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

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

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

BSE Sensex index chart pattern

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

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

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

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

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

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

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

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

NSE Nifty index chart pattern

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

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

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

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

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

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

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

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

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

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

BSE Sensex index chart pattern

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

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

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

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

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

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

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

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

NSE Nifty index chart pattern

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

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

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

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

Sensex, Nifty charts (Jul 24, 2020): relying too much on Reliance?

FIIs turned bulls, and were net buyers of equity on all five trading days. Their total net buying was worth Rs 77.92 Billion. DIIs were net sellers on all five trading days, but couldn't keep pace with FII buying. Their total net selling was worth Rs 53.23 Billion. 

Sensex gained almost 3% while Nifty gained nearly 2.7% on the back of strong buying by FIIs, who seem to have taken a particular fancy for RIL despite poor Q4 performance. A slew of international investment announcements into Jio platforms has made the company 'net debt free'. 

A basket of penny stocks valued under Rs 5 - typically targeted by small retail investors - has outperformed the Sensex by a country mile. That is always a worrying sign for bulls.

BSE Sensex index chart pattern

The following comment was made in last week's post on the daily bar chart pattern of Sensex: "On the upside, resistance can be expected from a 640 points downward 'gap' formed on Mar 6th."

The index closed higher on Mon. Jul 20th, but formed a small 'doji' pattern that hinted at indecision among bulls and bears. An upward 'gap' opening on Tue. Jul 21 belied bearish hopes. The index entered and closed inside the 640 points downward 'gap' formed on Mar 6th.

For the next three days, Sensex consolidated sideways and closed within the 'gap' - nearly filling it, but failed to overcome last-ditch resistance put up by bears. 

Daily technical indicators are in bullish zones. MACD is moving sideways after merging with its signal line. ROC is also moving sideways after merging with its 10 day MA. RSI is seeking support from the edge of its overbought zone. Slow stochastic is moving sideways inside overbought zone.

The up trend line - drawn through Mar '20 and May '20 lows - remains intact. A 'golden cross' of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market. That seems a formality, now that FIIs have turned bulls.

If you have been waiting for a proper correction to enter, you may need to wait a little longer. If you were fortunate to enter the ongoing rally at lower levels, stay invested but maintain a trailing stop-loss to protect profits.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs for the third week in a row, and above the 11000 level for the first time since Mar 5 '20. Note the following comment from last week's post:

"On the upside, the 'support-resistance' zone between 11000-11250 can provide bullied bears a last opportunity to put up some resistance." The index tested the 11250 level during the week, and closed below 11200 inside the 'support-resistance' zone.

The 20 week EMA has crossed above the 200 week EMA after forming a bullish 'rounding bottom' pattern. The 50 week EMA is in the process of forming a 'rounding bottom' pattern.

Weekly technical indicators are looking bullish. MACD is rising above its signal line and is poised to enter bullish zone. RSI is gradually rising above its 50% level. Slow stochastic is moving sideways well inside its overbought zone. 

Nifty's TTM P/E has moved up to 29.35, a lifetime high and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) has started rising in neutral zone, and can trigger some more consolidation or correction.
 
Bottomline? Ongoing rallies on Sensex and Nifty charts have stalled at resistance zones after re-entering bull territories. The rallies appear overly dependent on a single stock - RIL. It's a little late to jump into the bull bandwagon. Stay on the sidelines, but maintain trailing stop-losses to protect profits.

Sensex, Nifty charts (Jul 17, 2020): bears getting bullied by Reliance bulls

FIIs were net buyers of equity on Mon. and Fri. (Jul 13 and 17), but were net sellers on the other three days. Their total net selling was worth Rs 19.59 Billion. DIIs were net buyers on Thu. Jul 16, but were net sellers on the rest four days. Their total net selling was worth Rs 15.84 Billion. 

Sensex and Nifty each gained about 1.2% for the week. Like in the previous week, the indices gained while FIIs and DIIs were both net sellers. Small investors who may have entered the market recently should learn the concept of a stop-loss - otherwise their 'paper' profits can vanish in a hurry.

India's usual trade deficit turned into a surplus in Jun '20 for the first time since Jan '02. Exports contracted 12.4% to US $21.9 Billion; imports contracted 47.6% to $21.1 Billion - leaving a surplus of about $800 Million. The sharp drop in imports indicates a slump in domestic demand.

BSE Sensex index chart pattern

For the second week in a row, the daily bar chart pattern of Sensex spent the entire trading week above its three daily EMAs in bull territory. On Tue. Jul 14, the index broke out below the 'rising wedge' pattern, only to pullback along the lower trend line of the 'wedge' during the rest of the week.

Note that the larger up trend line - drawn through the Mar '20 and May '20 lows remains intact. Only a downward breach of this trend line can bring bears back into the game. On the upside, resistance can be expected from a 640 points downward 'gap' formed on Mar 6th.

Daily technical indicators are in bullish zones. MACD is moving sideways after merging with its signal line. ROC is trying to cross above its 10 day MA. RSI has re-entered its overbought zone. Slow stochastic is about to follow suit.

All four indicators are showing negative divergences by failing to rise higher with the index, which closed at its highest level in 4 months. The index has rallied almost 11500 points (45%) from its Mar 24th low, even as the country is being ravaged by a pandemic. 

The disconnect between a bullish market that has gained mainly on the back of a single stock (RIL), and the grim reality of an economy falling into a recession is staggering. It will take a long time for the economy to recover and corporate earnings to get back on track.   


NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs for the second straight week, and above the 10900 level for the first time in 4 months. Two gaps got filled in the process - the downward 'gap' of week ending Mar 13th, and the upward 'gap' formed last week.

The 20 week EMA has formed a bullish 'rounding bottom' pattern and is poised to cross above the 200 week EMA. On the upside, the 'support-resistance' zone between 11000-11250 can provide bullied bears a last opportunity to put up some resistance.

Weekly technical indicators are looking bullish. MACD continues to rise above its signal line in bearish zone. The signal line has formed a bullish 'rounding bottom' pattern. RSI is slowly rising above its 50% level. Slow stochastic is moving sideways well inside its overbought zone. 

Nifty's TTM P/E has moved up to 28.55, its highest level for the month and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) is hovering in neutral zone, and may limit near-term index upside.
 
Bottomline? Ongoing rallies on Sensex and Nifty charts have overcome important resistance levels and re-entered bull territories. There are clear signs of 'distribution' from strong to weaker hands. Caution is advised.

Sensex, Nifty charts (Jul 03, 2020): bulls on the verge of regaining control

For the second straight month, FIIs and DIIs were both net buyers of equity, which explains the strong rallies on Sensex and Nifty charts. However, the net buying reduced considerably - to Rs 54.93 Billion (Jun '20) from Rs 139.14 Billion (May '20) for FIIs; and Rs 24.34 Billion (Jun '20) from Rs 122.93 Billion (May '20) for DIIs. 

India's Manufacturing PMI rose sharply to 47.2 in Jun '20 from 30.8 in May '20. Services PMI improved to 33.7 in Jun '20 from 12.6 in May '20. The Composite (Mfg. + Serv.) PMI rose to 37.8 in Jun '20 from 14.8 in May '20. All the numbers were below 50 - indicating contraction.

Automobile sales were disappointing in Jun '20 on a YoY basis. Maruti, Hyundai, Toyota, M&M showed 50-60% sales decline. Two-wheeler sales declined 25-35%. CV segment remained under extreme stress. Only tractor sales showed growth.

BSE Sensex index chart pattern

The bulls are gradually regaining control of the daily bar chart pattern of Sensex. After completely filling the downward 'gap' formed on Mar 12th, the index has moved above its 200 day EMA and the 61.8% Fibonacci retracement level of 35920 into bull territory.

Bears are on the back foot - thanks to net buying by FIIs and DIIs. But they haven't thrown in the towel yet. Why? Because the index has formed a bearish 'rising wedge' pattern during the past four weeks. The likely breakout from such a pattern is downwards.

Daily technical indicators are in bullish zones, but starting to look overbought. MACD is moving sideways in bullish zone along with its merged signal line. ROC has dropped to seek support from its 10 day MA. RSI and Slow stochastic are rising inside their respective overbought zones.

All four indicators are showing negative divergences by failing to rise higher with the index. Remember that a flood of short-term liquidity can overcome technical headwinds. However, the index has already gained more than 40% from its Mar 24th low. It may be better to err on the side of caution.

A global economic recession is looming ahead. India will not be spared. Periodic announcements - like several investments in Jio and launching of virus vaccines by different companies - have stoked bullish sentiment. That may not be able to sustain the rally much further.

Timely profit booking is a discipline that should be followed by small investors. You only make money when you sell at a profit.

NSE Nifty index chart pattern

For the third week in a row, the weekly bar chart pattern of Nifty closed above its 200 week EMA in long-term bull territory, gaining almost 225 points (2.2%) on a weekly closing basis.

The breach of the 200 week EMA is a bullish sign. The index has closed above an important resistance level - the 61.8% Fibonacci retracement level of 10550. However, the zone (10610-10750) between the 50 week EMA and the 76 points downward 'gap' formed in the week ending on May 13th may provide stronger resistance.

Weekly technical indicators are looking bullish. MACD continues to rise above its signal line inside oversold zone. The signal line has formed a bullish 'rounding bottom' pattern. RSI has moved above its 50% level. Slow stochastic is well inside its overbought zone. Caution is advised as the upside risk is increasing. 

Nifty's TTM P/E has moved up to 27.78, which is well inside its overbought zone. The breadth indicator NSE TRIN (not shown) is falling towards its overbought zone. Near-term index upside may be limited.
 
Bottomline? Ongoing rallies on Sensex and Nifty charts are gradually overcoming important resistance levels. Short-term liquidity flows have given bulls the upper hand. Bears are not out of the game. Be prepared for corrective moves at any time.

Sensex, Nifty charts (Jun 26, 2020): 3 months long rallies losing momentum?

FIIs were net sellers of equity on Thu. and Fri. (Jun 25 and 26) but were net buyers during the first three trading days. Their total net buying was worth Rs 5.56 Billion. DIIs were net buyers of equity on Tue. and Fri. (Jun 23 and 26), but were net sellers during the three other days. Their total net selling was worth Rs 13.1 Billion, as per provisional figures.

According to a report by S&P Global Ratings, India's economy is in deep trouble. Inability to contain the Covid 19 virus, an anaemic policy response, underlying vulnerabilities, particularly in the financial sector can lead to a contraction in GDP growth by 5% during FY 2020-21.  

Despite some of the worst macroeconomic fundamentals in recent memory, millions of new investors with no previous trading history have been piling into Asian stock markets. It is time to remain circumspect.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex consolidated sideways with a slight upward bias, spending four of the five trading sessions inside the downward 'gap' that had formed back in Mar 12th.

On Tue. Jun 23, the index closed above the 'gap' for the first time in more than 3.5 months. Partial or complete filling of a downward 'gap' is usually followed by a resumption of the down trend.

On Wed. Jun 24, the index rose higher to test resistance from the sliding 200 day EMA but dropped back inside the 'gap' - forming a reversal day bar (higher high, lower close) that often marks an intermediate top.

Daily technical indicators are in bullish zones, but not showing much upward momentum. MACD is moving sideways in bullish zone along with its merged signal line. ROC is moving sideways above its 10 day MA. RSI is moving down towards its 50% level. Slow stochastic has slipped down from its overbought zone. 

The present government has proved quite incapable of either managing the economy or the rapid spread of the Covid 19 virus. Now the China threat along India's border is being mismanaged by resorting to obfuscation and jingoism.

A flush of liquidity helped in boosting three months long rallies in global stock markets. A handful of stocks have led the rally in India, with RIL doing most of the heavy lifting. Any breach of the up trend line from the Mar 24th low can trigger a sharp correction.

NSE Nifty index chart pattern

For the second week in a row, the weekly bar chart pattern of Nifty closed above its 200 week EMA in long-term bull territory, gaining about 138 points (1.35%) on a weekly closing basis.

The breach of the 200 week EMA is a bullish sign. However, there are three overhead resistance levels - the 61.8% Fibonacci retracement level of 10550, the 50 week EMA (at 10610) and the 76 points downward 'gap' formed in the week ending on May 13th. The zone between 10550-10750 may provide strong resistance.

Weekly technical indicators are looking bullish. MACD continues to rise above its signal line inside oversold zone. The signal line has formed a bullish 'rounding bottom' pattern. RSI has just moved above its 50% level. Slow stochastic has entered its overbought zone. Near-term index upside seems limited. 

Nifty's TTM P/E has moved up to 26.67, its highest level for the month and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped sharply from its oversold zone. Some near-term index consolidation or correction is possible.
 
Bottomline? Bear market rallies on Sensex and Nifty charts are close to important resistance levels. Short-term liquidity flows may have given the impression that all is well with the economy and the stock market. Both indices look ripe for corrective moves.

Sensex, Nifty charts (Jun 19, 2020): facing resistances after sharp rallies

FIIs were net buyers of equity on Thu. and Fri. (Jun 18 and 19) but were net sellers during the first three trading days. Their total net selling was worth Rs 33.2 Billion. DIIs were net sellers of equity on Fri. (Jun 19), but were net buyers during the first four days. Their total net buying was worth Rs 26.6 Billion, as per provisional figures.

After failing to protect India from Chinese incursion in Ladakh, the government has resorted to its overused jingoistic playbook. PSUs and private companies are being asked to ban or cancel orders for Chinese products and services. 

Since China's exports to India comprise only about 2% of its total exports, the jingoism is obviously targetted at the domestic audience. Many Indian companies - particularly in pharma and power sectors - are dependent on Chinese goods and services. Their competitiveness will suffer.

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 may make another attempt to test resistance from the 'gap' zone. Bulls would do well to curb their enthusiasm."

The index consolidated sideways during the first three trading days, only to jump up on Thu. Jun 18 on the back of combined buying by FIIs and DIIs. Friday's foray inside the 'gap' zone was thanks mainly to Reliance touching a new high on news about fresh foreign investments.

Daily technical indicators are looking bullish. MACD is moving sideways in bullish zone after merging with its signal line. ROC is below its 10 day MA in neutral zone. RSI is moving sideways below its overbought zone. Slow stochastic is moving up towards its overbought zone. 

Note that Sensex closed at its highest level since formation of the downward 'gap' on Mar 12th. However, all four technical indicators failed to touch new highs. The negative divergences - and overhead resistance from the sliding 200 day EMA - can bring the up trend from the Mar 24th low to an end.

China continues to occupy and threaten India's border areas. Pakistan and Nepal are adding to the confusion. Covid 19 virus is spreading fast and not showing any signs of getting controlled. MSMEs are facing severe financial problems. Q1 (Jun '20) corporate results are expected to be a disaster.

RIL, HDFC twins and a handful of other large-cap stocks are boosting the Sensex and luring late-comers into the market. Time to be very circumspect. Protecting capital should be the main goal for small investors.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rallied to close just above its 200 week EMA, gaining about 270 points (2.7%) on a weekly closing basis. The index had closed below its 200 week EMA for the previous 14 weeks.   

Though the breach of the 200 week EMA is a bullish sign, it hasn't been a convincing breach as yet. In case of further upside, the zone between 10500-10600 may provide resistance.

Weekly technical indicators are looking bullish. MACD is rising above its signal line inside oversold zone. RSI has moved up to its neutral zone. Slow stochastic has risen to the edge of its overbought zone. Some near-term index upside is likely. 

Nifty's TTM P/E has moved up to 25.49, its highest level for the month and well above its long-term average inside overbought zone. The breadth indicator NSE TRIN (not shown) has risen sharply inside its oversold zone. Some more near-term index upside is possible.
 
Bottomline? Bear market rallies on Sensex and Nifty charts are nearing resistance levels. Short-term liquidity flows can give the impression that things are back to normal. An already weak economy has been devastated by the pandemic. The market has already gained 35% from its recent low. Further upside may be limited.