led to the following warning in last week's post on the weekly bar chart pattern of Nifty: "The index looks ripe for a correction."
The week's trading started with a big 133 points downward 'gap'. However, the index received good support from the blue uptrend line (drawn from its low from the week ending on Feb 12).
Though the index failed to overcome resistance from the 8850 level, it managed to fill the downward 'gap' by the end of the week's trading.
The index is trading above its two rising weekly EMAs in a bull market. Weekly technical indicators are inside their overbought zones. Only ROC is showing a bit of bearishness by crossing below its 10 week MA.
Nifty TTM P/E remains high at 24.07. The breadth indicator NSE TRIN (not shown) has corrected extreme overbought conditions and is rising inside its overbought zone - suggesting some more correction or consolidation around current levels.
A convincing downward breach of the blue uptrend line will tilt the balance in favour of bears. Otherwise, expect the bulls to resume their domination soon.
Bottomline? Bears almost wrested control away from bulls in their efforts to prevent Sensex and Nifty charts to rise to new highs. Bulls fought back strongly on Friday. As usual, FII fire power will decide the fate of the Indian market. Stay invested and stay patient.
