Sensex, Nifty charts (Oct 09, 2020): 5 weeks long down trends reversed by FII buying

FIIs were net sellers of equity on Fri. Oct 9, but were net buyers during the first four trading days of the week. Their total net buying was worth Rs 33.7 Billion. DIIs were net buyers of equity on Thu. and Fri. (Oct 8 and 9), but were net sellers during the first three trading days. Their total net selling was worth Rs 23.89 Billion.

IHS Markit's India Services PMI rose to 49.8 in Sep '20 from 41.8 in Aug '20, but remained below the 50 mark - indicating contraction. The Composite (Mfg. + Serv.) PMI expanded for the first time in 6 months, rising from 46 in Aug '20 to 54.6 in Sep '20.

After its bi-monthly MPC meeting from Oct 7-9, '20 RBI decided to keep the repo and reverse repo rates unchanged at 4% and 3.35% respectively. RBI also forecast a GDP contraction of 9.5% for FY 2020-21.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex shows how a sudden gush of FII money has blown away technical resistances. Expectation of a second round of stimulus in the US may have turned FIIs into bulls.

The 5 weeks long down trend (marked by blue down trend line) has been reversed and strong resistance from the 335 points downward 'gap' formed on Feb 28 has been overcome. Bears had no place to hide. Their short-covering helped the week's sharp 1800 points rally. 

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. ROC has climbed to the edge of its overbought zone. RSI is rising towards its overbought zone. Slow stochastic is well inside its overbought zone, and can trigger a pullback towards the 335 points downward 'gap' of Feb 28.

Q2 (Jul-Sep '20) corporate results have started hitting the market, with TCS releasing a decent set of numbers and announcing a share buyback. Wipro also announced a share buyback. 

Dividends exceeding Rs 5000 received by shareholders now attract a 7.5-10% tax. (Earlier, companies had to pay a dividend distribution tax.) Promoters holding large chunks of stock may prefer to opt for buybacks - which reduce equity capital and thereby enhance EPS.

If you are thinking about tendering shares to a company offering a buyback - think again. You may offer 500 shares, but the company may accept only 170. Also, buybacks attract capital gains tax - so you might as well sell in the market.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above the 11900 level for the first time in more than 7 months - gaining nearly 500 points (4.3%) on a weekly closing basis.

The bearish pattern of 'lower tops, lower bottoms' formed during the past 5 weeks have been negated - thanks to FII buying. All three weekly EMAs are rising, and Nifty is trading above them in a long-term bull market.

Weekly technical indicators are in bullish zones and showing some upward momentum. MACD is rising above its signal line in overbought zone. RSI is rising above its 50% level. Slow stochastic is moving up towards its overbought zone after dropping down from it. Some more index upside is possible. 

Nifty's TTM P/E has moved up to 34.71, its highest level ever and well above its long-term average deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped sharply from its oversold zone - and can limit near-term index upside.
 
Bottomline? Sensex and Nifty charts have reversed 5 weeks long down trends on the back of FII buying. Bulls are back in control. However, caution is advised as the broader market didn't participate during the week's rally. Check Q2 (Jul-Sep '20) corporate results before committing fresh money to individual stocks.

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.

Nifty chart: a long-term outlook

After Monday's holiday, FIIs were net sellers of equity on both trading days this week. Their total net selling was worth Rs 37.5 Billion. DIIs were net buyers of equity on both trading days. Their total net buying was worth Rs 25.6 Billion, as per provisional figures.

The IHS Markit India Manufacturing PMI slipped to a 15 month low of 51.4 in Aug '19 from 52.5 in Jul '19, but remained above 50 indicating growth. The Services PMI also declined to 52.4 in Aug '19 from 53.8 in Jul '19. The Composite (Manufacturing + Services) PMI moved down to 52.6 in Aug '19 from 53.9 in Jul '19.

GST collection in Aug '19 slipped to Rs 98.2 Billion from Rs 1.02 Trillion in Jul '19, but was 4.5% higher than Rs 93.9 Billion collected in Aug '18.

The weekly line chart of Nifty has breached two up trend lines drawn from the Feb '16 low (also called Fan Lines - marked FL1 and FL2). This is a sign that the long-term up trend is getting weak, but is not yet over.

As per Corrective Fan Principle, downward breach of a third up trend line - that has not yet been drawn on the chart - will technically confirm the reversal of the long-term up trend.

The index is struggling to hold on to the support level of 10800, and may move lower. A test of support from the 200 week EMA appears increasingly likely.

Weekly technical indicators are in bearish zones. MACD is showing downward momentum. RSI and Slow stochastic are moving sideways - hinting at near-term index consolidation.

Nifty's TTM P/E has moved down to 26.61, but remains inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone. Some near-term index up side is possible.

The market is hoping that a third round of economic booster 'package' - promised by the Finance Minister - will help stop the slide in the index. But the two earlier 'packages' have failed to revive bullish sentiment.

FIIs have intensified their selling after a weak Q1 GDP number and sliding auto sales. They may not turn buyers in a hurry.

Sensex, Nifty charts (Jul 26, 2019): bears trying to take control

FIIs were heavy net sellers of equity during the week. Their total net selling was worth Rs 75.5 Billion. DIIs more than matched FII selling. Their total net buying was worth Rs 89.1 Billion, as per provisional figures.

India's rice exports are likely to fall to the lowest level in 7 years due to weak demand from African countries and absence of government incentives.

Despite the continuing slowdown in the real estate sector - thanks to various regulatory changes - the industry attracted investments of US $2.7 Billion during the first half of 2019.

BSE Sensex index chart pattern

The following comment appeared in last week's post on the daily bar chart pattern of Sensex: "A confluence of supports - from the lower edge of GAP2, the blue up trend line and the 200 day EMA - should protect Sensex downside in the near term." 

The confluence of supports is marked by purple oval on the chart. Sensex breached the lower edge of GAP2 and the blue uptrend line, but found support from its 200 day EMA. The support may not last long.

A breach of the 200 day EMA will be quite bearish, and can drop the index to the support zone between 35900 and 37100.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bearish zone. ROC is clinging on to its 10 day MA in bearish zone. RSI has emerged from its oversold zone. Slow stochastic is inside its oversold zone. Any technical bounce may face bear selling.

Bellwether large-cap stocks, like HDFC, HDFC Bank, Bajaj Finance, Kotak Bank, Maruti, M&M are tumbling under bear selling pressure. If FIIs keep selling, DIIs may not be able to prevent a deeper index fall.  

Small investors should stay away from bottom fishing. The index has formed three bearish patterns near a market top, and breached an uptrend line. Those are clear warnings that a strong correction can follow.

NSE Nifty index chart pattern

The following comment appeared in last week's post on the daily bar chart pattern of Nifty: "Twin downside support can be expected from the blue up trend line and the 50 week EMA."

The index corrected below the uptrend line, bounced up after receiving support from its 50 week EMA, but closed below the trend line. A breach of a trend line - though not a convincing one on the chart - should be treated with caution.

A breach of the 50 week EMA will be quite bearish, and can drop Nifty to the support zone between 10700 and 11100. Any pullback towards the 'gap' is likely to face bear selling.

Weekly technical indicators are looking bearish. MACD has crossed below its signal line, and is falling in bullish zone. ROC faced resistance from its falling 10 week MA in neutral zone. RSI and Slow stochastic are falling below their respective 50% levels. 

Nifty's TTM P/E has moved down to 27.73 - but remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has entered its oversold zone. Near-term index downside may be limited.

Bottomline? Sensex and Nifty charts are tantalisingly poised at important supports. Tax proposals in the budget and a visibly slowing economy have combined to dampen bullish sentiments. Q1 (Jun '19) results declared so far have failed to ignite 'animal spirits'. Bears are on the verge of taking control.

Nifty chart: a midweek technical update (Jul 24, 2019)

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.

Nifty chart: a midweek technical update (Jul 10, 2019)

FIIs were net sellers of equity during the first three trading days of the week. Their total net selling was worth Rs 16.8 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 17.0 Billion, as per provisional figures.

The Finance Minister defended her decision to impose higher Income Tax surcharge on incomes above Rs 20 Million and Rs 50 Million per year that will affect about 40% of FIIs who do not have a corporate structure.

The Union Cabinet seeks to approve a bill that seeks to merge 13 central labour laws into a single code that would apply to all establishments employing 10 or more workers.

The following comments appeared in last week's technical update on the daily bar chart pattern of Nifty: "The 165 points upward 'gap' (formed on May 20) has remained unfilled. At some point, the index is likely to fall to partly or completely fill the 'gap'." 

The budget on Jul 5 provided just the opportunity for bears to fill the 'gap'. The increased surcharge on Income Tax for people in higher income brackets - including some categories of FIIs - dampened bullish sentiment.

Nifty is trading above its rising 200 day EMA in a bull market. However, it has formed a bearish pattern of 'lower tops, lower bottoms' and is in a down trend (marked by green down trend line).

A complete filling of the 'gap' (it has been partly filled) and a test of support from the 200 day EMA is now a definite possibility - specially if FIIs keep selling.

Daily technical indicators have turned bearish. MACD is falling below its signal line in bearish zone. RSI has dropped below its 50% level. Slow stochastic has fallen sharply to enter its oversold zone, and can trigger a pullback towards the 50 day EMA.  

Nifty's TTM P/E has moved down to 28.20, which is well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone. Some near-term index consolidation is possible.

Bulls will be looking for some cheer from Q1 (Jun '19) results that have started hitting the market. Chances are they will find little to cheer about. Get ready for trying times if you entered the market to quickly double your money. 

Wealth building is a process that requires patience, discipline and diligence. Your investment mettle will be sorely tested during the next few months.

Understanding 'Buy the Dips' strategy

Buy the dips refers to purchasing an asset after it has declined in price. Buying the dips has different contexts, and different odds of working out, depending on the situation in which it is utilized. 

Some traders may say they are buying the dips if an asset is in a long-term strong uptrend. They hope the uptrend continues after the dip or drop. 

Others may use the phrase when no uptrend is present, but they believe an uptrend may occur in the future. Therefore, they are buying when the price drops in order to profit from a potential future price rise.

Read more at:
https://www.investopedia.com/terms/b/buy-the-dips.asp

S&P 500 and FTSE 100 charts (May 17, 2019): pullback after corrective moves

S&P 500 index chart pattern

Note the following comment in last week's post on the daily bar chart pattern of SPX 500: "Friday's 'outside day' candlestick may be hinting at a continuation of the down trend that started after the index touched its lifetime high of 2954 on May 1."

On Mon. May 13, the index dropped to test support from the 2800 level, and closed below its 50 day EMA. A technical bounce followed during the next three days. The index breached the 20 day EMA intra-day on Thu. May 16, but failed to close above it.

Bears came to the fore on Fri. May 17. The index dropped below its 50 day EMA intra-day, but managed to close just above it. 

The index remains in a down trend (marked by purple trend line) that started after the index touched a lifetime high of 2954 on May 1.

Daily technical indicators are in bearish zones. MACD is moving sideways below its falling signal line. RSI has dropped down after facing resistance from its 50% level. Slow stochastic has bounced up from the edge of its oversold zone. 

Some consolidation or more correction can be expected.

On longer term weekly chart (not shown), the index dropped below its 20 week EMA, but bounced up to close above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing downward momentum. 

FTSE 100 index chart pattern

Note the following comments in last week's post on the daily bar chart pattern of FTSE 100: "The 'cup and handle' pattern has not been negated yet. Daily technical indicators are looking bearish and oversold...and can trigger a technical bounce."

On Mon. May 13, the index touched a low of 7151 and closed below its three EMAs in bear territory at 7164. A technical bounce during the next three days propelled the index to a close above its three EMAs and the 7350 level on Thu. May 16.

On Fri. May 17, the index closed just below 7350 but above its three EMAs in bull territory. However, formation of a small 'hanging man' candlestick can lead to some correction or consolidation.

Daily technical indicators are looking bullish after correcting oversold conditions. MACD is about to cross above its falling signal line in bearish zone. RSI and Stochastic have moved above their respective 50% levels.

A convincing move above the Apr 23 top of 7529 is necessary to complete the 'cup and handle' pattern.

On longer term weekly chart (not shown), the index formed a 'reversal' bar (lower low, higher close) and closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators are in bullish zones, and showing slight upward momentum. 

S&P 500 and FTSE 100 charts (May 10, 2019): bears use US-China trade war as excuse to strike hard

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 dropped below the 'rising wedge' and its 20 day EMA intra-day on Mon. May 6, but pulled back to close just inside the 'wedge' by the end of the day.

Bears took control on Tue. May 7. The index dropped sharply below its 20 day EMA and closed below it, but received good support from its 50 day EMA. The next day, the index traded below its 20 day EMA but above its 50 day EMA.

An intra-day fall below the 50 day EMA on Thu. May 9 was followed by a pullback and close above it. On Fri. May 10, the index formed an 'outside day' candlestick pattern (lower low, higher high), but failed to close above its falling 20 day EMA - losing 2.2% on a weekly closing basis.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. RSI is trying to recover after falling below its 50% level. Slow stochastic has bounced up a bit from the edge of its oversold zone. 

Friday's 'outside day' candlestick may be hinting at a continuation of the down trend that started after the index touched its lifetime high of 2954 on May 1.

Inconclusive US-China trade talks and increased US tariffs on Chinese imports should encourage bears to press home their advantage. 

On longer term weekly chart (not shown), the index dropped to test support from its 20 week EMA, and closed above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing downward momentum. 

FTSE 100 index chart pattern

The following remarks were made in last week's post on the daily bar chart pattern of FTSE 100: "The index appears to be forming a large 'cup and handle' pattern, from which the likely breakout is upwards. The 'handle' of the 'cup' is in the process of getting formed... A fall below 7000 will negate the pattern."

The ongoing US-China trade war has affected bullish sentiment in global stock markets. FTSE succumbed to the bears - falling sharply below its 50 day EMA on Tue. May 7, but receiving brief support from its 200 day EMA.

On Thu. May 9, the index dropped below its 200 day EMA into bear territory but managed to cling on to the 7200 level by the end of the week - losing 2.4% on a weekly closing basis. The 'cup and handle' pattern has not been negated yet.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line in bearish zone. RSI is falling towards its oversold zone. Stochastic is inside its oversold zone, and can trigger a technical bounce.

On longer term weekly chart (not shown), the index closed just below its merged 20 week and 50 week EMAs, but above its 200 week EMA in long-term bull territory. Weekly technical indicators are looking bearish, and showing downward momentum. MACD has started falling above its signal line in bullish zone. RSI has slipped below its 50% level. Stochastic is falling towards its 50% level.