Possible Nifty retracement levels

First the bad news. FIIs were net sellers of equity worth a huge Rs 127 Billion during the previous five trading sessions (Jan 22, 25, 27-29). That is the main reason for Nifty shedding 1150 points (7.8%) from its Jan 21 lifetime top (of 14753.5) to close just below its 50 day EMA.

Now the good news. Despite the sharp correction, the index is trading well above its rising 200 day EMA. That means the bull market is alive and kicking.

So, is this index dip a good time to buy? That would depend on an investor's risk tolerance and investment time horizon. The best time to buy is when you have money to spare. 

While timing the market is always difficult, it helps not to buy near market tops. Experienced investors have the patience to wait months (sometimes even years) for better buying opportunities.

For those not so experienced, having some idea of index (or stock) retracement levels can help to decide about entry points. 

Typically, Fibonacci retracement levels of 38.2% and 50% seem to work on technical charts. What are these levels for Nifty?

Let us make a couple of assumptions. The first assumption is that the index is correcting the gains made from its Sep '20 low (of 10790). A 38.2% retracement gives a figure of around 13250; a 50% retracement means about 12800. By touching a low of 13600 on Fri. Jan 29, Nifty has almost retraced 38.2%.

Note that the index has penetrated the lower Bollinger Band. Also, the Slow stochastic indicator is well inside its oversold zone. So, a technical bounce is very much within the realm of possibilities. 

Question is: Will the likely bounce rise to a new high, or get terminated at the 20 day SMA (middle Bollinger Band, marked by green dotted line)? In the latter case, the correction may resume and the index can drop to lower levels.

That leads us to our second assumption - that Nifty is actually in the process of correcting all gains made since its Mar '20 low (of 7511). A 38.2% retracement gives a figure of around 12000; a 50% retracement can drop the index to 11150.

That leaves the door open for a test of support from the 200 day EMA - currently at 12200. What if the 200 day EMA is breached and the index does fall to 11150 (however unlikely it may seem now)?

Then we may need to reassess the sustainability of the current bull phase. The annual budget on Feb 1 can have some short-term effect on the market. Long-term, it is profitability and earnings growth of India Inc. that will decide the winners and losers.

Sticking to large-cap market leaders won't hurt.

Sensex, Nifty charts (Dec 18, 2020): rising higher but showing some signs of fatigue

FIIs continued with their strong buying during the week. They were net buyers of equity worth Rs 118.06 Billion. DIIs tried their best to match them. They were net sellers of equity worth Rs 110.25 Billion. Sensex and Nifty both gained around 1.8% on a weekly closing basis.

India's CPI-based retail inflation eased marginally to 6.93% in Nov '20 from a six and a half year high of 7.61% in Oct '20 - thanks to easing of vegetable prices. WPI-based wholesale inflation rose for the fourth consecutive month to a nine months' high of 1.55%. 

In Nov '20, India's exports declined 8.74% to US $23.52 Billion while imports declined 13.32% to $33.39 Billion. The trade deficit hit a 10 months' high of $9.87 Billion. During Apr-Nov '20, exports dropped 17.76% to $173.66 Billion while imports dropped 33.55% to $215.69 Billion - leaving a trade deficit of $42 Billion.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex again touched new intra-day (47026) and closing (46961) highs during the week. FIIs continued with their strong buying while ignoring stretched index valuation. A falling US Dollar index may have motivated them to do so.

Sensex is trading well above its three rising EMAs in a long-term bull market. It has been rising within a nine months long upward-sloping channel, and is testing resistance from the upper edge of the trading channel. There is a possibility of some correction or consolidation prior to the Christmas holidays.

Daily technical indicators are in bullish zones, and looking overbought. MACD is moving sideways after merging with its signal line. ROC is moving sideways along with its 10 day MA. RSI is rising higher inside its overbought zone. Slow stochastic is rising gradually inside its overbought zone.

The farmers' agitation is being allowed to fester by an adamant government. Instead of solving the problem, farmers are being vilified and forced to hunker down in the open in extremely cold weather. The negative effects are beginning to be felt in industry, food prices and movement of goods.

Macroeconomic fundamentals have taken a back seat as the index is rising on the back of a flood of FII money. Enjoy the bull ride while it lasts, but maintain trailing stop-losses to protect profits.  

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose for the seventh straight week to close at a new high of 13760. A falling US Dollar index has resulted in strong buying by FIIs - pushing the index higher into extremely stretched valuation zone. 

The index has been rising within an upward-sloping channel for almost 9 months, and is trading well above its three rising weekly EMAs in a long-term bull market. FII buying has sustained the long rally, but there is possibility of some profit booking before Christmas holidays.

Weekly technical indicators are inside their respective overbought zones. MACD is rising above its signal line. ROC has dipped towards its rising 10 week MA. RSI and Slow stochastic are rising slowly. 

Nifty's TTM P/E has touched a new high of 37.84 - which is far above its long-term average and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) has climbed sharply from its overbought zone, and can trigger some near-term index consolidation or correction.

 

Bottomline? Sensex and Nifty charts are rising to newer highs on the back of strong buying by FIIs. Year-end profit booking by foreign fund houses is a distinct possibility. This is not a good time to look for new stock ideas. Hold existing positions with trailing stop-losses.

Sensex, Nifty charts (Dec 11, 2020): soaring high with no bearish clouds in sight

FIIs relentlessly continued with their buying momentum during the week. They were net buyers of equity worth a huge Rs 167.21 Billion. DIIs couldn't quite match them. They were net sellers of equity worth Rs 125.35 Billion. Sensex gained 2.2% and Nifty gained 1.9% on a weekly closing basis.

Automobile sales during Nov '20 were a mixed bag - showing 9% YoY growth over Nov '19 but a 14% MoM degrowth over Oct '20. Maruti, Ford, Renault, Nissan, Skoda, VW showed degrowth. M&M, Hyundai, Kia, Tata Motors, Honda, MG showed decent growth.

Registering growth for the second straight month, India's IIP (Index of Industrial Production) rose to an eight months high of 3.6% in Oct '20 on the back of recovery in manufacturing, consumer goods and power sectors.  

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex touched new intra-day (46310) and closing (46103) highs during the week. FIIs ignored stretched index valuation, and remained huge buyers in the Indian stock market.

Sensex has been rising within an eight months long upward-sloping channel, and is trading well above its three rising EMAs in a long-term bull market. Since the index is testing the upper edge of the trading channel, there is a possibility of some correction or consolidation.

Daily technical indicators are in bullish zones, but not showing much upward momentum. MACD is moving sideways after merging with its signal line. ROC is moving sideways above its 10 day MA. RSI has re-entered its overbought zone. Slow stochastic is moving sideways inside its overbought zone. 

A 25% rise in corporate profits during Q2 (Jul-Sep '20) amid a sharp contraction in GDP was on the back of wage squeezes leading to rise in income inequalities in India, as per economist Nouriel Roubini. 

This rising inequality is dangerous politically and socially because only a few people in the economy are benefitting. The groundswell of support for the farmers' agitation is a manifestation of the 'rich getting richer while the poor are getting poorer' situation.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose for the sixth straight week to close at a new high of 13514. Huge buying by FIIs is propelling the index higher into blue-sky territory with no known resistances. 

The index has been rising within an upward-sloping channel for more than 8 months, and is trading well above its three rising weekly EMAs in a long-term bull market. The strong rally has been sustained by FII buying thus far, but the possibility of year-end profit booking should be kept in mind.

Weekly technical indicators are inside their respective overbought zones. MACD is rising above its signal line. ROC is moving sideways above its 10 week MA. RSI is rising. Slow stochastic is moving sideways. 

After touching a new high of 37.2 on Wed. Dec 9, Nifty's TTM P/E slipped a bit to 37.16 - which is far above its long-term average and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped deep inside its overbought zone. Some near-term index consolidation or correction is possible.

Bottomline? Sensex and Nifty charts are rising to new highs on the back of relentless buying by FIIs. Year-end profit booking by foreign fund houses can't be ruled out. Hold existing positions with trailing stop-losses.  

Sensex, Nifty charts (Dec 04, 2020): keep rising as FIIs maintain buying momentum

FIIs continued with their strong buying momentum in a holiday-shortened trading week. They were net buyers of equity worth Rs 102.1 Billion. DIIs were net sellers of equity worth Rs 60.9 Billion. Both Sensex and Nifty gained more than 2% on a weekly closing basis.

IHS Markit India's Manufacturing PMI slipped to a 3 months low of 56.3 in Nov '20 from a 12 year high of 58.9 in Oct '20. India's Services PMI also dipped - to 53.7 in Nov '20 from 54.1 in Oct '20. (A reading above 50 indicates expansion.) The composite (Mfg. + Serv.) PMI dropped to 56.3 in Nov '20 from 58 in Oct '20.

As was widely expected, RBI's Monetary Policy Committee left interest rates unchanged and maintained an 'accomodative' stance at its last policy meeting in calendar year 2020.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex closed at a new high of 45080, as FIIs persisted with their strong buying momentum. The index has gained more than 19000 points (73.5%) from its Mar '20 closing low of 25981.

All three daily EMAs are rising, and the index is trading well above them in a bull market. As long as FIIs keep buying, expect the index to keep rising to new highs.

Daily technical indicators are looking bullish. MACD has merged with its signal line in bullish zone. ROC has crossed above its falling 10 day MA in neutral zone. RSI is about to re-enter its overbought zone. Slow stochastic is rising inside its overbought zone. 

Note that all four daily technical indicators are showing negative divergences by touching lower tops while the index touched a new high. However, large inflow of FII liquidity has been brushing aside all technical headwinds.

A bit of circumspection may be a good idea at this stage. Booking part profits and keeping some cash in hand can provide opportunities to enter at lower price points, as calendar year-end profit booking by FIIs can start at any time.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose for the fifth straight week to close at a new high of 13259. Strong buying by FIIs ensured that the index continued its upward climb in blue-sky territory with no known resistances. 

The index is trading well above its three rising weekly EMAs in a long-term bull market. However, such a strong rally may not sustain much longer. Also, year-end profit booking by FIIs may cause a pullback towards 12500.

Weekly technical indicators are looking overbought. MACD is rising above its signal line inside its overbought zone. ROC is rising above its 10 week MA in overbought zone. RSI has re-entered its overbought zone. Slow stochastic is inside its overbought zone but not showing any upward momentum. Some consolidation or correction may follow.

Nifty's TTM P/E touched a new high of 36.46 - which is way above its long-term average and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is moving sideways inside its overbought zone. Some near-term index consolidation or correction is possible.

Bottomline? Sensex and Nifty charts are continuing to climb to new highs on the back of FII liquidity inflow. Year-end considerations can lead to some profit booking by foreign fund houses. Book partial profits, or hold existing positions with trailing stop-losses.  

Sensex, Nifty charts (Nov 27, 2020): soaring to new highs on a tsunami of FII liquidity inflow

A tsunami of FII liquidity inflow boosted Sensex and Nifty to new highs past 44000 and 13000 levels respectively. During Nov '20, FIIs were net buyers of equity worth Rs 653.2 Billion - their highest ever monthly net buying. DIIs were net sellers of equity worth Rs 483.2 Billion - their highest monthly net selling ever. 

The situation on the economic front is improving, but remains grim. India's Q2 (Jul-Sep '20) GDP contracted by a less-than-expected 7.5% following an unprecedented decline of 23.9% in Q1 (Apr-Jun '20). GDP had expanded by 5.2% in previous Q2 (Jul-Sep '19).

India's fiscal deficit during Apr-Oct '20 came in at Rs 9.5 Trillion, which is almost 120% of the FY 2020-21 annual target of Rs 7.96 Trillion. The lag in revenues continues to outpace the government's efforts at expenditure compression.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex touched a new intra-day high of 44825 on Wed. Nov 25, but formed a large 'reversal day' bar (higher high, lower close) and closed nearly 1000 points lower. The index recovered a little to close at 44150 by the end of the week - gaining more than 4500 points (11.4%) for the month.

All three daily EMAs are rising, and the index is trading above them in a bull market. Sideways consolidation during the past two weeks have helped to correct overbought conditions of technical indicators.

Daily technical indicators are turning bearish. MACD has slipped below its signal line in bullish zone. RSI has dropped from its overbought zone. Slow stochastic has fallen below its 50% level. Some more consolidation or correction is likely.

Q2 (Jul-Sep '20) corporate results were a pleasant surprise, though top line growth was minimal and bottom line improvement was helped by tax cuts and cost curtailments. Q3 (Oct-Dec '20) results will either confirm that business recovery is for real or that the improvement in Q2 was due to pent-up demand following the long lock down.

Strong bullish sentiment in the market may be hinting that business recovery is in full swing. Anecdotal evidence suggests otherwise. The larger and more established companies are grabbing market share from MSMEs. 

That is not conducive for a broad-based economic growth and employment generation in the long run. Small investors who prefer mid-cap and small-cap stocks may face rough times unless they realign their portfolios towards large-cap stocks.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose for the fourth straight week to breach the 13100 level intra-week before closing at a new high of 12969. Huge buying by FIIs ensured that the index continued to soar in blue-sky territory. 

Bulls remain in total control of the chart. The index is trading well above its three rising weekly EMAs in a long-term bull market. However, caution is advised as the index has gained a whopping 75% in just 8 months (from its Mar '20 low to the Nov '20 high).

Such a strong rally is unlikely to sustain much longer. Expect year-end profit booking by FIIs, which will help improve the technical 'health' of the chart.

Weekly technical indicators are looking overbought. MACD is rising above its signal line inside its overbought zone. RSI is hovering at the edge of its overbought zone. Slow stochastic is inside its overbought zone but showing slight downward momentum that is hinting at likely consolidation or correction.

After touching a new high of 35.9 on Tue. Nov 24, Nifty's TTM P/E has slipped down a bit to 35.66 - which is way above its long-term average and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped and remained inside its overbought zone since Nov 11. Some near-term index consolidation or correction is possible.

Bottomline? Sensex and Nifty charts are climbing to new highs on a tidal wave of FII liquidity inflow. Year-end considerations can lead to some profit booking by foreign fund houses. Upside risk is increasing by the day. Hold existing positions with trailing stop-losses, or take some profits home. 

Sensex, Nifty charts (Nov 13, 2020): in blue-sky territories after touching lifetime highs

FIIs continued with their buying spree during the week. They were net buyers of equity worth a massive Rs 198.69 Billion - far exceeding their entire net buying during Oct '20. DIIs were net sellers of equity worth Rs 135.11 Billion. Both indices gained 4.2% to touch lifetime highs.

According to RBI, India's GDP may have slipped into an unprecedented recession by contracting 8.6% during Q2 (Jul-Sep '20), following a 24% contraction during Q1 (Apr-Jun '20). (Two straight quarters of GDP contraction is a thumb-rule definition of a recession.)

India's Index of Industrial Production (IIP) grew at 0.2% in Sep '20 after contracting for six consecutive months. IIP had contracted by 4.6% in Sep '19. However, CPI-based retail inflation rose to 7.61% in Oct '20 - its highest level since May '14 - against 7.34% in Sep '20.

BSE Sensex index chart pattern

During 'muhurat' trading on Sat. Nov 14, the daily bar chart pattern of Sensex rose to touch lifetime intra-day (43830.9) and closing (43638) highs. The index is trading in blue-sky territory (with no known resistances) - well above its three rising daily EMAs in a long-term bull market.

In less than 8 months since touching an intra-day low of 25638.9 on Mar 24 '20, the index has made a spectacular gain of more than 18100 points (71%). However, many small investors who prefer mid-cap and small-cap stocks may be wondering why their portfolios are barely in profit.

The pandemic-induced lockdown and subsequent stuttering economic growth has affected smaller companies a lot more. Larger, well-established companies have been able to utilise tax cuts and lower interest rates to grab more market share from smaller and unorganised companies. The rich have got richer; the poor, poorer.

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. RSI is moving sideways inside overbought zone. Slow stochastic is falling inside its overbought zone. While an index can remain overbought for long periods, some consolidation or correction may be around the corner.

Q2 (Jul-Sep '20) results of corporate India have shown clear improvement over Q1 (Apr-Jun '20) as economic activity is returning back towards normalcy post sudden lockdown in Mar '20. Manufacturing activity and credit growth still remains weak. Certain sectors - like hospitality, travel, transportation will take a long time to recover.

High food prices despite a bountiful monsoon is another concern. Sky-high vegetables prices have seriously affected both rural and urban poor. The increasing gap between the rich and the poor does not augur well for a broad-based economic growth. Sooner than later, the stock market indices will revert to mean. 

Till then, extra due diligence is recommended before investing in individual stocks. Those who are already invested in good, diversified portfolios should add to existing holdings on dips but avoid chasing fresh ideas at a market top.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose sharply for the second straight week to close at a lifetime high of 12780. Massive buying by FIIs has propelled the index into blue-sky territory with no known resistances. 

Bulls are in total control of the chart. The index is trading well above its three rising weekly EMAs in a long-term bull market. However, caution is advised near a lifetime high. 

A sharp correction had followed after the index had touched its previous top in Jan '20. Such a dramatic correction is unlikely at this stage - specially with FIIs in buoyant buying mood. A more moderate correction or consolidation will improve the technical 'health' of the chart.

Weekly technical indicators are looking bullish and overbought. MACD is rising above its signal line towards its overbought zone. RSI has moved up to the edge of its overbought zone. Slow stochastic has bounced up from the edge of its overbought zone but showing negative divergence by touching a lower top. That may trigger some consolidation or correction.

Nifty's TTM P/E has moved up to 34.73 - which is way above its long-term average and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped inside its overbought zone. Near-term index upside appears limited.

Bottomline? Sensex and Nifty charts have climbed up to lifetime highs on the back of huge buying by FIIs. Overbought technical indicators can lead to some profit booking. Stay on the sidelines till bullish euphoria subsides. 

Sensex, Nifty charts (Nov 06, 2020): soaring on the back of FII buying

FIIs were net buyers of equity worth a huge Rs 134 Billion - almost equalling their entire net buying during Oct '20. DIIs were net sellers of equity worth Rs 67.9 Billion. Both indices gained nearly 5.5% for the week.

Nikkei/IHS Markit India Manufacturing PMI for Oct '20 rose to 58.9 - its highest level since mid-2008 - from 56.8 in Sep '20. The Services PMI climbed to 54.1 in Oct '20 from 49.8 in Sep '20 - its highest level since Feb '20 and well above the 50 mark that separates growth from contraction.

The Composite PMI (Mfg. + Serv.) rose to 58 in Oct '20 - its highest level since Jan '12 - from 54.6 in Sep '20.

India's merchandise exports declined 5.4% to US $24.82 Billion in Oct '20. Imports fell 11.56% to $33.6 Billion, narrowing the trade deficit to $8.78 Billion against $11.76 Billion in Oct '19. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex bounced up sharply after receiving good support from its 50 day EMA in the previous week. The index opened with an upward 'gap' on Thu. Nov 5, thanks to a flood of FII money. The next day, it rose higher to close within 60 points of its lifetime closing high of 41945 (touched back in Jan 17 '20).

The index is trading above its three rising daily EMAs in a long-term bull market. However, proximity to a previous high, and combined negative divergences visible on all four daily technical indicators (which failed to touch new highs with the index) calls for caution.

Daily technical indicators are looking bullish. MACD has crossed above its signal line in neutral zone. ROC has moved above its 10 day MA in neutral zone. RSI is climbing above its 50% level. Slow stochastic has bounced up sharply to re-enter its overbought zone. Some more near-term index upside is possible, but avoid entering the market now.

Aggregate Q2 (Jul-Sep '20) results of 1000 companies show top line pressure but bottom line improvements (thanks to tax cuts). Pharma companies declared good numbers. ITC results were a disappointment, because the pandemic has affected its cigarettes, hospitality and stationery products businesses. 

Small investors would do well not to get caught up in bullish euphoria. Good stocks are becoming more expensive. Tendency to look for hidden gems among junk stocks can be injurious to wealth. Sometimes, doing nothing is a good strategy.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose sharply to close within 100 points of its lifetime closing high of 12352 - touched in the week ending on Jan 17, '20. Strong FII buying negated technical headwinds. The index closed above its three rising weekly EMAs in a long-term bull market for the 18th straight week. 

Bulls are in total control of the chart. A new lifetime high seems just a hop, skip and jump away. However, caution is advised near a lifetime high. Everyone remembers the sharp correction after the index touched its previous top in Jan '20.

What is the reason for the sudden rush of FII buying? Wasn't a win for Biden in the US elections considered bearish for the stock market? According to experts, since Democrats failed to get a majority in the US Senate, Biden will be unable to push through any new taxes. Sometimes, stock markets use any excuse to go up (or down)!

Weekly technical indicators are in bullish zones, and looking overbought. MACD is rising above its signal line in overbought zone. RSI is moving sideways above its 50% level. Slow stochastic has bounced up from the edge of its overbought zone. RSI and Slow stochastic are showing negative divergences by failing to touch new highs with the index, and may trigger some consolidation or correction.

Nifty's TTM P/E has moved up to 33.09 - which is well above its long-term average and well inside its overbought zone. The breadth indicator NSE TRIN (not shown) is still in neutral zone - hinting at near-term index consolidation.
 
Bottomline? Sensex and Nifty charts have soared to their highest levels since touching their lifetime highs back in Jan '20. Negative divergences in technical indicators, and proximity to lifetime highs may lead to profit booking. Stay invested, but avoid fresh commitments.