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

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

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

BSE Sensex index chart pattern

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

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

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

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

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

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

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

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

NSE Nifty index chart pattern

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

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

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

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

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

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

Sensex, Nifty charts (Sep 18, 2020): consolidation continues after sharp rallies

FIIs were net sellers of equity on Thu. Sep 17, but were net buyers during the other days of the week. Their total net buying was worth Rs 16.89 Billion. DIIs were net sellers during all five days. Their total net selling was worth Rs 23.97 Billion.

Total vehicle registrations at Regional Transport Offices during Aug '20 fell 26.81% YoY. While tractor registrations grew 27.8%, PV, 2W, CV and 3W registrations fell 7.1%, 28.7%, 57.4% and 69.5% respectively.

CPI based retail inflation slipped a bit to 6.69% YoY in Aug '20 from 6.73% in Jul '20. It was at 3.28% in Aug '19. WPI based wholesale inflation turned positive in Aug '20 for the first time since Mar '20, rising to 0.16% YoY in Aug '20 from -0.58% in Jul '20.

Exports fell 12.7% YoY in Aug '20 while imports were down 26%, resulting in a lower trade deficit of US $6.77 Billion against $13.86 Billion a year ago.

BSE Sensex index chart pattern

During the week, the daily bar chart pattern of Sensex consolidated sideways while trading above its three daily EMAs in a bull market. However, bears put up a good fight at the 335 points downward 'gap' (formed on Feb 28) - continuing to frustrate efforts by bulls to push the index higher for the third straight week.

A foray inside the 'gap' zone on Wed. Sep 16 could not be sustained despite buying by FIIs. On a weekly basis, the index closed flat. The hurdle of the 'gap' will need to be overcome before bulls can resume control of the chart. 

Daily technical indicators are looking neutral to bullish. MACD is moving sideways after merging with its signal line in bullish zone. ROC has moved above its 10 day MA in neutral zone. RSI has just crossed above its 50% level. Slow stochastic is rising above its 50% level.

US stock indices closed lower for the third straight week, as a tech-led sell-off intensified. If current restrictions on short selling are not extended beyond Sep 24, expect selling to intensify in Indian stock indices as well.

After 50% gains from its Mar '20 low, do not expect Sensex to surge much higher. Stocks like RIL, which has gained more than 100% since its Mar '20 low, HDFC twins, HUL fuelled the index rally. 

Now midcap and smallcap stocks are coming to the forefront and several IPOs are in the pipeline. Small investors should be extra cautious not to fall into the trap of making easy money with little effort. 

Wealth building in the stock market requires knowledge, discipline, patience and a lot of time for the magic of compounding to take effect. Quick profits are here today, gone tomorrow.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty had bounced up after dropping inside the 'support-resistance zone' between 11000-11250 in the previous week. Despite FII buying, the index failed to make much upward progress - gaining about 40 points (0.35%) on a weekly closing basis.

Convincing breach of an up trend line is often a sign of trend reversal. But bears are still on the back foot, since 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 towards the edge of its overbought zone. 

After touching a new high of 33.03 on Tue. Sep 15, Nifty's TTM P/E has moved down a bit to 32.98, which is well above its long-term average and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped sharply from its oversold zone. Some more near-term index consolidation or correction is possible.
 
Bottomline? After breaching 5 months long up trend lines on Sensex and Nifty charts, both indices have been consolidating near resistance zones. Some more consolidation or correction is likely. Stay on the sidelines. Wait for better entry opportunities.

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, Nifty charts (Aug 28, 2020): moving higher on FII buying

FIIs were net buyers of equity on all five trading days during the week. Their total net buying was worth Rs 54.5 Billion. DIIs were net sellers of equity on all five trading days, but could not keep pace with FII buying. Their total net selling was worth Rs 30.56 Billion. 

SEBI had introduced certain restrictions on F&O trading to curb volatility on Mar 20. These restrictions, including limits on holding short positions, have been extended till Sep 24. Bulls are expected to drive home their advantage.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex moved up relentlessly on the back of strong FII buying and closed at its highest level in 6 months. Bears have been pushed back to the last ditch - a 335 points downward 'gap' that had formed on Feb 28th, a few days before the index crashed.

The index has already closed just above the 'gap' zone. It appears unlikely that bears will be able to put up much of a fight. An index up move to a new lifetime high may occur sooner than later.

All three EMAs are rising, and the index is trading above them - and above the (blue) up trend line - in a bull market. The 'golden cross' (of the 50 day EMA above the 200 day EMA - marked by light blue circle) had technically confirmed a return to a bull market. Bears are on the verge of throwing in the towel.

Daily technical indicators are looking bullish and a bit overbought. MACD is moving sideways after merging with its signal line in bullish zone. ROC is rising above its 10 day MA in bullish zone. RSI has just entered its overbought zone. Slow stochastic is moving sideways well inside its overbought zone.

Despite poor Q1 (Apr-Jun '20) corporate earnings and a likely contraction in GDP, analysts are projecting higher earnings two years forward to justify current stretched index valuations. 

Small investors should remain wary, because no one really knows how long the pandemic will continue to devastate the already slowing economy and what corporate earnings will look like two years down the road.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs in long-term bull territory for the 8th straight week. The index moved above the psychological 11500 to its highest level in 6 months.

The 20 week and 50 week EMAs are moving up after forming bullish 'rounding bottom' patterns. The 200 week EMA is also moving up after forming a shallower saucer-like pattern. Bulls are gaining significant ground against bears.

Weekly technical indicators are looking bullish and overbought. MACD is rising above its signal line and has entered its overbought zone. RSI continues its gradual rise above its 50% level. Slow stochastic is moving sideways well inside its overbought zone. 

Nifty's TTM P/E touched a new lifetime high of 32.92, which is well above its long-term average and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is falling sharply in neutral zone, hinting at some more near-term index upside.
 
Bottomline? Bulls are regaining control on Sensex and Nifty charts. Bears are clearly on the back foot - thanks to SEBI restrictions on short selling. Some more upside is likely. Stay on the sidelines and wait for better entry opportunities on dips.

Sensex, Nifty charts (Aug 21, 2020): bears give ground grudgingly as bulls try to charge ahead

FIIs were net sellers of equity on Thu. Aug 20, but were net buyers of equity on the four other trading days. Their total net buying was worth Rs 20.68 Billion. DIIs were net sellers of equity on all five trading days. Their total net selling was worth Rs 21.17 Billion.

The Nomura India Business Resumption Index (NIBRI), a weekly tracker of the pace at which economic activity normalises, rose to 73.7 in the week ending on Aug 16 against 72.3 in the previous week. Though this indicated an improved momentum over the moderation in July, a rising spread of virus infections continued to hinder recovery. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex shows a tough fight for domination between bulls and bears near the 640 points downward 'gap' formed on Mar 6th.

On Mon. Aug 17th, the index dropped to the lower edge of the 'gap' intra-day but bounced up after receiving twin support from the (blue) up trend line and the 20 day EMA. The next day, the index rose to close above the 'gap' on the back of strong buying by FIIs.

Trading on Wed. Aug 19th was very interesting. The index rose above its previous (Jul 29) top of 38617 intra-day, but failed to close above it by a whisker. The next day, the index dropped back inside the 'gap' but found support from the up trend line. On Fri. Aug 21, the index just about managed to close above the 'gap' zone.

All three EMAs are now rising, and the index is trading above them in a bull market. The 'golden cross' (of the 50 day EMA above the 200 day EMA - marked by light blue circle) has technically confirmed a return to a bull market. But bears are refusing to give up the fight.

Daily technical indicators are looking bullish to neutral. MACD is moving sideways after merging with its signal line in bullish zone. ROC has merged with its 10 day MA, and is moving sideways in neutral zone. RSI is poised to enter its overbought zone. Slow stochastic has dropped to the edge of its overbought zone after re-entering it.

The Indian stock market is trying to track the rising US market, even though economic recovery may be far away. Since US stock indices are on the verge of new highs, expect Sensex to follow suit - at least as long as FIIs remain bullish.

However, the risk on the upside is increasing by the day. Watch out when the last of the bears throw in the towel and turn bulls. That is when a proper correction will happen. Till then, book partial profits, or ride the rally with trailing stop-losses.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs in long-term bull territory for the 7th straight week. After struggling for the past four weeks, it managed to close above the 'support-resistance' zone between 11000-11250. 

The 20 week and 50 week EMAs are moving up after forming bullish 'rounding bottom' patterns. The 200 week EMA has formed a shallower saucer-like pattern. Bulls are regaining control after a brief hiatus.

Weekly technical indicators are in bullish zones. MACD is rising above its signal line and is headed towards its overbought zone. RSI is gradually rising above its 50% level. Slow stochastic is moving sideways inside its overbought zone. 

Nifty's TTM P/E touched a new lifetime high of 32.09 on Wed. Aug 19 before slipping to 32.08, which remains deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is rising in neutral zone, and can limit near-term index upside.
 
Bottomline? Bulls appear to be regaining control on Sensex and Nifty charts. Bears are giving ground grudgingly. Some more upside can't be ruled out, but this isn't a good time to buy. Hold cash, stay on the sidelines and wait for better entry opportunities.

Sensex, Nifty charts (Aug 14, 2020): bears keep bulls on a leash

FIIs were net buyers of equity on all five trading days. Their total net buying was worth Rs 21.30 Billion. DIIs were net sellers of equity on all five trading days. Their total net selling was worth Rs 44.21 Billion.

India's CPI-based retail inflation rose to 6.93% in Jul '20 from 6.23% in Jun '20. CPI remained above 6% for the fourth straight month. Food inflation was 9.62%, thanks to supply disruptions. WPI-based wholesale inflation was -0.58% in Jul '20 against -1.81% in Jun '20.

After a US $790 Million trade surplus in Jun '20, India's trade deficit was US $4.83 Billion in Jul '20. Exports were down 10.21% to $23.64 Billion, while imports were down 28.4% to $28.47 Billion. Trade deficit was $13.43 Billion in Jul '19.

BSE Sensex index chart pattern

Note the following comment from last week's post on the daily bar chart pattern of Sensex: "Sensex needs to convincingly move above its Jul. 29th top of 38617 for the bullish pattern of 'higher tops, higher bottoms' to continue."

Despite FII buying throughout the week, the index tested but failed to move above 38617. On Fri. Aug 14, the index formed a 'reversal day' bar (higher high, lower close) and dropped to close near the lower edge of the 640 points downward 'gap' formed back on Mar 6th.

Should bulls be worried? Not yet. Though the index slipped below its 20 day EMA intra-day on Fri., it received support from the (blue) up trend line and bounced up. Remember that a trend line gets stronger with each successful test (unlike support/resistance levels, which get weakened with frequent tests).

The 'golden cross' (marked by light blue circle) of the 50 day EMA above the 200 day EMA is a technical confirmation of a return to a bull market. Does that mean bears have been vanquished, and all dips are buying opportunities?

Not quite. Sensex may be forming a small 'double top' reversal pattern that will be technically confirmed on a fall below the Aug 3rd low of 36911. In case the index does confirm the 'double top', the downward target will be 35250 (which just happens to fall inside the downward 'gap' formed back on Mar 12th).

Daily technical indicators are looking bullish to neutral. MACD is moving sideways after merging with its signal line in bullish zone. ROC has merged with its 10 day MA, and is moving sideways along its '0' line. RSI has dropped to its 50% level. Slow stochastic has dropped from its overbought zone after re-entering it.

Why are FIIs still buying after the index has already gained more than 45% from its Mar '20 low? One of the reasons may be the US Dollar index, which had peaked at 104 on Mar 23rd but is now languishing at 93. DIIs are clearly in profit-booking mode, and they have often outsmarted FIIs at or near market tops. So, caution is advised for those holding long positions.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs in long-term bull territory for the 6th straight week, but again failed to close above the 'support-resistance' zone between 11000-11250. Bear resistance forced a fourth weekly close inside the 'support-resistance' zone.

The 20 week and 50 week EMAs are moving up after forming bullish 'rounding bottom' patterns. The 200 week EMA has also started to move up. Bulls remain on top. However, failure of the index to close above the 'support-resistance' zone has kept bears in the game. A correction down to the 200 week EMA (at 10291) is possible.

Weekly technical indicators are in bullish zones. MACD is rising above its signal line and is well inside bullish zone. RSI is moving sideways above its 50% level. Slow stochastic is sliding down inside its overbought zone. 

Nifty's TTM P/E touched a new lifetime high of 31.42 on Thu. Aug 13 before slipping a bit to 31.09, which remains deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) dropped to the edge of its overbought zone, only to bounce up a little. Some more correction or consolidation is likely.
 
Bottomline? Counter-trend rallies on Sensex and Nifty charts have failed to move above resistance zones after re-entering bull territories. Bulls still have the advantage, but bears have kept them on a leash during the past four weeks. Time to book some profits.