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 (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.

Nifty chart: a midweek technical update (Jul 03, 2019)

FIIs were net buyers of equity on Mon. Jul 1, but were net sellers on Tue. and Wed. (Jul 2 and 3). Their total net selling was worth Rs 4.7 Billion. DIIs were net sellers of equity on Mon., but were net buyers on Tue. and Wed. Their total net buying was worth Rs 3.8 Billion, as per provisional figures.

Almost all auto makers in India recorded YoY decline in sales in Jun '19 owing to weak consumer sentiments. Maruti, Toyota, Tata Motors, Ashok Leyland, Honda showed double-digit declines. Hyundai, Bajaj Auto, TVS Motor showed single digit declines. M&M car sales grew 4%, but CV sales declined 15%.

Nikkei India's manufacturing PMI fell to 52.1 in Jun '19 from 52.7 in May '19 due to slower order growth leading to slower output and employment growth. A number above 50 indicates expansion.

GST collection in Jun '19 dipped to Rs 999.4 Billion from Rs 1 Trillion in May '19 and 1.13 Trillion in Apr '19. The government needs to collect more than Rs 1 Trillion every month to meet its fiscal target.

The following comment appeared in last week's technical update on the daily bar chart pattern of Nifty: "Is this the beginning of a pre-budget rally? If it is, it will provide a good opportunity to book some profits."

After closing just above its 20 day EMA on Tue. Jun 25, the daily bar chart pattern of Nifty used its short-term moving average as a support, and steadily climbed above the 11900 level. This may be a good time to book partial profits.

The 20 day EMA has formed a bullish 'rounding bottom' pattern. All three EMAs are rising, and the index is trading above them in a bull market. The 165 points upward 'gap' (formed on May 20) has remained unfilled. At some point, the index is likely to fall to partly or completely fill the 'gap'. 

Daily technical indicators are looking bullish. MACD has crossed above its falling signal line in bullish zone. RSI is above its 50% level but not showing much upward momentum. Slow stochastic has risen quickly to enter its overbought zone, and can trigger some correction or consolidation.  

Nifty's TTM P/E has moved up to 29.30, well inside overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has fallen sharply from its oversold zone. Near-term index upside may be limited.

Buying in a few large-cap stocks that have comparatively higher weightage in the index has pushed Nifty higher, while the broader market has lagged behind. If you own stocks of RIL, HDFC/HDFC Bank, TCS then your portfolio should be doing great.

Unfortunately, most small investors stay far away from such 'expensive' stocks. If most of your holdings are in mid/small cap stocks, you may have to undergo more pain. The budget on Jul 5 is unlikely to boost the 'animal spirits' of Indian entrepreneurs. 

Let us hope that the LTCG tax on shares/mutual funds gets abolished. That should give a temporary boost to Nifty - and provide a great profit-booking opportunity. Q1 (Jun '19) results are expected to dampen bullish sentiments further.

Sensex, Nifty charts (May 31, 2019): consolidating near lifetime highs

During May 2019, FIIs were net sellers of equity till Fri. May 17, but net buyers from Mon. May 20 onwards. Their total net selling exceeded Rs 21.3 Billion. DIIs were net buyers of equity till Fri. May 17, but net sellers from Mon. May 20 onwards. Their total net buying was worth Rs 53.2 Billion, as per provisional figures.

During FY2018-19, Foreign Direct Investment (FDI) in India declined for the first time in 6 years - from a record US $44.85 Billion in FY2017-18 to $44.37 Billion (1.1% lower). In FY2012-13, FDI had contracted 36% to US $22.42 Billion from $35.12 Billion in FY2011-12.

As per the Central Statistics Office (CSO), India's GDP growth slipped to a 5 yr low of 5.8% during Jan-Mar '19 (Q4). During FY2018-19, GDP growth fell to 6.8% from 7.2% in FY2017-18.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex consolidated sideways with a slight upward bias during the first four trading days of the week, before rising to test its May 23 top on Fri. May 31.

The index fell short by just two points - touching an intra-day high of 40122 - and then formed a 'reversal day' bar (higher high, lower close) that can trigger some consolidation or correction.

Sensex is trading well above its three rising EMAs in a bull market. It gained about 280 points (0.7%) on a weekly closing basis. Further upside may be limited, as the market has not fully discounted the poor GDP number.

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. ROC is about to cross below its 10 day MA inside overbought zone. RSI has re-entered overbought zone after two months. Slow stochastic has re-entered its overbought zone after briefly falling from it. 

India's economic growth is sliding down. An expected interest rate cut by RBI in June is unlikely to restore 'animal spirits' of India Inc. The NBFC debt mess, and its resultant effect on the performances of private banks and mutual funds, will further impede growth.

The new Finance Minister can't be expected to pull rabbits out of her hat. Investors should be prepared for a likely correction and then a gradual rally. Money making will not be easy in FY 2019-20.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty tested its previous week's lifetime intra-week high but stopped just 2 points short. The index gained 79 points (0.7%) on a weekly closing basis, and is trading well above its rising weekly EMAs in a bull market.

Weekly technical indicators are looking bullish and overbought. MACD and Slow stochastic have re-entered their respective overbought zones.  ROC is moving sideways below its overbought zone. RSI is moving sideways inside its overbought zone. 

All four indicators are showing negative divergences by failing to touch new highs with the index. Some more correction or consolidation is possible. 

Nifty's TTM P/E has moved up to 29.49, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling in neutral zone, hinting at some index consolidation.

Bottomline? Sensex and Nifty charts are consolidating near lifetime highs, as bulls are still celebrating NDA's election victory. A deteriorating economy will not help improve earnings growth of India Inc. Book partial profits, and stay invested with trailing stop-losses. Use dips to add to existing holdings.

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

FIIs were net buyers of equity on the two trading days this week. Their total net buying was worth Rs 18.8 Billion. DIIs were net buyers of equity on Tue. (Mar 5), but net sellers today. Their total net selling was worth Rs 3 Billion, as per provisional figures.

Nikkei India's Services Purchase Manger's Index (PMI) rose to 52.5 in Feb '19 from 52.2 in Jan '19. (A figure above 50 indicates growth.) The Composite PMI (Manufacturing + Services) rose to 53.8 in Feb '19 from 53.6 in Jan '19. 

According to data compiled by Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India rose to 7.2% in Feb '19 from 5.9% in Feb '18. It was the highest unemployment rate since Sep '16.

The daily bar chart pattern of Nifty shows that bulls came back re-energised after the long weekend. Bullish sentiments had already received a boost last Friday (Mar 1) when the shot-down Indian pilot was returned unharmed by our not-so-friendly neighbour.

War hysteria, fomented by several news channels, has died down. A huge cloud of uncertainty hanging above the market has been dispelled. The index rose more than 120 points on the back of combined FII and DII buying on Tue. Mar 5.

Nifty gained another 65 points today. FIIs stepped up their buying, but DIIs were sellers. The index is trading well above its three EMAs in bull territory. However, the upper Bollinger Band can hinder further index progress. 

Daily technical indicators are looking bullish, and showing upward momentum. MACD is rising above its signal line in bullish zone. RSI is rising above its 50% level. Slow stochastic has entered its overbought zone, and can trigger a correction.

Nifty's TTM P/E has moved up to 27.09, which is much higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has stopped falling inside its overbought zone, and can limit near-term index upside.

Politicians have started a blame game and finger pointing after war rhetoric subsided. Market focus should shift now to underlying fundamentals - which are not looking rosy. 

Unemployment is rising. Economic growth is slowing. Rising inventories at auto dealerships are causing concerns. Expecting the index to keep rallying in such circumstances may be unrealistic.

If you are among the lucky few who bought near last month's low, book partial profits and lock in your gains. If you missed the rally, don't jump in now. Use the rally to ditch non-performers in your portfolio.

Nifty chart: a midweek technical update (Jan 09, 2019)

FIIs were net sellers of equity on Tue. (Jan 8), but net buyers on Mon. & Wed. (Jan 7 & 9). Their total net buying was worth Rs 4.6 Billion. DIIs were net sellers on Mon. but net buyers on Tue. & Wed. Their total net buying was worth Rs 9.9 Billion, as per provisional figures.

According to a World Bank report, global economic growth is projected to soften from a downwardly-revised 3% in 2018 to 2.9% in 2019 amid rising downside risks.

The bull party may be coming to an end. Indian stocks are headed for another tough year as a shrinking global cash pool dims prospects of an improving economy and expected recovery in company earnings - according to BofAML. 

After closing below its three EMAs in bear territory on Thu. Jan 3, the daily bar chart pattern of Nifty formed a 'reversal day' bar (lower low, higher close) on Fri. Jan 4, which triggered four straight days of higher closes.

The index has moved above its 20 day SMA (middle Bollinger Band - marked by dotted green line) and closed above its 50 day and 200 day EMAs in bull territory.

However, today's trading has formed a 'hanging man' candlestick pattern that can bring the four day rally to a close. Those holding long positions may want to book partial profits.

Daily technical indicators are turning bullish. MACD is forming a small 'rounding bottom' pattern below its signal line in bullish zone. RSI and Slow stochastic have moved above their respective 50% levels. 

Note that MACD, RSI and Slow stochastic are showing negative divergences by forming bearish patterns of 'lower tops, lower bottoms'.

Nifty's TTM P/E has moved up to 26.15 - which is much higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is rising in neutral zone - hinting at limited index upside.

Small investors should carefully track Q3 (Dec '18) results that are being announced from this week onwards. Think of buying only those stocks that show visible earnings growth.

(Note: Mid-cap and small-cap stocks have been badly beaten down. Thinking of adding some  of them to your portfolio? Subscribe to my Monthly Investment Newsletter. Paid subscriptions are being offered to blog visitors, followers and subscribers till Jan 21, 2019. Contact me at mobugobu@yahoo.com for details.)

Sensex, Nifty charts (Jun 01, 2018): bears refusing to back off

For the month of May '18, FIIs were net sellers of equity worth Rs 117.3 Billion. DIIs were net buyers of equity worth Rs 152.3 Billion, as per provisional figures.

Sensex barely gained 0.5% on a monthly closing basis, while Nifty closed flat (losing 3 points despite heavy buying by DIIs).

India's GDP growth rate was 7.7% for the Jan-Mar '18 quarter - the fastest growth rate in 7 quarters. For FY 2017-18, GDP growth rate was 6.7%. 

Nikkei India's Manufacturing PMI eased to 51.2 in May '18 from 51.6 in Apr '18. For the 10th straight month, PMI stayed above 50 (which indicates expansion).

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex is continuing to struggle near the 132 points downward 'gap' formed almost 4 months back (on Feb 5).

The index fell and closed inside the 'gap' on Tue. May 29. It fell further on May 30 - below its 20 day EMA and the 'gap' intra-day - but managed to close inside the 'gap'.

On Thu. May 31, the index bounced up to close well above the 'gap' and its three EMAs in bull territory, but formed a 'reversal day' bar (slightly higher high, lower close) and pulled back towards the 'gap'.

Daily technical indicators are looking bullish to neutral. MACD is trying to cross above its falling signal line in bullish zone. ROC has crossed above its 10 day MA, and is rising in bullish zone. RSI has slipped down after facing resistance from its 50% level. Slow stochastic has risen to its 50% level.

Oil's price has come down a little, but government's refusal to lower excise duty has resulted only in a few paisa lower prices for petrol and diesel. Losses in the recent by-polls and farmers' agitation in 10 states are ominous signs for BJP's prospects in forthcoming state and general elections.

RBI may have to tighten monetary policy at its Jun 4-6 '18 meeting. That can trigger off the next leg of the corrective move from the Jan 29 top.

Small investors should concentrate on preserving capital. That means no impulsive or bulk buying. Partial profit booking and reallocation of assets is suggested for those who are itching to 'do something'.

NSE Nifty index chart pattern

The following comments were made in last week's post on the weekly bar chart pattern of Nifty: "Nifty has formed a 'hammer' candlestick that can trigger an up move towards the Feb 5 'gap'. Bears can be expected to 'sell on rise'." 

Some times the index does exactly as expected. Nifty crossed above the 33 points downward 'gap' (formed on Feb 5) intra-week. Bear selling forced a close below the 'gap'.

Along with the 'gap', the down trend line (drawn through the tops formed in the weeks ending on Feb 2 and May 18) is another hurdle that the index will need to overcome before bulls can fully regain control.

Weekly technical indicators are in bullish zones, but only ROC is showing upward momentum. MACD is entangled with its signal line and is moving sideways. RSI is also moving sideways, with a slight upward bias. Slow stochastic has started to slide down after facing resistance from the edge of its overbought zone.

Nifty's TTM P/E is at 27.09 - well above its long-term average. The breadth indicator NSE TRIN (not shown) has dropped like a stone into its overbought zone, and can set off a correction.

Bottomline? The downward 'gaps' formed on Feb 5 on Sensex and Nifty charts are proving to be tough hurdles for bulls. Some more consolidation or correction is likely. At times like these, preservation of capital should take priority over bargain hunting. 

Sensex, Nifty charts (May 25, 2018): short covering helps bullish cause

FIIs were net sellers of equity on all five trading days. Their total net selling during the week was worth Rs 39.3 Billion. DIIs were net buyers of equity on all five trading days. Their net buying was worth Rs 58.5 Billion, as per provisional figures.

Despite heavy buying by DIIs, Sensex gained only 77 points (0.22%) on a weekly closing basis. Nifty closed almost flat - gaining just 9 points over the previous week.

India's GDP growth rate will accelerate to 7.5% in FY 2018-19 against 6.6% in FY 2017-18 on better performance from industrial and agricultural sectors, as per a CARE report. Inflation, lending rates, fiscal and current account deficits, exchange rates remain concerns.

BSE Sensex index chart pattern

The following comments were made in last week's post on the daily bar chart pattern of Sensex: "The index touched an intra-day low of 34822 on Fri. May 18, falling below its previous (May 4) low of 34848 which can lead to further downside. However, by closing exactly at 34848, the index has kept open the possibility of a technical bounce."

Bears had the upper hand during the first three days of trading. The index corrected below the 'gap' on Mon. May 21, received support from the 50 day EMA and bounced up a bit the next day.

On Wed. May 23, the index fell below its 50 day EMA to an intra-day low of 34303. Short covering triggered a technical bounce. The index recovered more than the first three days' losses in two days - closing inside the 'gap' on Fri. May 25.

Daily technical indicators are still looking bearish. MACD is below its falling signal line in bullish zone. ROC is below its falling 10 day MA in bearish zone. The up move of RSI towards its 50% level has stalled. Slow stochastic is trying to emerge from its oversold zone.

Q4 (Mar '18) results announced so far have clearly shown top line growth but bottom line pressure. Higher oil and commodity prices are starting to take a toll on corporate earnings.

Oil prices were not allowed to rise before the Karnataka state elections. Once the election got over and BJP failed to form the government, oil prices have been raised for 13 straight days!

When oil prices had fallen rapidly from US $60 to $40 during Jul-Aug '15, the NDA government raised excise duties and pocketed the benefits by depriving consumers. Now that prices have touched US $80, the government has refused to reduce excise duties and is burdening consumers with daily price hikes.

This disregard for the middle-class may hurt NDA's prospects in forthcoming state and general elections. It will also stoke the inflation fire - forcing RBI to raise interest rates. Neither event will be liked by the stock market.

Caution is suggested for those holding long positions. Sensex is trading well above its rising 200 day EMA in a bull market. That doesn't mean the corrective move from the Jan 29 top is over.

NSE Nifty index chart pattern

The following comments were made in last week's post on the weekly bar chart pattern of Nifty: "The previous 3 weeks' trading has formed a bearish 'broadening top' pattern (higher high, lower low) from which a downward breakout is likely."

The index did breakout below the 'broadening top' and the 20 week EMA intra-week, but short covering on Thu. & Fri. (May 24 & 25) ensured a pullback and close within the pattern.

Nifty has formed a 'hammer' candlestick that can trigger an up move towards the Feb 5 'gap'. Bears can be expected to 'sell on rise'. Weekly technical indicators are in bullish zones, but showing weak upward momentum.

Nifty's TTM P/E is at 26.24 - slightly lower than last week but well above its long-term average. The breadth indicator NSE TRIN (not shown) is about to fall from its oversold zone, and can limit near-term index upside.

Bottomline? The downward 'gaps' formed on Feb 5 are becoming 'lines of control' on Sensex and Nifty charts. Some more consolidation or correction is likely. At times like these, preservation of capital should take priority. Book partial profits and/or reallocate assets.

Nifty chart: a midweek technical update (May 09, 2018)

FIIs were net sellers of equity worth Rs 14.4 Billion during the three days of trading this week. DIIs were net buyers of equity worth Rs 26.2 Billion, as per provisional figures.

After first filling and then falling below the downward 'gap' and the up trend line last week, Nifty pulled back to close above the 'gap' today.

Walmart has acquired 77% stake in Flipkart for US $16 Billion, making it the largest eCommerce acquisition in the world. 

This can be a game-changer for Indian retail industry if Walmart replicate their African strategy of incentivising farmers to produce better quality vegetables and fruit, and then selling those products online.

The following remarks made in last week's update on the daily bar chart pattern of Nifty are worth noting: "The up trend line - typical of a counter-trend rally - is a bit too steep and unlikely to sustain much longer...Some consolidation or correction is possible, but a deep correction appears unlikely."

On Fri. Mar 4, the (purple) up trend line was breached, as expected. But the index didn't fall further. Instead, it has pulled back past the filled 'gap'. 

The interesting pattern to observe is that the index has failed to close above the trend line despite intra-day upward breaches on Mon. & Tue. (May 7 & 8). That may encourage bears to mount a stronger attack if the index tries to move up further.

Daily technical indicators are just below their respective overbought zones, but not showing much upward momentum. The index is trading above its three rising EMAs in a bull market. However, a fall below Friday's (May 4) low of 10602 may shift the advantage back to bears. 

Nifty's TTM P/E has moved up to 26.66 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling towards its overbought zone, and can limit index up side. 

Trump's pullout from the Iran nuclear deal will push oil prices higher. The stock market may have already discounted a BJP win in Karnataka state elections. Expect petrol pumps across India to raise prices next week.

If you are long in this market, either keep a tight stop-loss or, book some partial profits.

Should you 'average' down during a correction?

Interactions with small investors over the years throw up the same questions repeatedly. Here is a recent example:

"I bought 100 shares at 60. Bought 100 more at 80. The stock moved up to 100, but I didn't book profit. Now it has breached the stop-loss at 75 and fallen to 65. I am still holding. Can I 'average' now?"

Two mistakes have already been made: (1) not booking partial profits at 100; (2) not selling when the stop-loss was breached. Now the investor wants to 'correct' the two mistakes by committing a third - trying to buy a stock on the way down.

When a stock is correcting from a top, one needs to make an assessment of both the short term and long term trends. If the short term and long term trends are down, there is nothing to be gained and much to lose by 'averaging'.

There are no supports that can hold when bears go on the rampage. Better to take it on the chin and book a loss quickly instead of waiting for the stock to regain your 'buy' price. (Remember that the stock doesn't know or care about your 'buy' price.)

If the short term trend is down but the long term trend is up - in other words, a correction in a long term bull market - then 'averaging' can make some sense. 

However, the smart move will be to wait for the correction to be over and buy when the stock resumes its up move. This is easier said than done.

One has to be very savvy about support and resistance levels to decide when the correction is over and whether the resumption of the up move will be followed by another down leg or not.

That was the long answer to the question.

The short answer is: Never 'average' down. 'Averaging' on the way up is a better strategy.

S&P 500 and FTSE 100 charts (Jan 26, 2018): bulls rule one, bears rule the other

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 defied gravity as it continued its parabolic rise to a new intra-day and closing high. The rise during Jan '18 has been almost vertical with bulls using the briefest of corrections to buy.

Daily technical indicators are looking extremely overbought. Slow stochastic is showing negative divergence by failing to rise higher with the index.

Remember that an index can remain overbought for long periods - particularly when fuelled by liquidity and earnings growth. However, the widening distance (nearly 250 points) between the 20 day EMA and the 200 day EMA is technically 'unhealthy'.

A sharp fall towards the 50 day EMA can occur at any time. Booking partial profits, and/or holding with a tight trailing stop-loss will protect profits. Strong volumes on the few recent down days indicate bears are active.

On longer term weekly chart (not shown), the index closed at another new high - way above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are looking very overbought. The index seems poised for a sharp correction. 

FTSE 100 index chart pattern

Bears tried to tighten their grip on the daily bar chart pattern of FTSE 100. The index had bounced up after receiving good support from its 20 day EMA, but fell sharply to its 50 day EMA on Thu. Jan 25.

The index recovered on Fri. Jan 26, but ended the week with a loss of 0.8% on a weekly closing basis.

Daily technical indicators are looking neutral to bearish. MACD is falling below its signal line in bullish zone. RSI has turned up to its neutral zone after falling below its 50% level. Slow stochastic has entered its oversold zone, and can trigger a technical bounce.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market despite correcting for the past two weeks. Weekly technical indicators are in bullish zones but showing downward momentum.

Sensex, Nifty charts (Jan 19, 2018): rising higher on the back of FII buying

FIIs have turned bulls again. (This post may explain why.) Their net buying in equities was worth Rs 42.3 Billion, as per provisional figures. DIIs were net sellers of equity worth Rs 7 Billion during the week, but were net buyers on Fri. Jan 19.

Sensex (35511) and Nifty (10895) closed the week at lifetime highs. Nifty crossed the 10900 level intra-week for the first time ever.

India's forex reserves rose by US $2.7 Billion to touch a lifetime high of $413.8 Billion in the week ending on Jan 12 '18.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex rose to touch new intra-day and closing highs on the back of strong buying by FIIs. DIIs joined the bull party on Wed. & Fri. (Jan 17 & 19), but were sellers on the other three days.

All three EMAs are rising, and the index is trading above them in a bull market. Sensex closed more than 3500 points above its 200 day EMA, and is looking quite overbought.

All four daily technical indicators are well inside their respective overbought zones. Slow stochastic is showing negative divergence by failing to move higher with the index.

The index looks ripe for a correction. If and when it occurs - it usually does when you least expect it - the technical 'health' of the chart will improve, enabling it to move higher.

Don't get too encouraged by India Inc. declaring good results for Q3 (Dec '17) because the growth is occurring from a lower base due to the adverse effect of demonetisation in Nov '16.

Look for companies declaring disappointing Q3 results. Those are the ones to trim from portfolios. Tata Steel has announced a large Rs 128 Billion rights issue in Feb '18, which will suck out a lot of cash from the secondary market.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty climbed to a new high on Fri. Jan 19 on the back of combined buying by FIIs and DIIs.

The index is trading well above its rising weekly EMAs in a bull market. Weekly technical indicators are inside their respective overbought zones. RSI and Slow stochastic are showing negative divergence by moving sideways.

Note the sliding volume bars during the past two weeks. That doesn't augur well for bulls. Don't sell in a panic. But some partial profit booking can be a good idea.

Nifty's TTM P/E has increased to 27.44 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is bouncing around inside its overbought zone, and can limit index upside. 

Bottomline? Sensex and Nifty charts have closed at new highs once again. Q3 (Dec '17) results of India Inc. are showing earnings improvement mainly due to lower base effect. Avoid aggressive buying at a market top.

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S&P 500 and FTSE 100 charts (Jan 12, 2018): soaring skywards

S&P 500 index chart pattern

After a day's indecision on Tue. Jan 9 (by forming a 'doji' candlestick pattern) and the briefest of corrections on Wed. Jan 10, the daily bar chart pattern of S&P 500 rose to touch a new high (2788) on Fri. Jan 12.

All three EMAs are rising, and the index is trading way above them in a bull market. Daily technical indicators are well inside their overbought zones. Slow stochastic is showing negative divergence by failing to touch a new high with the index.

Note that an index can remain overbought for long periods. That doesn't mean one needs to jump in and buy. It may be prudent to be fearful when everyone else seems greedy and take some profits off the table.

On longer term weekly chart (not shown), the index closed at a new high - way above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are looking very overbought. Slow stochastic continues to show negative divergence by failing to rise higher. 

FTSE 100 index chart pattern

After a day's correction on Mon. Jan 8, the daily bar chart pattern of FTSE 100 soared to touch a new high (7792) on Fri. Jan 12. Bulls are buying at every dip.

All three EMAs are rising, and the index is trading above them in a bull market. Daily technical indicators are looking overbought and can trigger some consolidation or correction. (At the time of writing this post, FTSE is trading 5 points lower.)

Partial profit booking may be a good idea for conservative investors. Bravehearts can ride the bull wave with a trailing stop-loss.

On longer term weekly chart (not shown), the index touched a new high and closed above its three rising weekly EMAs in a long-term bull market. Weekly MACD and RSI are in bullish zones and showing upward momentum. Slow stochastic is looking quite overbought and can trigger a correction.