In a holiday-shortened week, FIIs
were net sellers of equity on Mon. and Tue. (Apr 27 and 28) but net buyers on the next two days. Their total net buying was worth Rs 16.52 Billion. DIIs
were net buyers of equity on all four trading days, worth Rs 28.96 Billion, as per provisional figures.
Interestingly, during Apr '20, FIIs and DIIs were both net sellers of equity - worth Rs 52.1 Billion and Rs 1.2 Billion respectively. Wonder who bought during the sharp month-long counter-trend rally!
India's core sector output contracted 6.5% in Mar '20 - its worst performance in nearly 15 years - against growth of 7.2% in Feb '20. During FY 2019-20, infrastructure industries grew just 0.6% against 4.4% during FY 2018-19.
Top automobile makers like Maruti, M&M, Hyundai, Toyota, MG, Royal Enfield reported nil domestic sales during Apr '20, as their operations remained suspended due to the lockdown since Mar 25th to prevent the spread of the corona virus.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex broke out above the 'rising wedge' pattern with an upward 'gap' on Apr 30. The bearish pattern has been negated, thanks to combined FII and DII buying.
The index closed above its 50 day EMA after more than a month, and gained almost 2400 points (7.6%) on a weekly closing basis. Is it time for bulls to celebrate? Not quite. Note that the 200 day EMA is still falling, and the index is trading well below it. That is a sign of a bear market.
Bear market rallies tend to be fast and furious - and the rally during April has certainly been sharp. Many small investors with no experience of a bear market may have jumped in to 'buy the dip'. They will save themselves a lot of heartburn by maintaining tight stop-losses, or by booking profit.
Daily
technical indicators are giving mixed signals. MACD is rising above its
signal line and reached its neutral zone. RSI has crossed above its 50% level to enter bullish zone. Slow stochastic has re-entered its overbought zone, and can trigger a pullback inside the 'wedge'.
By extending the virus lockdown by a further two weeks through an utterly confusing order, the government has kicked the problem down the road with no clear plan of what to do next - leaving state governments and individuals to fend for themselves.
There is every possibility that FIIs will unleash a fresh bout of selling in May '20. They have been net sellers of equity for four straight months, though the volume of selling in Apr '20 was much lower than in Mar '20. Staying on the sidelines may be a good idea till the lockdown finally ends.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty broke out above the 'rising wedge' and gained more than 700 points (7.7%) on a weekly closing basis, but closed below its 200 week EMA for the 8th straight week.
The
20 week EMA has crossed below the 200 week EMA for the first time in 9
years. 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.
The
sharp counter-trend rally on Nifty chart from the Mar '20 low of 7511 gained momentum as FIIs and DIIs were in buying mode
during the week. An unexpected upward breakout has negated the bearish 'rising wedge'
pattern.
Weekly technical indicators are giving bullish signals. MACD is below its signal line inside its oversold zone, but has formed a small bullish 'rounding bottom' pattern. RSI is rising in bearish zone. Slow stochastic has risen sharply to enter its overbought zone, and can trigger a pullback.
Nifty's TTM P/E has moved up to 22.35 - its highest level during Apr '20 - which is above its long-term average and in overbought zone.
The breadth indicator NSE TRIN (not shown) is in its
neutral zone, hinting at some near-term index consolidation or a
correction.
Bottomline?
Sensex and Nifty charts are trading below their respective 200 day
and 200 week EMAs in bear markets. Extension of the corona virus lockdown will most likely
push an already weak economy into a recession. Small investors can continue with their SIPs, but should sit on cash till a clear path to normalcy is visible.
FIIs were net sellers of equity on all five trading days of the week. Their total net selling was worth a huge Rs 113.69 Billion. DIIs were net buyers of equity on all five days. Their total net buying was worth a massive Rs 159.86 Billion, as per provisional figures - thanks to a big bulk deal on Adani Gas on Fri. Feb 28.
India's fiscal deficit for the Apr '19 to Jan '20 period touched Rs 9.86 Trillion, which was 128.5% of the revised deficit target of Rs 7.67 Trillion for FY 2019-20. Expenditure stood at Rs 22.68 Trillion (84.1%) while revenue receipts were Rs 12.82 Trillion.
India's GDP growth during Q3 (Oct-Dec '19) slipped to a nearly 7 year low of 4.7% on a YoY basis due to contraction in manufacturing output. However, on a QoQ basis, there was a slight improvement from Q2 (Jul-Sep '19) figure of 4.5%.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex clearly shows bear domination during the week. After breaking down below a 'diamond' pattern on Mon. Feb 24 (the possibility was mentioned in last week's post), downward momentum of the index intensified.
The 200 day EMA - that technically separates bull and bear markets - was easily breached. More worrisome for bulls is the 336 points downward 'gap' formed on Fri. Feb 28 (marked by light grey area on chart). Such a 'gap' occurring in the midst of a down move can be a 'measuring gap' - with a downward target of about 37100.
Any index pullback towards the 200 day EMA may partially or completely fill the downward 'gap'. The corrective down move can be expected to resume thereafter. (Remember that a 'gap' can sometimes remain unfilled for long periods.)
Daily technical indicators are in bearish zones and looking oversold. MACD is falling towards its oversold zone. RSI and Slow stochastic are inside their respective oversold zones. A technical bounce towards 39000 is a possibility.
Global stock markets are in risk-off mode due to concerns about effect of the rapidly spreading corona virus on economic growth. The virus appears to have been contained in China - though their data should be taken with a pinch of salt - but it is spreading in several other countries.
Small investors should not feel adventurous. Avoid averaging down or bottom fishing. Every index fall need not be a buying opportunity. Concentrating on capital protection at such times will let one live to fight another day.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty plummeted below a 'diamond' reversal pattern, and closed well below its 20 week and 50 week EMAs with a weekly loss of 7.3%. However, a bullish pattern of 'higher tops, higher bottoms' - formed during the past 18 months - is still intact.
The index continues to trade above its rising 200 week EMA in a long-term bull market. The rapidly spreading corona virus may take the wind out of bullish sails, as FIIs are falling over each other as they head for the exit doors.
Weekly technical indicators are looking bearish and showing downward momentum. MACD is falling sharply below its signal line in bullish zone. RSI and Slow stochastic have dropped below their respective 50% levels. The correction is not over yet.
Nifty's TTM P/E has moved down to 25.49, its lowest level for the month of Feb '20 but above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has dropped down from its oversold zone, hinting at a possible near-term index pullback.
Bottomline? After touching lifetime highs on Jan 20th, Sensex and Nifty charts have wiped out all gains made in the previous 4 months since Sep 20th (the day corporate tax cuts were announced). Widening fiscal deficit and weak GDP number have added fuel to the fire of bearishness in global stock markets. Investors should remain extremely cautious and protect their capital. Think about buying after the correction plays out.
FIIs have been heavy net sellers of equity on all three trading days this week. Their total net selling was worth Rs 68.13 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 48.67 Billion, as per provisional figures.
As per former Niti Aayog Vice Chairman Arvind Panagriya, India's economic slowdown has bottomed out. In FY '20-21, GDP growth is expected to be 6%, and get back to 7-8% thereafter.
The daily bar chart pattern of Sensex has broken out sharply below a 'diamond' pattern to breach the 200 day EMA and the psychological level of 40000. (Readers were warned of such a possibility in this post.)
The previous occasion when the index dropped sharply to breach the 200 day EMA (in green) was on budget day (Feb 1). A sharp technical bounce had followed. Can that pattern repeat?
Daily technical indicators are in bearish zones and showing downward momentum. Slow stochastic has fallen well inside its oversold zone, and can trigger a technical bounce.
Note that the merged 20 day and 50 day EMAs (in red and blue) are just below the 41000 level. The breakout point of the index from the 'diamond' pattern (which is like a head-and-shoulders pattern with a bent neckline) is also just below 41000.
That means 41000 is likely to provide strong resistance to any index pullback. A convincing move above 41000 is necessary for bulls to wrest back control. But chances of that happening soon seem unlikely.
On the downside, there is some support in the zone between 38500 and 39000. If the Sensex falls there and bounces up, the 200 day EMA can provide resistance. In the near-term, expect bears to remain in control.
Rapid spreading of the corona virus and its possible negative effect on supply chains is causing concern in global stock markets. Small investors should avoid bottom-fishing, as a deeper correction appears likely.
FIIs were net sellers of equity during the first four trading days of the week, but were net buyers on Fri. (Jan 10). Their total net selling was worth Rs 11.5 Billion. DIIs were net sellers of equity on Mon. and Fri., but were net buyers during the other three days. Their total net buying was worth Rs 12.0 Billion - as per provisional figures.
Nikkei India's Manufacturing PMI rose to 52.7 in Dec '19 from 51.2 in Nov '19. The Services PMI rose to 53.3 in Dec '19 from 52.7 in Nov '19. (A figure above 50 indicates expansion.) The Composite PMI (Manufacturing + Services) stood at 53.7 - its highest level in 5 months.
After contracting for three straight months, India's Index of Industrial Production (IIP) grew 1.8% in Nov '19 against 0.2% in Nov '18 on the back of an improving manufacturing sector. However, during Apr-Nov '19 period, IIP growth has averaged just 0.6% against 5% during Apr-Nov '18.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex fell sharply below the (blue) up trend line and its 20 day EMA on Mon. Jan 6, but found support from its 50 day EMA. After failing to cross above its 20 day EMA on Tue., the index dropped below its 50 day EMA intra-day on Wed. Jan 8, but managed to bounce up and close above it.
De-escalation of US-Iran tensions - due to the inadvertent shooting down of a Ukrainian passenger aircraft near Teheran - led to a gap-up opening above the 20 day EMA on Thu. Jan 9, followed by a pullback to the (blue) trend line on Fri. Jan 10.
Daily technical indicators are looking neutral to bullish. MACD is moving up towards its sliding signal line in bullish zone. ROC is showing negative divergence by dropping to its '0' line as the index rose on Fri. RSI is facing resistance from its 50% level. Slow stochastic has crossed above its 50% level.
Despite the improving PMI and IIP numbers, the GDP number is unlikely to improve a lot. India's economic growth is slipping below its neighbouring countries, and consumption growth is still weak.
The index is trading above its three EMAs in a bull market, but the breach of an up trend line should be treated with circumspection. A pullback to a breached up trend line is often used by bears to sell.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty dropped sharply below a large 'rising wedge' pattern within which it was trading for the previous 15 weeks, but formed a 'reversal' bar (lower low, higher close) and bounced up to close inside the 'wedge'. The index touched a new intra-week high of 12311.
The index is trading well above its rising weekly EMAs in a long-term bull market. However, formation of a bearish 'rising wedge' pattern at an index top should be a matter of concern for bulls, as bears may make another attempt at a downward breakout from the 'wedge'.
Weekly technical indicators are looking bullish and overbought. MACD is rising above its signal line and has entered its overbought zone. ROC is showing negative divergence as it is falling below its 10 week MA in bullish zone. RSI has risen sharply inside its overbought zone. Slow stochastic is moving sideways well inside its overbought zone.
Nifty's TTM P/E has moved up to 28.51, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has slipped down from its oversold zone, hinting at near-term index consolidation.
Bottomline? Sensex and Nifty charts are testing their lifetime highs after brief corrections. The stock market celebrated a de-escalation in US-Iran tensions - perhaps a bit too soon. Concentrate on capital preservation, instead of looking for new ideas near all-time index tops.
FIIs were net buyers of equity on Mon. and Wed. (Nov 9 and 11), but were net sellers on Tue. (Nov 10). Their total net buying was worth Rs 7.0 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 6.5 Billion, as per provisional figures.
India's electricity demand fell 4.3% to 94.6 Billion units in Nov '19 against 98.84 Billion units in Nov '18. It was the fourth straight month of power demand decline, as per CEA. Power demand had declined 13.2% YoY in Oct '19 - the steepest monthly decline in more than 12 years, reflecting a deepening growth slowdown.
ADB has slashed India's GDP growth forecast to 5.1% in FY 2019-20 from 6.5% that was forecast earlier. For FY 2020-21, GDP growth forecast has been cut to 6.5% from 7.2% on the back of risk aversion, credit crunch, slumping consumption and rural distress.
The daily bar chart pattern of Nifty has been correcting after touching a new high of 12158.80 on Nov 28 and penetrating the upper Bollinger Band. The correction has dropped the index below the middle band (20 day SMA, marked by green dotted line).
Note that the lower Bollinger Band is at 11819 and the rising 50 day EMA is at 11777. The zone between 11777 and 11819 should provide good support to the index on the downside.
Daily technical indicators are looking bearish to neutral. MACD is moving down below its falling signal line in bullish zone. RSI is exactly at its 50% level. Slow stochastic has dropped inside its oversold zone, and may have triggered today's pullback past 11900.
Nifty's TTM P/E has slipped down to 27.76, which remains well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside oversold zone, hinting at some near-term index upside.
The index may be forming a 'head and shoulders' reversal pattern with a 'neckline' at 11800. The left 'shoulder' and 'head' have formed already. A technical bounce towards 12000 followed by a fall towards 11800 will complete the right 'shoulder' formation.
The right 'shoulder' hasn't formed yet - and may not form at all. However, the possibility of formation of a known reversal pattern should be treated with respect and caution. In case the pattern does play out, Nifty can move down to test support from its 200 day EMA.
FIIs were net buyers of equity for the second month in a row during Nov '19. Their total net buying was worth Rs 129.2 Billion - their highest monthly net buying since Apr '19. DIIs were net sellers of equity during Nov '19. Their total net selling was worth Rs 79.7 Billion - their highest monthly net selling since Apr '19.
India's GDP grew 4.5% during Q2 (Sep '19) against 7% during Q2 (Sep '18) - its slowest growth rate in more than 6 years - due to degrowth in manufacturing and a drop in exports. GDP grew 4.8% in H1 (Sep '19) against 7.5% in H1 (Sep '18).
India's fiscal deficit during Apr-Oct '19 was Rs 7.2 Trillion, which is 102.4% of the budgeted target of Rs 7.03 Trillion for FY 2019-20. Net tax receipts during Apr-Oct '19 was Rs 6.83 Trillion while total expenditure was Rs 16.55 Trillion.
BSE Sensex index chart pattern
After an upward breakout above the 39450 level on Oct 29, the daily bar chart pattern of Sensex entered a period of sideways consolidation within a 'rectangle'. An expected upward breakout from the 'rectangle' occurred on Nov 25 '19.
The index then rose to touch new intra-day (41164) and closing (41130) highs on Thu. Nov 28. Profit booking on Fri. Nov 29 caused a pullback to the top of the 'rectangle'.
All three EMAs are rising, and the index is trading above them in a bull market. The pullback is providing an opportunity to add. However, some consolidation or correction may follow as all four technical indicators are showing negative divergences by failing to touch new highs with the index.
Daily technical indicators are not showing upward momentum. MACD has crossed below its signal line and has slipped down from its overbought zone. ROC has dropped to seek support from 10 day MA in neutral zone. RSI is moving sideways above its 50% level. Slow stochastic is moving sideways inside its overbought zone.
The index has been rallying for the past two months on the back of FII buying. The poor GDP growth number appears to have been 'discounted' by the stock market. Traders and investors are hoping for more reforms by the government to kick-start the economic growth engine.
However, such hopes may be belied. The current dispensation is still in denial about the extent of the economic slowdown, and does not seem to have a clear plan of action that can stimulate investments and consumption. The corporate tax cut may get used to clean up account books.
At or near an all-time index high, small investors should always remember Falstaff's statement to King Henry IV: Discretion is the better part of valour.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty broke out above the previous three weeks' consolidation range, and touched new intra-week (12159) and closing (12056) highs. The index gained about 140 points (1.2%) for the week, and closed well above its three rising EMAs in a long-term bull market.
Note that the index is yet to close above its previous (Jun 7) top of 12103, but that is a small hurdle that bulls should be able to jump over easily. That does not mean small investors should rush into the market now.
Weekly technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. ROC is sliding down inside its overbought zone. RSI has entered its overbought zone. Slow stochastic is moving sideways inside its overbought zone. Some index consolidation or correction is possible.
Nifty's TTM P/E touched the month's high of 28.32 on Thu. Nov 28, but moved down to 28.10 by Fri. Nov 29 - staying well above its long-term average inside overbought zone throughout the month. The breadth indicator NSE TRIN (not shown) oscillated in neutral zone throughout the month, even as the index rallied to touch a new high.
Bottomline? Sensex and Nifty charts touched lifetime highs, and are trading above their rising daily and weekly EMAs in long-term bull markets. Both indices can rise higher if FIIs continue their buying spree. Caution is advised due to the poor GDP and fiscal deficit numbers.
For the month of Oct '19, FIIs were net buyers of equity after five straight months of net selling. Their total net buying was worth Rs 85.9 Billion. DIIs were net buyers of equity for the sixth month in a row. Their total net buying was worth Rs 47.6 Billion.
Confluence of major festivals and big discounts failed to bring much cheer to auto makers during Oct '19. Maruti and Volkswagen showed marginal sales growth over Oct '18. Renault showed good gains. Hyundai and Toyota showed single-digit de-growth. The rest - cars, 2-wheelers, CVs - showed double-digit de-growth.
IHS Markit India's Manufacturing PMI slipped to a 2-year low of 50.6 in Oct '19 from 51.4 in Sep '19. (A number above 50 indicates expansion.) GST collection in Oct '19 was Rs 954 Billion, which was 3.8% higher than Sep '19 figure of Rs 919 Billion but 5.3% lower than Rs 1.01 Trillion collected in Oct '18.
As per CMIE, India's unemployment rate in Oct '19 climbed to 8.5% - the highest since Aug '16 - from 7.2% in Sep '19. A thriving economy has been brought to its knees by a poorly planned demonetisation and a hastily implemented GST.
BSE Sensex index chart pattern
Bulls came charging out of the gate after the Diwali break. The daily bar chart pattern of Sensex broke out convincingly above the (blue) down trend line on Tue. Oct 29, and rose to touch a new intra-day high of 40392 on Oct 31.
Bulls failed to press home their advantage despite strong equity buying by FIIs. By the end of the week, the index formed a small bearish 'rounding top' pattern that can trigger a correction.
Daily technical indicators are in overbought zones. MACD and RSI are showing upward momentum. ROC and Slow stochastic are showing slight downward momentum. ROC touched a lower top when the index touched a new high. Some near-term index consolidation or a pullback towards the down trend line is likely.
All three EMAs are rising, and the index is trading above them in a bull market. However, the index failed to close above its Jun 3 '19 life-time closing high of 40268 despite touching a new intra-day high of 40392. Bears may use the opportunity to launch an attack.
Profit booking can be expected when an index approaches a previous high. Investors remember what happened after the previous high was touched. Cautious optimism should be the key words here - not aggressive bullishness.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty closed convincingly above the (blue) down trend line on the back of strong FII buying. FIIs and DIIs had turned net sellers of equity a week ago, causing the index to pullback to the down trend line. Such pullbacks often provide buying opportunities.
However, the index is trading close to a lifetime high. It is a good idea to become fearful when everyone else is turning greedy. The weak macroeconomic indicators are suggesting that the market is running ahead of itself.
Weekly technical indicators are looking bullish and overbought. MACD and RSI are rising in their respective bullish zones. ROC and Slow stochastic are well inside their respective overbought zones. Some index consolidation or correction may be around the corner.
Nifty's TTM P/E has moved up to 27.47 - which is well above its long-term average inside overbought zone. The breadth indicator NSE TRIN (not shown) is treading water in neutral zone. Near-term index consolidation is a possibility.
Bottomline? Sensex and Nifty charts appear to have reversed 5 months long down trends. A cut in corporate taxes leading to better Q2 earnings has boosted bullish sentiments. Topline growth is tepid, and macroeconomic indicators remain weak. Stay invested. If you must buy, pick market-leading large-cap stocks.
In a holiday-shortened trading week, both FIIs and DIIs were net sellers of equity, putting paid to bullish hopes of new index highs by Diwali. FIIs were net sellers of equity on all four trading days. Their total net selling was worth Rs 12.8 Billion. DIIs were net sellers of equity Tue. through Thu. (Oct 22-24), but net buyers on Fri. Their total net selling was worth Rs 14.2 Billion, as per provisional figures.
Reforms in land management, enforcing contracts and providing adequate resources to district level courts could be the next big measures through which India can improve its 'Ease of Doing Business' rankings, as per World Bank president David Malpass.
A former European trade commissioner said India needs to remove trade barriers and improve road and port infrastructure if it wants to benefit from movement of supply chains from China. Corporate tax cut was a "smart move" but "insufficient" to attract investors.
BSE Sensex index chart pattern
The following comment had appeared in last week's post on the daily bar chart pattern of Sensex: "The breakout hasn't been a technically convincing one yet, because accompanying volumes (not shown) were not significantly higher during the trend line breach."
As FIIs and DIIs turned net sellers during the week, the index consolidated with a downward bias near the down trend line and closed just below the trend line by Fri. Oct 25.
Daily technical indicators are in bullish zones, but only RSI is showing upward momentum by rising towards its overbought zone. MACD is moving sideways above its rising signal line. ROC is oscillating at the edge of its overbought zone. Slow stochastic is poised to fall from its overbought zone. More near-term index consolidation or correction is likely.
All three EMAs are rising, and the index is trading above them in a bull market. However, bears have yet to release their grip on the market. So, be very selective if you opt to follow a 'buy the dip' strategy.
Partial setbacks for the NDA in the recently concluded state elections in Maharashtra and Haryana - where they failed to win overwhelming majorities they had expected - have turned investors a little cautious. The silver lining is that the government may be forced to pay greater attention to the faltering economy.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty had breached the (blue) down trend line on the back of FII buying a week ago. As FIIs and DIIs turned sellers, the index pulled back to the trend line - dashing any possibility of a new index high by Diwali.
Weekly technical indicators are looking neutral to bullish. MACD and RSI are at their respective neutral zones. ROC and Slow stochastic have risen to the edges of their respective overbought zones. Some near-term index consolidation or correction is likely.
Nifty's TTM P/E has slipped down to 26.70 - which remains well above its long-term average inside overbought zone. The breadth indicator NSE TRIN (not shown) has bounced up sharply from overbought zone. Some near-term index consolidation is possible.
Bottomline? Sensex and Nifty charts are consolidating after breaching 4 months old down trend lines. A cut in corporate taxes boosted bullish sentiments. Tepid Q2 results have poured cold water on buying enthusiasm. Stay invested. Avoid any bulk buying in 'cheap' stocks.
Except Jul 1, FIIs have been net sellers every single day during Jul '19. Their total net selling of equity during the month was worth Rs 198.70 Billion. Except Jul 1, DIIs have been net buyers every single day during Jul '19. Their total net buying of equity during the month was worth Rs 203.90 Billion, as per provisional figures.
The government's fiscal deficit during Apr-Jun '19 touched Rs 4.32 Trillion, which is 61.4% of the budget estimate of Rs 7.03 Trillion for FY 2019-20. During Apr-Jun '18, the fiscal deficit was 68.7% of the budget estimate. Revenue receipts during Apr-Jun '19 was 14.4% of the budget estimate against 15.5% during Apr-Jun '18.
The sad episode of the Cafe Coffee Day founder has been a blow to the coffee sector, and brought 'ease of doing business' - or the lack of it - to the fore. Entrepreneurs take huge risks to set up businesses, and provide jobs to many, but tax terrorism can push the honest ones over the edge. The dishonest flout every rule and get away with it.
The daily bar chart pattern of Nifty is teetering on the brink of a bear market. On Jul 8, 9 and 10 the index had breached the lower Bollinger Band. The subsequent technical bounce faced strong resistance from the middle Bollinger Band (i.e. 20 day SMA - dotted green line) on Jul 17.
Nifty dropped sharply to the lower Bollinger Band on Jul 19. Since then, the index has been sliding down along the lower Bollinger Band - breaching technical supports in quick succession on the back of selling by FIIs.
Two important technical points to note are: (1) a fall below the 200 day EMA (in blue) into bear territory on Jul 24-25, followed by a pullback on Jul 26; (2) a fall below the 200 day SMA (in red) and the previous (May 14) low of 11108 on Jul 30, followed by a pullback today.
Daily technical indicators are looking oversold. MACD is below its signal line and is falling inside its oversold zone. RSI is trying to emerge from its oversold zone. Slow stochastic is moving sideways well inside its oversold zone. Nifty may try to move up to the 11300-11400 zone. Expect bears to 'sell on rise'.
Nifty's TTM P/E has moved down to 27.42, but remains well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen high inside its oversold zone - hinting at some near-term index upside.
The breaches of the 200 day EMA and 200 day SMA are clear indications that Nifty is ready to fall into a bear market. The technical confirmation of a bear market will be provided by the 'death cross' of the 50 day EMA below the 200 day EMA.
Though the 50 day EMA is falling towards the 200 day EMA, it is still 260 points above the long-term moving average. That gives bulls a bit of wiggle room. But avoid bottom fishing. Use any near-term upside to book profits.
FIIs were heavy net sellers of equity during the week. Their total net selling was worth Rs 75.5 Billion. DIIs more than matched FII selling. Their total net buying was worth Rs 89.1 Billion, as per provisional figures.
India's rice exports are likely to fall to the lowest level in 7 years due to weak demand from African countries and absence of government incentives.
Despite the continuing slowdown in the real estate sector - thanks to various regulatory changes - the industry attracted investments of US $2.7 Billion during the first half of 2019.
BSE Sensex index chart pattern
The following comment appeared in last week's post on the daily bar chart pattern of Sensex: "A confluence of supports - from the lower edge of GAP2, the blue up trend line and the 200 day EMA - should protect Sensex downside in the near term."
The confluence of supports is marked by purple oval on the chart. Sensex breached the lower edge of GAP2 and the blue uptrend line, but found support from its 200 day EMA. The support may not last long.
A breach of the 200 day EMA will be quite bearish, and can drop the index to the support zone between 35900 and 37100.
Daily technical indicators are looking bearish. MACD is falling below its signal line in bearish zone. ROC is clinging on to its 10 day MA in bearish zone. RSI has emerged from its oversold zone. Slow stochastic is inside its oversold zone. Any technical bounce may face bear selling.
Bellwether large-cap stocks, like HDFC, HDFC Bank, Bajaj Finance, Kotak Bank, Maruti, M&M are tumbling under bear selling pressure. If FIIs keep selling, DIIs may not be able to prevent a deeper index fall.
Small investors should stay away from bottom fishing. The index has formed three bearish patterns near a market top, and breached an uptrend line. Those are clear warnings that a strong correction can follow.
NSE Nifty index chart pattern
The following comment appeared in last week's post on the daily bar chart pattern of Nifty: "Twin downside support can be expected from the blue up trend line and the 50 week EMA."
The index corrected below the uptrend line, bounced up after receiving support from its 50 week EMA, but closed below the trend line. A breach of a trend line - though not a convincing one on the chart - should be treated with caution.
A breach of the 50 week EMA will be quite bearish, and can drop Nifty to the support zone between 10700 and 11100. Any pullback towards the 'gap' is likely to face bear selling.
Weekly technical indicators are looking bearish. MACD has crossed below its signal line, and is falling in bullish zone. ROC faced resistance from its falling 10 week MA in neutral zone. RSI and Slow stochastic are falling below their respective 50% levels.
Nifty's TTM P/E has moved down to 27.73 - but remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has entered its oversold zone. Near-term index downside may be limited.
Bottomline? Sensex and Nifty charts are tantalisingly poised at important supports. Tax proposals in the budget and a visibly slowing economy have combined to dampen bullish sentiments. Q1 (Jun '19) results declared so far have failed to ignite 'animal spirits'. Bears are on the verge of taking control.
