Nifty chart: a midweek technical update (Sep 26, 2018)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 25.6 Billion. DIIs were net buyers on all three days. Their total net buying was worth a whopping Rs 53.7 Billion, as per provisional figures.

The government has approved a Rs 55 Billion package for the sugar industry that includes a two-fold increase in production assistance to cane growers, and transport subsidy to sugar mills for exporting up to 5 million tonnes of surplus domestic stock of sugar.

India's fiscal deficit for the period Apr-Aug '18 touched 94.7% of the estimate for the full year. However, it was slightly lower than the 96.1% figure during the same period in the previous year.

The daily bar chart pattern of Nifty has corrected sharply below its 20 day and 50 day EMAs, but appears to have found some support from the 'Support/Resistance zone 1' (between 10800 and 10900).

Though the index is trading above its 200 day EMA in bull territory, a fall towards 'Support/Resistance zone 2' (between 10400 and 10600) can't be ruled out. By touching a 'panic bottom' of 10866 with strong volumes on Sep 21, the index retraced almost 50% of its rally from the Mar '18 low to the Aug '18 top.

A 61.8% Fibonacci retracement will drop the index to around 10650. That means, it will be imperative for bulls to mount a rally should the index fall towards the 'Support/Resistance zone 2'. Otherwise, a change of trend will become inevitable.

Daily technical indicators are looking bearish and a bit oversold. MACD is falling below its signal line and is ready to enter its oversold zone. RSI has bounced up weakly after receiving support from the edge of its oversold zone. Slow stochastic is oscillating at the edge of its oversold zone. Some consolidation or a pullback towards the falling 50 day EMA is possible.

Nifty's TTM P/E has moved down to 26.87, but still remains much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is hovering below the edge of its overbought zone, and is hinting at some consolidation.

Macro headwinds like high oil prices, a falling Rupee and widening twin deficits now include chaos and uncertainty about the financial stability of private banks, housing finance companies and NBFCs. 

Lack of transparency about the Rafale aircraft deal, and Supreme Court's decision against linking of Aadhar cards to bank accounts and cell phones have cast a huge shadow of doubt about the credibility of the NDA government.

The stock market detests uncertainty and usually votes with its feet. That seems to be the real reason behind the indiscriminate selling of even fundamentally strong stocks.

Stick to existing SIPs, but avoid any lump sum investments or adventurous forays into unknown small-caps. Nifty hasn't bottomed out yet.

Gold and Silver charts: bears rule but bulls trying to put up a fight

Gold chart pattern

The daily bar chart pattern of Gold has been consolidating sideways within a 'rectangle' pattern for the past five weeks - getting support from the 1190 level and facing resistance from the 1220 level.

Gold's price has been oscillating about its 20 day EMA, and is trading below its falling 50 day and 200 day EMAs in a bear market. Higher volumes on recent down days indicate that bears remain in charge.

A 'rectangle' is an unreliable pattern - sometimes acting like a continuation pattern and sometimes like a reversal pattern. One has to wait for the eventual price breakout before taking any buy/sell decisions.

Daily technical indicators are looking bearish to neutral, and not showing any upward momentum. MACD is above its rising signal line in bearish zone. RSI and Slow stochastic are oscillating in their respective neutral zones.

On longer term weekly chart (not shown), gold’s price closed well below its three weekly EMAs in long-term bear territory. The 'death cross' of the 50 week EMA below the 200 week EMA has technically confirmed a long-term bear market. Weekly technical indicators are in bearish zones after correcting oversold conditions.

Silver chart pattern

The following comment appeared in the previous post on the daily bar chart pattern of Silver: "Silver's price has resumed its downward journey and may fall below 14.20 in the near term."

Silver's price touched a low of 13.91 on Sep 11, and has been consolidating within a bearish 'rising wedge' pattern for the past three weeks. The likely breakout from the 'wedge' is downwards.

Daily technical indicators are showing some bullish signs. MACD is rising above its signal line in bearish zone. RSI is hovering below its 50% level. Slow stochastic has moved above its 50% level. Silver's price is trading well below its falling 50 day and 200 day EMAs in a bear market. 

On longer term weekly chart (not shown), silver’s price closed well below its three falling weekly EMAs in a long-term bear market. Weekly technical indicators are inside their respective oversold zones.

S&P 500 and FTSE 100 charts (Sep 21, 2018): bulls shove aside bear resistance

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 bounced up after receiving support from its 20 day SMA (blue dotted line) and rose to penetrate the upper Bollinger Band on Thu. Sep 20. 

On Fri., the index touched a new high of 2941 with a huge volume surge, but formed a small 'reversal day' bar (higher high, lower close). That can trigger a corrective move towards the lower Bollinger Band.

Daily technical indicators are bullish and looking overbought. MACD has crossed above its signal line and is poised to re-enter overbought zone. RSI is facing resistance from the edge of its overbought zone. Slow stochastic is inside its overbought zone. All three indicators are showing negative divergences by touching lower tops.

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are looking overbought. MACD is rising above its signal line inside its overbought zone. RSI is about to enter its overbought zone. Slow stochastic is moving sideways inside its overbought zone. 

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 shows a spirited fightback by bulls. The index formed a small 'rounding bottom' pattern and climbed above its 20 day EMA. On Fri. Sep 21, the index touched a high of 7495 but closed 5 points lower as it faced strong resistances from the merged 50 day and 200 day EMAs.

The index gained 186 points (2.5%) on a weekly closing basis, and is on the verge of re-entering bull territory above its three EMAs. The 'death cross' of the 50 day EMA below the 200 day EMA has been averted for now.

Daily technical indicators are looking bullish. MACD has crossed above its signal line in bearish zone. RSI has bounced up above its 50% level after receiving support from the edge of its oversold zone. Stochastic has risen sharply to enter its overbought zone.

(At the time of writing this post, the index is trading at 7475 - as bears are desperately trying to prevent a move above the 50 day and 200 day EMAs.)

On longer term weekly chart (not shown), the index closed just below its 20 week EMA but above its 50 week and 200 week EMAs in a long-term bull market. Weekly MACD is below its falling signal line in bearish zone. RSI and Stochastic have moved up towards their respective 50% levels.

Sensex, Nifty charts (Sep 21, 2018): bears threatening to change the market trend

Bears (i.e. FIIs) had the upper hand in another holiday-shortened trading week. FIIs were net sellers of equity on Mon., Tue., and Wed. (Sep 17-19), but net buyers on Fri. Sep 21. Their total net selling was worth Rs 26.7 Billion. DIIs were net sellers of equity on Mon. but net buyers on Tue., Wed. and Fri. Their total net buying was worth Rs 17.8 Billion, as per provisional figures.

The failure of IL&FS to repay a loan from SIDBI, and RBI's refusal to grant an extension to Yes Bank's MD triggered panic selling in the stocks of banks, NBFCs and Housing finance companies on Fri. Sep 21. DHFL and Yes Bank bore the brunt of the bear attack.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex corrected during the first three trading days of the week, falling below its 20 day and 50 day EMAs but remaining within the downward-sloping channel.

Friday's panic selling dropped the index well below the channel to an intra-day low of 35993, before short-covering and some value buying led to a recovery and a close just above the lower edge of the channel. The index is trading above its rising 200 day EMA in a bull market, but bears are threatening to wrest the advantage.

On a weekly closing basis, Sensex lost almost 1250 points (3.3%). Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line in bearish zone. ROC is below its falling 10 day MA in oversold zone. RSI and Slow stochastic are inside their respective oversold zones. Any technical bounce may encounter more bear selling.

By touching a low of 35993, Sensex has retraced 46% of its 6500 points gain from the Mar '18 low of 32484. That is close to the 50% Fibonacci retracement level of 35737. The 200 day EMA is at about 35370. If the index corrects some more and falls below its 200 day EMA, expect support near the 61.8% Fibonacci retracement level of 34970. 

What if the index falls below 34970? That will technically confirm a change of trend from bull to bear. As of now, that possibility may seem remote. Nevertheless, knowing about the various support levels can help in making better buy/sell decisions.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty, which had been correcting within a downward-sloping channel, dropped sharply below the channel during intra-day trading on Fri. Sep 21.

The index recovered to close exactly at its 20 week EMA within the channel, losing 372 points (3.2%) on a weekly closing basis. However, Friday's sharp selloff has caused a major dent in bullish sentiment, and opened the door for a deeper correction.

On the downside, support can be expected from the 50 week EMA (at about 10700) and the support/resistance level of 10550. If those two supports fail, the index can test its Mar '18 low of 9998 - though the possibility may seem remote as of now.

Weekly technical indicators are correcting overbought conditions and showing downward momentum. MACD is about to cross below its signal line and fall from its overbought zone. ROC has crossed below its 10 week MA and is falling towards its neutral zone. RSI and Slow stochastic have dropped from their respective overbought zones.

Nifty's TTM P/E has come down to 27.09, but remains above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown), which had fallen vertically from its oversold zone, has re-entered it. Some more correction is likely.

Bottomline? The corrective downward moves on Sensex and Nifty charts appear to be gathering strength. Macro concerns like rising oil prices, a depreciating Rupee, widening trade and fiscal deficits have been compounded by the ongoing debt woes in IL&FS. Fear has spread like a wildfire in the market. Time to sit on the sidelines and wait for the dust to settle.

"There's Never Just One Cockroach in the Kitchen" - Warren Buffett

Buffett had made that comment in an interview following an accounting scandal in Wells Fargo. He may as well have made that comment about corruption in ICICI Bank and misreporting of NPAs by Axis Bank.

Yes Bank was the third 'cockroach'. (PSU banks are not being discussed here because collectively they are a massive 'anaconda' that is threatening to swallow India's financial system as a whole!)

The latest 'vermin' is IL&FS, whose MD has quit on his own. (The MD of ICICI Bank remains in suspended animation - for reasons best known to her. RBI has shown the door to the MDs of Axis Bank and Yes Bank, but is powerless to do likewise with the MDs of PSU banks.)

Moody's recently said that rising liquidity worries at IL&FS are credit negative for banks and debt market. The stock market reacted by indiscriminately pummeling the stocks of banks, NBFCs and housing finance companies.

It is interesting to note that despite a hurriedly-called concall with denials about any near-term liquidity problems, DHFL's stock failed to recover much from its lows on Friday (Sep 21). Which is the next 'cockroach'? 

There will be more than one. The business model of banks, NBFCs and HFCs requires borrowing short-term to lend long-term. If short-term liquidity dries up (or, gets costlier due to rising interest rates) the proverbial you-know-what will hit the fan - as it seems to be doing now. 

One market expert tried to reassure investors by stating that Friday's huge selloff was due to 'technical reasons'. One presumes he meant that fundamentally everything is hunky-dory in the financial system. Really?!

Talking about 'technical reasons', the market made a 'panic bottom' - with a sharp surge in transaction volumes - before bouncing up on short covering and some value buying. 

Typically, such a 'panic bottom' occurs during the second leg of a bear phase. 
However, the fact that it has occurred at an early stage of a corrective move is a clear warning to perma-bulls. 

Remember the stock market adage: Panic bottoms seldom hold. That means the market is headed lower than Friday's low. By how much? Likely support levels will be discussed in tomorrow's post on Sensex and Nifty.

Related Post
How to tackle a ‘panic bottom’

'Rolling Bear Market' Will Paralyze Stocks for Years: Morgan Stanley

U.S. stock investors should brace for a market that will be paralyzed for several years in a narrow trading range, according to one team of analysts on the Street, and as reported by CNBC. 

Investors are already in the midst of a "rolling bear market" that will push the S&P 500 down as much as 17% and no higher than 4% from today's levels, Morgan Stanley's chief equity strategist, Michael Wilson, told clients in a recent note.

"We think this 'rolling bear market' has already begun with peak valuations in December and peak sentiment in January," stated Wilson. 

Read more at: 
https://www.investopedia.com/news/rolling-bear-market-will-paralyze-stocks-years-morgan-stanley/

WTI and Brent Crude Oil charts: in consolidation mode

WTI Crude Oil chart

For the past three weeks, the daily bar chart pattern of WTI Crude Oil has been consolidating sideways within a range of 4 points - getting support at 67 but facing resistance at 71.

Oil's price closed above its three EMAs in bull territory, but formed a 'long-legged doji' candlestick pattern that indicates indecision among bulls and bears.

Daily technical indicators are looking neutral. MACD is above its signal line and moving sideways in neutral zone. RSI is also moving sideways in neutral zone. Slow stochastic is oscillating about its 50% level. The consolidation may continue a little longer.

On longer term weekly chart (not shown), oil's price closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators are looking neutral to bearish. MACD is falling below its signal line in bullish zone. RSI is moving sideways in neutral zone. Slow stochastic has resumed its down move in bearish zone.

Brent Crude Oil chart

The daily bar chart pattern of Brent Crude Oil has been consolidating sideways within a 4 points range for the past three weeks - getting support at 76 but facing resistance at 80.

Oil's price closed above its three rising EMAs in a bull market, but is moving down towards its 20 day EMA and can correct some more.

Daily technical indicators are in bullish zones but showing downward momentum. MACD is about to cross below its rising signal line. RSI is sliding towards its 50% level. Slow stochastic is falling towards its 50% level.

On longer term weekly chart (not shown), oil's price closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators are in bullish zones but not showing much upward momentum. MACD is rising towards its sliding signal line. RSI is moving sideways above its 50% level. Slow stochastic is facing resistance from the edge of its overbought zone.