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 (Sep 04, 2020): up trend lines breached but bull markets still intact

FIIs were net buyers of equity on Tue, Wed. and Thu. (Sep 1, 2 and 3), but net sellers on Mon. and Fri. Their total net selling was worth Rs 38.0 Billion. DIIs were net buyers of equity on Mon. and Thu., but net sellers on the other three days. Their total net selling was worth Rs 10.89 Billion.

IHS Markit India Manufacturing PMI rose to a 6 month high of 52 in Aug '20 from 46 in Jul '20. A reading above 50 indicates expansion. Services PMI increased to 41.8 in Aug '20 from 34.2 in Jul '20, but remained in contraction zone. The Composite (Mfg. + Serv.) PMI rose to 46 in Aug '20 from 37.2 in Jul '20 - its 5th straight month of contraction.  

During Apr-Jul '20, India's fiscal deficit touched Rs 8.23 Trillion - which is already 103% of the budget estimate for FY 2020-21. Total revenue receipts was Rs 2.27 Trillion, while expenses were Rs 10.5 Trillion.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex shows that bulls stumbled at the very last hurdle - the 335 points downward 'gap' formed on Feb 28 '20 - in an effort to rise to a new high.

The index touched a 6 months high of 40010 intra-day on Mon. Aug 31, but formed a large 'reversal day' bar (higher high, lower close) and dropped to close below the 'gap' and the (blue) up trend line.

Sensex received support from its 20 day EMA, which encouraged bulls to attempt a pullback above the trend line during the next three days. But bears held firm. The index re-entered the 'gap' zone, but failed to move above it.

The stage was set for a confirmed reversal of the 5.5 months long up trend. The index opened trading with a downward 'gap' and slid down further to close below its 20 day EMA - forming a 5-days bearish pattern of 'lower top, lower bottom.'

Note that Sensex is trading almost 1900 points above its 200 day EMA. That means the bull market is intact. However, a convincing breach of a trend line should be treated with respect and caution.

Daily technical indicators are looking neutral to bearish. MACD has slipped below its signal line in bullish zone. ROC has dropped below its 10 day MA in neutral zone. RSI is falling towards its 50% level. Slow stochastic has moved below its 50% level to enter bearish zone.

Some more correction and/or consolidation can be expected. The economy is in doldrums - with a worse-than-expected contraction in GDP growth. Ignore all talk about a 'V' shaped recovery, as the pandemic is spreading like wild fire.

The 'easy money' has been made already. The next 12-18 months will test the mettle of small investors. Make your decisions wisely. You can only grow your wealth if you know how to protect your capital.

NSE Nifty index chart pattern

After touching a 6 months intra-week high of 11794, the weekly bar chart pattern of Nifty 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.

Convincing breach of an up trend line usually indicates a trend reversal. However, all three weekly EMAs are moving up and the index is trading above them in long-term bull territory. No need for bulls to panic yet. The 'support-resistance zone' between 11000-11250 should provide some near-term support.

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

Nifty's TTM P/E touched a new lifetime high of 33.04 on Thu. Sep 3 before slipping down to 32.49, which is well above its long-term average and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is rising in neutral zone. Some more correction or consolidation is likely.
 
Bottomline? 5 months long up trend lines on Sensex and Nifty charts have been breached. Corrections in US stock indices motivated bears to put up a fight. Some more correction or some consolidation is likely. Rushing in to buy the dip may be counter-productive. Let the dust settle first.

Sensex chart: a midweek technical update

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. 

Sensex, Nifty charts (Feb 07, 2020): good recovery after budget disappointment

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.

Sensex, Nifty charts (Feb 01, 2020): disappointing budget may trigger a deeper correction

For the month of Jan '20, FIIs were net sellers of equity worth Rs 53.6 Billion. They turned net sellers after three straight months of net buying. DIIs were net buyers of equity during Jan '20. Their total net buying was worth Rs 10.7 Billion, as per provisional figures.

The union budget speech by the Finance Minister on Feb 1 was long on sound, sycophancy and needless repetition but short on actionable steps required to boost consumption for stimulating the economy. Investors showed their displeasure by voting with their feet.

Low consumer sentiment continued to affect auto sales in Jan '20. Maruti showed a marginal growth in YoY sales, but Hyundai, M&M and Tata Motors showed negative growth.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex had touched a lifetime high of 42274 on Jan 20th, but formed a large 'reversal day' bar (higher high, lower close). That had triggered a corrective move below its 20 day and 50 day EMAs.

A disappointing budget led to a 1000 points fall in the index during the special trading session on Sat. Feb 1. The index has found temporary support at its 200 day EMA. Any technical bounce may induce a 'sell on rise' strategy by bears.

Daily technical indicators are looking bearish. MACD is falling below its signal line and has entered bearish zone. RSI is seeking support from the edge of its oversold zone. Slow stochastic has re-entered its oversold zone, but is showing positive divergence by touching a higher bottom. A technical bounce is likely. 

Small investors should remain patient and not rush in to buy the dip. The market may face a major corrective move.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty dropped sharply below its 20 week EMA - thanks to a union budget that disappointed the stock market - but found support at its 50 week EMA. For the past 18 months, the index has formed a bullish pattern of 'higher tops, higher bottoms'.

The index is trading well above its rising 200 week EMA in a long-term bull market. However, a weak economy and global concerns about the spreading corona virus has poured cold water on bullish sentiments.

Weekly technical indicators are looking bearish. MACD has dropped from its overbought zone and crossed below its signal line. RSI has dropped below its 50% level. Slow stochastic has dropped from its overbought zone towards its 50% level. 

After touching a high of 28.67 on Jan 13 and Jan 14, Nifty's TTM P/E moved down to 26.41 by the end of the month, but remained well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has re-entered its oversold zone after falling from it. Some more near-term index correction is possible.

Bottomline? After touching lifetime highs in Jan '20, Sensex and Nifty charts look ready for deeper corrections, triggered by a disappointing union budget. There are hardly any positive triggers left for the stock market in the near-term. Small investors should use any rise to book profits and preserve capital.

Sensex, Nifty charts (Dec 27, 2019): slip down a bit after touching lifetime highs

In a holiday-shortened trading week, FIIs were net sellers of equity on Tue. and Thu. (Dec 24 and 26) but net buyers on Mon. and Fri. (Dec 23 and 27). Their total net buying was worth Rs 9.3 Billion. DIIs were net sellers of equity on Mon. and Tue., but were net buyers on Thu. and Fri. Their total net selling was worth Rs 20.5 Billion - as per provisional figures.

With tax and non-tax revenues lagging way behind targets, along with weaker private consumption and investments, RBI expects a threat to overall fiscal numbers - even as India's financial system remains resilient.

Despite the economic slowdown and weak consumer sentiment across consumer goods, retail and other industry sectors, the Indian eCommerce industry grew 38% to US $76 Billion in 2019.

BSE Sensex index chart pattern

After touching a lifetime high of 41810 on Dec 20, the daily bar chart pattern of Sensex slipped down to test support from its rising 20 day EMA, and bounced up to close just around 100 points (0.25%) lower on a weekly basis. The index is trading above its three rising EMAs in a bull market.

Daily technical indicators are in bullish zones but not showing much upward momentum. MACD is seeking support from its rising signal line. ROC has bounced up after receiving support from its rising 10 day MA. RSI has risen to the edge of its overbought zone. Slow stochastic has slipped down from its overbought zone.

FII trading activity usually slows down during Christmas-New Year holiday season. So, volatility may reduce next week, as the stock market tries to anticipate Q3 (Dec '19) results.

The index can attempt to move higher, but without FII buying and broader market participation the rally may not make much headway. Stay invested, but maintain trailing stop-losses in case there is any sudden market turnaround.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty has been trading within a large 'rising wedge' pattern for the past 14 weeks. Such a pattern has bearish implications - particularly when it forms at an index top. Falling volumes during the past few weeks is another concern for bulls.

Weekly technical indicators are looking bullish and overbought. MACD is rising above its signal line and is poised to enter overbought zone. ROC has crossed below its 10 week MA and dropped to the edge of its overbought zone. RSI has also dropped to the edge of its overbought zone. Slow stochastic is moving up inside its overbought zone. Bulls seem to be in complete control.

Nifty's TTM P/E has slipped down to 28.48 - which remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen sharply to enter its oversold zone, and can trigger some near-term index consolidation.

Bottomline? Sensex and Nifty charts have slipped down a bit on year-end profit booking after touching lifetime highs. Rising CPI inflation, poor GDP and IIP numbers, a crisis of confidence among consumers and nationwide protests against the Citizen Amendment Act (CAA) do not justify a soaring stock market. Stay invested, but maintain trailing stop-losses.

[Wishing all blog readers, followers, and subscribers a happy and prosperous New Year.]

Nifty chart: a midweek technical update (Dec 11, 2019)

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.

Nifty chart: a midweek technical update (Dec 04, 2019)

FIIs have turned net sellers of equity during the first three trading days this week. Their total net selling was worth Rs 36.4 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 26.2 Billion, as per provisional figures.

The IHS Markit India Manufacturing PMI rose to 51.2 in Nov '19 from a two year low of 50.6 in Oct '19. A figure above 50 indicates expansion. India's GST collection rose to Rs 1.03 Trillion in Nov '19 against Rs 0.95 Trillion in Oct '19 and Rs 0.97 Trillion in Nov '18.

Passenger vehicle sales continued to disappoint. 262,892 units were sold in Nov '19 against 284,048 units in Oct '19 and 263,455 units in Nov '18. New product launches helped reduce steep double-digit decline in sales before the festive season.

For the past five weeks, the daily bar chart pattern of Nifty had been trading within a bearish 'rising wedge' pattern - from which a downward breakout occurred on Tue. Dec 3.

The index found support at its 20 day EMA, and pulled back to the lower edge of the 'wedge' on Wed. Dec 4. All three EMAs are rising, and Nifty is trading above them in a bull market.

Daily technical indicators are in bullish zones, but not showing any upward momentum. MACD is moving down below its falling signal line. RSI and Slow stochastic are falling towards their respective 50% levels. 

All three indicators showed negative divergences by failing to touch new highs with the index. A breach of the 20 day EMA can lead to a fall towards the support level of 11800. 

Nifty's TTM P/E is at 28.07, which is well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has moved up sharply to enter oversold zone, hinting at some near-term index upside.

Nifty rallied during Nov '19 on the back of strong FII buying. FIIs have now turned net sellers of equity during the first three trading days of Dec '19. If they continue to sell, the index can see more down side. 

The index is trading less than 1% below its lifetime high of 12159 (touched on Nov 28). Stay invested but avoid any bulk buying.

Sensex, Nifty charts (Oct 11, 2019): consolidating below down trend lines

In a holiday-shortened trading week, FIIs were net buyers of equity on Fri. Oct 11, but net sellers on the other three days. Their total net selling was worth Rs 4.9 Billion. DIIs were net sellers of equity on Fri., but net buyers on the other three days of the week. Their total net buying was worth Rs 16.6 Billion, as per provisional figures.

India's Index of Industrial Production (IIP) contracted 1.1% in Aug '19 against a growth of 4.8% in Aug '18. This was the sharpest decline in industrial growth since Feb '13. During the Apr-Aug '19 period, IIP was 2.4% against 5.3% during Apr-Aug '18.

According to RBI's Monetary Policy Report, forward-looking indicators suggest that world trade is likely to slow down further in 2019. The Indian economy, which is already facing a slow down, may face the heat even more.

BSE Sensex index chart pattern

After closing below its three EMAs in bear territory on Mon. Oct 7, the daily bar chart pattern of Sensex got re-energised during the Dussehra holiday on Oct 8, and bounced up to close above its three EMAs in bull territory. 

The 300 points upward 'gap' that formed on on Mon. Sep 23 was subsequently filled on Oct 1. Since then, the 'gap' has been acting as a resistance zone. If the index manages to overcome the 'gap' resistance, it is likely to face stronger resistance from the down trend line.

Daily technical indicators are turning bullish. MACD is moving sideways below its signal line in bullish zone. ROC has bounced up from the edge of its oversold zone. RSI and Slow stochastic have bounced up from their respective 50% levels. Some near-term upside is possible, but don't expect a strong rally.

Early Q2 (Sep '19) results from TCS, Infosys, IndusInd Bank were more or less in line with market expectations, but showed weak top and bottom line growth. Auto sales plummeted in double-digits during Sep '19 - so they will declare poor results or even losses. 

Several economic measures announced by the government - the latest being a DA boost for govt. employees - is yet to show up on company earnings. In a desperate effort at window dressing, first day collections of movie theatres and on-line sales of amazon and flipkart are being touted as India's economic well being!

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty received good support from the zone between 10700 and 11100, and bounced up to close above its 20 week and 50 week EMAs in long-term bull territory. 

The (blue) down trend line has dominated the index chart since the beginning of Jun '19, and may continue to do so for a while longer. India's economy is on a downward trajectory, and so far there are no signs of an imminent recovery - despite valiant efforts by government spin doctors.

Weekly technical indicators are giving mixed signals. MACD is moving sideways below its signal line in neutral zone. ROC has entered its bullish zone. RSI is moving sideways below its 50% level. Slow stochastic is trying to move up above its 50% level. Some near-term index upside is likely.

Nifty's TTM P/E has moved up to 26.11 - which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is hovering at the edge of its oversold zone, giving no clear directional indication. 

Bottomline? Sensex and Nifty charts are consolidating after sharp upward breakouts. A cut in corporate taxes had boosted bullish sentiment, but did not have much effect on consumer demand. Both indices need to overcome trend line resistances to move higher. Some more consolidation or correction may be on the cards.

Sensex, Nifty charts (Sep 20, 2019): short covering causes euphoric upward breakouts

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.

Sensex, Nifty charts (Sep 06, 2019): consolidating inside support zones

During a holiday-shortened trading week, FIIs were net sellers of equity on all four days. Their total net selling was worth Rs 52.7 Billion. DIIs were net buyers of equity on all four trading days. Their total net buying was worth Rs 44.6 Billion, as per provisional figures.

The market started a pullback rally from Wed. Sep 4 expecting announcement of a third set of measures for boosting India's sagging economy. Instead, the Finance Minister promised to consider more measures after consultations.

After strong rallies, prices of gold and silver corrected sharply during Thu. and Fri. (Sep 5 and 6). With global stock markets on recovery paths, some more near-term downside in precious metals is possible.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex dropped sharply and lost 770 points on Tue. Sep 3 due to heavy selling by FIIs after the long week end. There was some recovery during the rest of the week, but the index closed below its three EMAs inside the 'support zone' (between 35900 and 37100).

Daily technical indicators are looking neutral to mildly bullish. MACD has merged with its rising signal line in bearish zone. ROC has crossed above its 10 day MA to enter bullish zone. RSI and Slow stochastic are just below their respective 50% levels.

The market was hoping for a third economic booster 'package' on Fri. Sep 6, but all it got was a promise. It won't be surprising if FIIs continue to vote with their feet. When an economy is steadily going downhill, throwing a few 'packages' in its path won't stop the slide. The gradient of the road itself needs to be changed.

That means bold reforms and immediate actions. The time for consultation and consideration is long over. More and more companies are laying-off employees and reducing production - making the economy decelerate even more. It is going to be a long and difficult road ahead. 

Small investors should concentrate on protecting capital - whatever may be left of it. Ignore the exhortations of those experts who want you to buy now.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty tested the lower edge of the 'support zone' (between 10700 and 11100) intra-week before bouncing up to close just below 10950. 

The index has been consolidating inside the 'support zone' for the past six weeks, and is trading below its 20 week and 50 week EMAs.

Weekly technical indicators are looking bearish and oversold. MACD is falling below its signal line in bearish zone. ROC and RSI are falling inside their respective oversold zones. Slow stochastic is moving sideways along the edge of its oversold zone. Expect some more consolidation or correction.

Nifty's TTM P/E has moved down to 26.91 - which remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has fallen sharply inside its oversold zone. Further index upside may be limited.

Bottomline? Sensex and Nifty charts are consolidating within long-term support zones. A low Q1 (Jun '19) GDP figure and the ongoing US-China trade spat have dampened bullish sentiment. Small investors should stay on the sidelines, but continue with their SIPs. 

Sensex, Nifty charts (Aug 30, 2019): bears use technical bounces to sell

For the month of Aug '19, FIIs were net sellers of equity worth Rs 148.3 Billion. It was their fourth straight month of net selling. DIIs more than matched them. They were net buyers of equity worth Rs 209.3 Billion, as per provisional figures.

India's GDP growth slumped to 5% during Apr-Jun '19 - lowest growth in 6 years; much lower than 8% growth during Apr-Jun '18, and even lower than 5.8% growth during Jan-Mar '19.

India's fiscal deficit during Apr-Jul '19 stood at Rs 5.47 Trillion, which is nearly 78% of the full year (FY 2019-20) deficit target of Rs 7.03 Trillion. Revenue collection is weak due to the economic slowdown.

BSE Sensex index chart pattern

The following comments were made in last week's post on the daily bar chart pattern of Sensex: "All four indicators are showing positive divergences...by rising higher while the index dropped lower. That is a clear signal that precedes a technical bounce."

Finance Minister's first 'booster package' was announced on Fri. Aug 23 after close of day's trading. Bullish fervour was evident on Mon. Aug 26. The index bounced up above the 37100 level and its 20 day EMA before facing resistance at its 200 day EMA.

On Tue. Aug 27, Sensex closed above its 200 day EMA but couldn't move above its falling 50 day EMA. Bear selling resumed on Wed., and the index closed below its 200 day EMA. There was more selling on Thu. Aug 29 (monthly F&O settlement day). The index dropped to close just below 37100.

On Fri. Aug 30, FIIs were net buyers along with DIIs. Sensex formed a 'reversal day' bar (lower low, higher close) and climbed above the 37100 level but closed below its 200 day EMA in bear territory. 

The index gained more than 630 points (1.7%) on a weekly closing basis. The 'support zone' (between 37100 and 35900) provided very good support to Sensex during Aug '19. Will the support hold during Sep '19? The poor GDP number can turn out to be the 'joker in the pack'.

Daily technical indicators are looking neutral to bearish. MACD is rising above its signal line in bearish zone. ROC is facing resistance from its 10 day MA in neutral zone. RSI is seeking support from its neutral zone. Slow stochastic has dropped from its overbought zone. 

Finance Minister announced a second 'booster package' after close of trade on Fri. Aug 30. This time it was a proposed merger of 10 smaller PSU banks to form four larger banks. Will it positively influence credit off-take in the near-term? Seems very unlikely.

The stock market wants 'big bang' labour reform and land reform plus scrapping of LTCG to revive bullish sentiment. Instead, it is getting peripheral reforms in dribs and drabs and lectures on fitness, holidays within India, and 'all is well' in Kashmir. Be prepared for more listless index performance - if not a crash.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty moved above the 11100 level intra-week - as it had done in each of the past three weeks - but failed to move above its 50 week EMA once again.

The index corrected to close inside the 'support zone' (between 11100 and 10700) for the fifth straight week, but gained almost 194 points (1.8%) on a weekly closing basis.

Weekly technical indicators are looking bearish and oversold. MACD is falling below its signal line. ROC is below its falling 10 week MA, and is trying to emerge from its oversold zone. RSI has slipped inside its oversold zone. Slow stochastic is moving sideways along the edge of its oversold zone.

Nifty's TTM P/E has moved up to 27.27 - which is above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is moving up inside its oversold zone. Some near-term index downside or consolidation is possible.

Bottomline? Sensex and Nifty charts are at long-term support zones. A couple of 'booster packages' announced by Finance Minister has failed to revive bullish sentiment. A lower-than-expected Q1 (Jun '19) GDP figure and the ongoing US-China trade spat are not going to help the cause of bulls. Small investors should stay on the sidelines, but not stop their SIPs.