FIIs eased up on their huge selling spree. They were net sellers of equity on the first four trading days, but were net buyers on Fri. Mar 27. Their total net selling was worth Rs 71.65 Billion. DIIs were net sellers of equity on Thu. Mar 26, but were net buyers on the other four days. Their total net buying was worth Rs 43.08 Billion, as per provisional figures.
RBI resorted to out-of-turn interest rate cuts in a desperate bid to stop the economy from sliding further. The Repo rate was cut by 75 bps (0.75%) to 4.4%, which is lower than its previous low of 4.74% in Apr '09.
The Reverse Repo was cut by 90 bps (0.9%) to 4%. The CRR was cut by 100 bps (1%) to 3%, which is likely to inject Rs 1.4 Trillion into the banking system. The move is expected to encourage banks to lend more.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex dropped to touch a new 3 year low of 25639 on Tue. Mar 24 before embarking on a sharp and swift short-covering rally. The index touched an intra-day high of 31126 on Fri. Mar 27, but formed a 'reversal day' bar (higher high, lower close).
Sensex is correcting the 11 year gain of some 34000 odd points from the Mar '09 low to the Jan '20 top. A 50% Fibonacci retracement is expected to drop the index to about 25100. Tuesday's low came within 500 points of this critical level.
Daily technical indicators are in various stages of correcting oversold conditions. MACD turned up inside its oversold zone, but is facing resistance from its falling signal line. RSI has emerged from its oversold zone, but its upward momentum has stalled. Slow stochastic has risen sharply towards its overbought zone, hinting at an end to the short-covering rally.
Sensex corrected 16600 odd points from its Jan 20th top to its Mar 24th low. A 38.2% Fibonacci retracement of the fall can take the index to about 32000. The falling 20 day EMA is at 32200. The zone between 32000-32200 will be a tough resistance to cross for the index.
Small investors with no experience of the 2008 bear market would do well to refrain from chasing the rally. Sensex may fall further before a recovery in the stock market and the economy can happen. It will be a slow grind upward taking several months - may be even a year or two.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty bounced up sharply after touching a new 3 year low of 7511, but closed well below its 200 week EMA for the third straight week. The 20 week EMA crossed below its 50 week EMA for the first time in 3 years, and both weekly EMAs are falling. The 200 week EMA is beginning to turn down.
The long-term bullish structure of the chart has been wrecked by bears. FIIs have pulled out more than Rs 580 Billion from their equity holdings during the month, and are expected to continue with their exit strategy.
Weekly technical indicators are looking bearish and oversold. MACD is falling inside its oversold zone. RSI is also falling inside its oversold zone. Slow stochastic has bounced up a bit from the edge of its oversold zone. Last week's short-covering rally should end soon.
After touching a low of 17.15 on Mon. Mar 23, Nifty's TTM P/E moved up to 19.52, which remains above its long-term average. The breadth indicator NSE TRIN (not shown) dropped sharply into its neutral zone, where it has been treading water. Any further rally may be short-lived.
Bottomline? Sensex and Nifty charts have closed well below their respective 200 week EMAs for the third straight week - signalling the start of long-term bear markets. RBI's desperate interest rate cuts are too little too late to trigger economic growth that has been decimated by the virus lock-down. Small investors should continue with their SIPs, while waiting patiently for the correction to play out.
FIIs were net sellers of equity on all five trading days. Their total net selling was worth a whopping Rs 209.09 Billion. DIIs were net buyers of equity on all five days. Their total net buying was worth Rs 164.72 Billion, as per provisional figures.
India's WPI-based inflation softened to 2.26% in Feb '20 from 3.1% in Jan '20 and 2.93% in Feb '19 - thanks to cheaper food and vegetables prices.
On Friday, Mar 20, SEBI announced a few steps to ease market volatility by limiting short positions in F&O segment, increasing margins on non-F&O stocks and revising marketwide positions limits for stock derivative contracts. (These measures will come into effect from Mon. Mar 23.)
BSE Sensex index chart pattern
Note the following comment from last week's post on the daily bar chart pattern of Sensex:
"Since 'panic bottoms' seldom hold, expect Friday's intra-day low of 29389 will be tested and breached."
It came as no surprise that the index closed well below 29389 on Wed. Mar 18, and dropped further to touch a new low of 26714 on Thu. Mar 19.
Friday's sharp rally on short-covering and some value buying was typical of bear market rallies, and should be treated as a 'dead-cat bounce'. That means, if the index tries to rally higher, expect bears to 'sell on rise'.
Sensex appears to be correcting the 11 year gain of some 34000 odd points from the Mar '09 low to the Jan '20 top. A 50% Fibonacci retracement will drop the index to about 25100. Thursday's low came within 1600 points of this critical level.
Daily technical indicators are looking bearish and oversold. MACD is falling deeper inside its oversold zone. RSI is trying to emerge from its oversold zone. Slow stochastic is oscillating about the edge of its oversold zone. Remember that a stock market can remain oversold for long periods during a bear phase.
The Corona virus may have been contained in China, but is spreading rapidly in Europe, USA, Australia. India will not escape its tentacles easily - whether you clap your hands on Sunday or not.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty touched a new 3 year low of 7833, and closed well below its 200 week EMA for the second straight week. The 20 week EMA has crossed below its 50 week EMA for the first time in 3 years, and both weekly EMAs are falling towards the 200 week EMA.
The long-term bullish structure of the chart has been dismantled by bears. FIIs have pulled out more than Rs 510 Billion from their equity holdings during the past three weeks, and may continue with their exit strategy.
Note that the past two weeks' steep correction, which has been blamed on the Corona virus by experts, was preceded by three weeks of correction that had dropped Nifty close to its 200 week EMA. The virus only exacerbated the already bearish mood.
Weekly technical indicators are looking bearish and oversold. MACD is falling inside its oversold zone. RSI is also falling inside its oversold zone. Slow stochastic has bounced up a bit from the edge of its oversold zone. Friday's short-covering bounce may not last long before bears resume their selling.
Nifty's TTM P/E has moved down further to 19.72, but remains above its long-term average. The breadth indicator NSE TRIN (not shown) has slipped down from its oversold zone, hinting at some near-term index pullback or consolidation.
Bottomline? Sensex and Nifty charts have closed well below their respective 200 week EMAs for the second straight week - signalling the end of long-term bull markets. A rapidly spreading corona virus has compounded bearish sentiment about weak economic growth and fiasco in the financial sector. Small investors should stay on the sidelines and curb any urge for bottom-fishing.
The Festival of Colours failed to enthuse FIIs, who were net sellers of equity on all four trading days of a holiday-shortened week. Their total net selling was worth a massive Rs 196.14 Billion. DIIs were net buyers of equity on all four days. Their total net buying was worth Rs 175.96 Billion, as per provisional figures.
India's Current Account Deficit (CAD) declined to 0.2% of GDP during Oct-Dec '19 from 0.9% during Jul-Sep '19 and 2.7% during Oct-Dec '18. The contraction in CAD was due to lower trade deficit and higher services receipts.
CPI-based inflation eased to 6.58% in Feb '20 from 7.59% in Jan '20. It was the first decline in 7 months, thanks to lower food prices.
BSE Sensex index chart pattern
The following comments from last week's post on the daily bar chart pattern of Sensex are worth noting:
"The impending 'death cross' of the 50 day EMA (blue) below the 200 day EMA will technically confirm a bear market."
"If Sensex breaches 36000, it can fall to its 200 week EMA (currently at 34800)."
The 36000 level, which had acted as a support during Aug-Sep '19, was easily breached on Mon. Mar 9. As often happens, the breached support level turned into a resistance level during a pullback on the next trading day (Mar 11).
Sensex formed a downward gap of 790 odd points on Thu. Mar 12, as bears pressed home their advantage. Panic selling on Fri. Mar 13 caused a circuit breaker and a 45 min. trading halt. On reopening of trade, huge short covering led to a sharp technical bounce that partly filled Thursday's 'gap'.
A partly or completely filled downward 'gap' is usually followed by a resumption of the down move. Note that the current level of the 200 week EMA (not shown) is 34450, which is just above Thursday's downward 'gap'. The zone between 34450-36000 should act as a strong resistance.
Friday's panic selling that dropped the index below 30000 - its lowest level in 3 years - may be a sign of capitulation by bulls that marks the end of a bull market. The 'death cross' of the 50 day EMA below the 200 day EMA - marked by grey oval - has technically confirmed a bear market. Thursday's closing level of 32778 was a 22.5% fall from Jan 20th top of 42274. A fall of 20% from the top is another technical sign of a bear market.
Can Friday's sharp fall below 30000, and the subsequent sharp recovery, be termed as a 'selling exhaustion'? The short answer is: No. A 'selling exhaustion' is a sign of capitulation by bears that typically happens after a prolonged downward move. Also, trading volumes should be significantly higher - which was not the case on Friday (Mar 13).
Daily technical indicators are in bearish zones and looking oversold. MACD is falling deeper inside its oversold zone. RSI is trying to emerge from its oversold zone. Slow stochastic has emerged from its oversold zone after re-entering it.
Since 'panic bottoms' seldom hold, expect Friday's intra-day low of 29389 will be tested and breached. Any continuation of Friday's short-covering pullback can be used to exit non-performing stocks in portfolios.
NSE Nifty index chart pattern
What a difference a week makes! The weekly bar chart pattern of Nifty formed a 76 points downward 'gap', crashed through its 200 week EMA and plummeted below 8600 - its lowest level in 3 years.
A circuit breaker and trading halt of 45 mins on Fri. Mar 13 led to a sharp short-covering pullback that stopped short of the support level of 10000. The support level should now become a resistance level. A bullish pattern of 'higher tops, higher bottoms' - formed during the past 18 months - has been negated.
The index fall below the 200 week EMA with a downward 'gap' is a sign that the long-term bull market has come to an end. The rapidly spreading corona virus has spooked global stock markets and FIIs, who have pulled out more than Rs 300 Billion during the past two weeks.
Weekly technical indicators are looking bearish and oversold. MACD is falling sharply in bearish zone. RSI and Slow stochastic have entered their respective oversold zones. Friday's short-covering bounce may last a bit longer before bears resume their selling.
Nifty's TTM P/E has moved down to 22.66, but still remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone. Some more near-term index pullback or some consolidation is possible.
Bottomline? Sensex and Nifty charts have closed well below their respective 200 week EMAs - signalling the end of long-term bull markets. A rapidly spreading corona virus has exacerbated uncertainty and concerns about weak economic growth and fiasco in the financial sector. Small investors should stay on the sidelines and use pullback rallies to move out of non-performing stocks.
FIIs were net buyers of equity on Tue., Wed. and Fri. (Feb 4, 5 and 7) but net sellers on Mon. and Thu. (Feb 3 and 6). Their total net selling was worth Rs 9.8 Billion. DIIs were net buyers of equity during the first four trading days, but net sellers on Fri. Their total net buying was worth Rs 22.8 Billion, as per provisional figures.
India's Manufacturing PMI rose to 55.3 in Jan '20 from 52.7 in Dec '19. Services PMI also climbed to 55.5 in Jan '20 from 53.3 in Dec '19. (A figure above 50 indicates expansion.) The Composite PMI (Manufacturing + Services) rose to 56.3 in Jan '20 from 53.7 in Dec '19. This is good news for job seekers, as most of the demand came from the domestic market.
RBI maintained its accommodative stance while maintaining status quo on interest rates (repo and reverse repo). CRR was relaxed for a few specific sectors to boost growth.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex had dropped to seek support from its 200 day EMA on Feb 1 after the budget disappointed the stock market. An oversold Stochastic oscillator had hinted at a technical bounce.
Short covering turned the expected technical bounce into a sharp rally that propelled the index above its 20 day and 50 day EMAs before Friday's pullback. The index is back above its three EMAs in a bull market.
Daily technical indicators are not looking all that bullish. MACD is facing resistance from its signal line in bearish zone. RSI is seeking support from its 50% level. (Since Nov '19, MACD and RSI have been showing negative divergences by forming bearish patterns of 'lower tops, lower bottoms'.)
Slow stochastic has risen sharply to enter its overbought zone, and may not stay there for long. Some more correction or consolidation is possible. A breach of the Feb 3 low of 39563 - should it occur - will be quite bearish.
Small investors should remain cautious and ignore calls by experts to focus on mid-cap and small-cap stocks. Focus on the best performing large-cap stocks even though they may appear expensive.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty bounced up strongly after receiving good support from its 50 week EMA due to a short-covering rally. A bullish pattern of 'higher tops, higher bottoms' formed during the past 18 months remains intact.
The index closed above the psychological level of 12000, and is trading above its three weekly EMAs in a long-term bull market. However, caution is advised as a weak economy and the rapidly spreading corona virus may exert downward pressure on stock indices.
Weekly technical indicators are looking neutral to bearish. MACD has dropped from its overbought zone and crossed below its signal line. RSI has moved above its 50% level after falling below it last week. Slow stochastic dropped from its overbought zone after forming a 'double top' reversal pattern, and has fallen below its 50% level.
Nifty's TTM P/E moved up to 27.03, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has dropped from its oversold zone. Some more near-term index consolidation or correction is likely.
Bottomline? After touching lifetime highs in Jan '20, Sensex and Nifty charts have been in corrective modes. With hardly any positive triggers left for the stock market in the near-term, the indices may fall lower. A recent RBI Consumer Confidence survey findings temper any optimism about a growth turnaround. Investors should increase liquidity by booking profits wherever available.
FIIs were huge net buyers of equity on Mon. Sep 23, but were net sellers on the next two trading days this week. Their total net buying was worth Rs 15.1 Billion. DIIs were net sellers of equity on Wed. Sep 25, but were net buyers on the first two trading days. Their total net buying was worth only Rs 22.8 Million, as per provisional figures.
The government is expecting a Rs 400 Billion shortfall in GST collections during FY 2019-20 due to the economic slowdown. That could put pressure on the compensation that state governments are liable to receive in case tax growth falls below 14% for the year.
India's apparel exports have revived by 4% YoY during the Apr-Jul '19 period after two consecutive years of de-growth of 3-4% per year. However, ICRA has reported a likely slowdown in growth during the rest of FY 2019-20.
The daily bar chart pattern of Nifty shows how the Finance Minister's fourth 'booster' dose - a cut in corporate taxes announced on Fri. Sep 20 morning - has turned around the bearish sentiment prevailing in the market.
A short-covering frenzy erupted, and the index soared like a rocket past its 200 day EMA and the upper Bollinger Band. Nifty gained more than 550 points (5.3%) in one day.
There was more fun and games on Mon. Sep 23. Huge FII buying propelled the index higher with an upward 'gap' of 90 points. Nifty tested the 11700 level intra-day and closed with a gain of more than 300 points.
Sanity prevailed on Tue. Sep 24. The index formed an indecisive 'doji' and closed just 12 points lower but still traded above the upper Bollinger Band.
Both FIIs and DIIs were in profit booking mode today (Wed. Sep 25). Nifty fell sharply below the upper Bollinger Band and partly filled the 90 points upward 'gap' formed on Mon. Sep 23.
Daily technical indicators are in bullish zones. MACD is rising above its signal line. RSI has made a U-turn before it could reach its overbought zone. Slow stochastic is inside its overbought zone, but has turned down. Some more correction or consolidation is possible.
Nifty's TTM P/E has slipped down to 25.92, but remains inside its overbought zone and higher than its long-term average. The breadth indicator NSE TRIN (not shown) is hovering near the edge of its oversold zone, hinting at some near-term index consolidation.
The post-budget downward 'gap' of 26 points can provide resistance on the upside, in case bulls get adventurous again. The corporate tax cut has come as a sentiment booster to the stock market, but is unlikely to stimulate consumer demand in the near term.
A silver lining is that the festive season is almost upon us. Urban consumers may be able to open their purse strings - thanks to their Diwali bonuses. It is doubtful that rural consumers will be able to do likewise.
Small investors should avoid falling into the trap of 'buy' calls and big upside targets being suggested by experts on TV and pink sheets. An index barely 5-6% below its lifetime high is not providing a 'great buying opportunity'.
Stay invested, continue with your SIPs, get rid of non-performers in your portfolios, and be very selective in what you buy.
FIIs were net sellers of equity during the first four trading days of the week, but were net buyers on Fri. (Sep. 20). Their total net selling was worth Rs 33.7 Billion. DIIs were net buyers of equity on all five days of the week. Their total net buying was worth Rs 48.2 Billion, as per provisional figures.
After three disappointing 'booster' packages, the Finance Minister hit the ball out of the park by announcing a significant cut in corporate taxes on Fri. Sep 20. Sensex and Nifty soared - trapping unwary short sellers - and business leaders sang 'Hallelujah'.
The GST council announced reduction in rates for hotels, outdoor caterers, precious/semi-precious stones but hiked rates for caffeinated drinks and railway wagons. No major relief was provided to auto and cement sectors.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex fell steadily on the back of sustained FII selling, and dropped to test support from the lower edge of the 'support zone' (between 35900 and 37100) on Thu. Sep 19.
There was a sea change in market sentiment after the FM announced corporate tax rate cut on Fri. Sep 20. The index did a sharp U-turn as traders rushed to cover their shorts. Sensex closed above its three EMAs in bull territory for the first time in nearly three months.
Daily technical indicators are turning bullish. MACD has crossed above its rising signal line in bearish zone. ROC has risen sharply to the edge of its overbought zone. RSI has moved above its 50% level. Slow stochastic has emerged from its oversold zone. Some more near-term upside is possible.
Small investors should avoid getting caught in the sudden euphoria. The devil is in the details. How many companies actually pay more than 25% tax? If they do, will they be willing to forego existing tax incentives? Will tax benefits be passed on to consumers, or used to pare debt? Will rural consumers rush out to buy two-wheelers, tractors and cars? Will MSMEs start opening new factories just because tax has been reduced by 3.5%?
Only time will provide answers to those questions. In the meantime, follow your asset allocation plan, continue SIPs, use the sentiment boost to get rid of non-performing stocks/funds and stay invested in good companies/funds for the long-term. That is the best way to build wealth - whether Sensex is falling or suddenly jumping northwards.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty breached the lower edge of the 'support zone' (between 10700 and 11100) intra-week, but bounced up sharply on Fri. Sep 20 to close above both its 50 week and 20 week EMAs for the first time since early Jul '19.
Reduction in corporate taxes - announced by the Finance Minister on Fri. Sep 20 - triggered a sharp technical bounce due to short-covering. Nifty closed at its highest level in eight weeks.
Weekly technical indicators are in bearish zones, but showing upward momentum. MACD appears to be forming a bullish 'saucer' pattern below its falling signal line. ROC has crossed above its falling 10 week MA. RSI has emerged from its oversold zone. Slow stochastic has started rising towards its 50% level. Expect some more near-term index upside.
Nifty's TTM P/E has moved up to 27.72 - which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating near the edge of its oversold zone, hinting at near-term index consolidation.
Bottomline? Sensex and Nifty charts have broken out upwards after consolidating sideways for seven weeks. Sharp short-covering bounces were triggered by a cut in corporate taxes, which may not boost consumer demand in the near term. Stay calm, and follow your investment plans.
FIIs were net sellers of equity during the first four days of the week, but were net buyers on Fri. Aug 9. Their total net selling was worth Rs 47.4 Billion. DIIs were net buyers on all five days of the week. Their total net buying was worth Rs 55.9 Billion, as per provisional figures.
India's Index of Industrial Production (IIP) slipped to a low of 2% in Jun '19, against 4.6% in May '19 and 7% in Jun '18. For the Apr-Jun '19 period, IIP grew 3.6% against 5.1% during Apr-Jun '18.
Instead of taking swift steps to address the serious downturn in the economy, the government has chosen to divert attention by muscle-flexing in Kashmir - a strategy that paid rich dividends before the Lok Sabha elections.
BSE Sensex index chart pattern
Oversold technical indicators triggered a technical bounce on the daily bar chart pattern of Sensex. The possibility was mentioned in last week's post.
After an intra-day breach of the lower (falling) trend line of a 'broadening top' pattern on Mon. Aug 5, the index bounced up to close above the trend line, but well inside the 'support zone' (between 35900 and 37100).
Two days of consolidation within the 'support zone' was followed by a breakout above 37100 on Thu. Aug 8, and another breakout above the 200 day EMA on Fri. Aug 9.
The falling 20 day EMA provided temporary resistance on Friday. However, the index may attempt to rise further next week.
Daily technical indicators are showing upward momentum after correcting oversold conditions. MACD is poised to cross above its falling signal line in bearish zone. ROC, RSI and Slow stochastic have emerged from their respective oversold zones.
The Finance Minister has been meeting with various industry representatives to assess the steps required to revive the economy. Wish she had paid more attention to their suggestions before preparing her maiden budget.
Rumours of tweaks in taxation proposals, which triggered the short-covering bounce, have remained rumours so far. Any minor tweaks - should they occur - may not enthuse FIIs to stop selling.
NSE Nifty index chart pattern
The following comment was made in last week's post on the weekly bar chart pattern of Nifty: "The breadth indicator NSE TRIN (not shown) has risen well inside its oversold zone, and can trigger a near-term index bounce."
The expected bounce formed a weekly 'reversal' bar (lower low, higher close) as the index took support from the lower (falling) trend line of a 'broadening top' pattern and closed just above the 11100 level, but faced resistance from the 50 week EMA.
Weekly technical indicators are looking bearish. MACD is below its signal line, and is falling towards neutral zone. ROC is below its falling 10 week MA and is moving sideways inside its oversold zone. RSI has bounced up from the edge of its oversold zone. Slow stochastic has slipped inside its oversold zone.
Nifty's TTM P/E has moved up to 27.41 - which is above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is well inside its oversold zone, hinting at some more near-term index upside.
Bottomline? Sensex and Nifty charts have recovered from long-term support zones due to short covering on rumours of a likely tax tweak for FIIs. Small investors should remain cautious and stay on the sidelines.
FIIs have stepped-up their selling. Their total net selling of equity during all three trading days this week was worth Rs 59.2 Billion. DIIs were net buyers of equity on all three days. Their total net buying more than matched FII selling, and was worth Rs 65.9 Billion, as per provisional figures.
Vehicle sales have continued to plummet for the past several months, as per Auto Component Manufacturers Association (ACMA) President. The current 15-20% production cut has led to a crisis-like situation, and about 1 Million employees may be laid off if the down trend continues.
The IMF lowered India's GDP growth estimate by 30 bps (0.3%) to 7% in 2019 and 7.2% in 2020 due to weaker-than-expected outlook for domestic demand. Despite the downward revision, India's growth rate will be the highest in the world.
Note the following remarks in last week's technical update on the daily chart pattern of Nifty: "After touching a lifetime high of 12103 on Jun 3, Nifty has formed a bearish pattern of 'lower tops, lower bottoms'. If the pattern continues to play out, further upside ought to be limited. The next leg of the down move should follow."
The expected down move turned out to be a vertical fall, as FIIs voted with their feet. Twin supports from the up trend line and the 200 day EMA (marked by grey oval) have been breached.
The previous occasion (in Feb '19) when Nifty fell below its 200 day EMA, the up trend line had provided support - allowing the index to bounce up. This time, the up trend line was breached first. As per 'trend line theory', a trend remains in force till it gets breached.
Today's breach of the 200 day EMA has not been a convincing one. The index recovered 40 points from its intra-day low - probably due to short-covering. That may give a faint ray of hope for bulls. However, the chart structure has turned bearish in the near-term as the 20 day EMA has crossed below the 50 day EMA and both EMAs are falling.
Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line and has slipped inside its oversold zone. RSI has dropped to the edge of its oversold zone. Slow stochastic has fallen deep inside its oversold zone, and may trigger a pullback towards the breached up trend line.
Nifty's TTM P/E has moved down to 27.62, but remains well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone - hinting at some near-term index downside.
Is Nifty falling into a bear market? Breach of the up trend line and the 200 day EMA is definitely a warning bell. A pullback above the up trend line (and the 11400 level) may keep bears at bay for a while.
However, bullish sentiment has taken a huge knock as realisation dawns on investors that this government neither cares about the state of the stock market, nor does it seem to have the knowledge or experience to turn around the slide in the economy.
S&P 500 index chart pattern
Note the following comment from last week's post on the daily bar chart pattern of S&P 500: "Some more correction, and a drop towards the support zone between 2700-2725 is likely."
The index corrected further below its 200 day EMA on Mon. Jun 3, but received good support from the zone between 2700-2725. A 'V' shaped technical bounce propelled the index above its 20 day and 50 day EMAs back into bull territory by Thu. Jun 6.
On Fri. Jun 7, the index breached the (purple) down trend line after spending 5 weeks below it, and closed with a 121 points (4.4%) weekly gain. The week's rally was accompanied by sliding volumes. A pullback towards the down trend line is a possibility.
Daily technical indicators are looking bullish, and showing upward momentum. MACD has crossed above its signal line in bearish zone. RSI has moved above its 50% level after bouncing up from the edge of its oversold zone. Slow stochastic is rising sharply towards its overbought zone.
The rally may have been triggered by short covering. So don't be surprised if bears start to 'sell on rise' to regain control.
On longer term weekly chart (not shown), the index formed a large 'reversal' bar (lower low, higher close) and closed above its three weekly EMAs in a long-term bull market. Weekly technical indicators are turning bullish. MACD is below its signal line in bullish zone, but has stopped falling. RSI has moved above its 50% level after falling below it. Slow stochastic is below its 50% level, but has stopped falling.
FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 touched a low of 7080 on Mon. Jun 3, but formed a 'reversal day' bar (lower low, higher close) that triggered a 'V' shaped pullback rally.
By not falling below 7000, the 'cup and handle' pattern (refer this post) remains alive. The index closed above its three EMAs in bull territory, gaining 170 points (2.4%) on a weekly closing basis.
The bearish 'head and shoulders' pattern (mentioned in last week's post) will get negated if the index can close convincingly above its previous (May 22) top of 7373.
Daily technical indicators are looking bullish and showing upward momentum. MACD has crossed above its signal line in bearish zone. RSI has moved above its 50% level. Stochastic has entered its overbought zone.
Near-term index upside may be limited. Sliding volumes during last week's rally can encourage bears to 'sell on rise'.
On longer term weekly chart (not shown), the index formed a large 'reversal' bar (lower low, higher close) and closed above its three weekly EMAs in a long-term bull territory. Weekly technical indicators are in bullish zones, and showing upward momentum.
FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 42.1 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 39.7 Billion, as per provisional figures.
India's CPI based retail inflation inched up to 2.92% in Apr '19 against 2.86% in Mar '19, but remained well within RBI's target level of 4%.
However, WPI based wholesale inflation slipped to 3.07% in Apr '19 against 3.18% in Mar '19 due to lower cost of fuel and manufactured items, even as food prices rose higher.
The following comments appeared in last week's technical update on the daily bar chart pattern of Nifty: "On the downside, there is an unfilled upward 'gap' of 46 points (formed on Mar 12). Expect Nifty to find some support at the 'gap' zone."
On Mon. May 13, the index fell more than 130 points - completely filling the 'gap' by closing below it. Short covering after 9 days of correction led to a pullback above, and a close at, the upper edge of the 'gap' on Tue. May 14.
Bullish hopes were dashed as Nifty dropped to close below the 'gap' for the second time on Wed. May 15. Effectively, the index oscillated about the 'gap' within a 200 points range (between 11300 and 11100) during the past three trading sessions.
What next? Note that the index formed an 'inside day' candlestick (lower high, higher low) on May 15, which indicates indecision among bulls and bears and often leads to a continuation of the current trend.
The way FIIs are fleeing the Indian market, there is every possibility of a test, and likely breach, of the 200 day EMA. Expect bulls to strongly defend the 200 day EMA.
Daily technical indicators are looking bearish and oversold. MACD is falling deep inside bearish zone. RSI has bounced up weakly from the edge of its oversold zone. Slow stochastic is moving sideways with a slight upward bias inside its oversold zone.
Remember that an index (or stock) can remain oversold for long periods - though it hasn't happened for Nifty in a long while.
Nifty's TTM P/E has moved down to 27.82, but remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen sharply inside its oversold zone, and may trigger a near-term technical bounce.
FIIs are worried about the US-China trade tiff. They may have also been spooked by the way opposition leaders are meeting and talking about forming the next government.
If the NDA manages to get past the finishing post first on May 23, bulls will celebrate. However, their celebrations should be tempered with the reality of weak Q4 earnings reports from India Inc., and visible signs of an economic slowdown.
