Sensex, Nifty charts (Aug 07, 2020): bulls and bears reach a stalemate

FIIs were net sellers of equity on Wed. Aug. 5, but were net buyers on the other four trading days. Their total net buying was worth a huge Rs 94.97 Billion - thanks to Bandhan Bank owner holding divestment on Mon. Aug 3. DIIs were net sellers of equity on all five trading days. Their total net selling was worth Rs 21.34 Billion.

The IHS Markit India Manufacturing PMI dropped to 46 in Jul '20 from 47.2 in Jun '20. (A reading below 50 indicates contraction.) It was the fourth straight month of contraction. The Services PMI was 34.2 in Jul '20 against 33.7 in Jun '20. The Composite (Mfg. + Serv.) PMI slipped to 37.2 in Jul '20 from 37.8 in Jun '20.

India's Consumer Confidence index plummeted to 53.8 in Jul '20, well below the 100 mark that represents the dividing line between optimism and pessimism. Inflation expectations of households are rising, which may be one of the reasons why RBI maintained status quo on interest rates at its Aug '20 MPC meeting.

BSE Sensex index chart pattern

Despite strong buying by FIIs, the daily bar chart pattern of Sensex failed to move above the 640 points downward 'gap' formed back on Mar 6th. Bears are putting up a strong last-ditch resistance.

On Mon. Aug 3, the index dropped to close below its 20 day EMA for the first time in more than two months. Bulls used the dip to buy - as they have been doing for more than four months.

The index closed just below the 'gap' on Tue. and Wed. (Aug 4 and 5), but entered and remained within the 'gap' during the next two days. The 50 day EMA is on the verge of crossing above the 200 day EMA - the 'golden cross' will technically confirm a return to a bull market.

Daily technical indicators are looking bullish to neutral. MACD is moving sideways below its signal line in bullish zone. ROC is below its 10 day MA, and moving sideways along its '0' line. RSI is falling towards its 50% level. Slow stochastic has bounced up a bit after falling towards its 50% level.

The (blue) up trend line - currently at 37000 - remains intact and untested for the past two months. Any breach of the trend line may be followed by a drop to the 200 day EMA (currently at 36050).

Sensex needs to convincingly move above its Jul. 29th top of 38617 for the bullish pattern of 'higher tops, higher bottoms' to continue. That should not be a problem if FIIs continue their buying.

After touching 103 in mid-March '20, the US Dollar index had been declining steadily, but has bounced up a little after finding a bottom at 92.5. A fall in the Dollar index may be partly responsible for FII flows into emerging markets. The flows can reverse if the Dollar index starts rising.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs for the fifth straight week, but failed to move above the 'support-resistance' zone between 11000-11250. Bear resistance forced a third weekly close inside the 'support-resistance' zone.

The 20 week and 50 week EMAs are moving up after forming bullish 'rounding bottom' patterns. Bulls have the upper hand. However, failure of the index to move above the 'support-resistance' zone has kept the door open for a correction down to the 200 week EMA (at 10282).

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

Nifty's TTM P/E has moved up to 30.72, a new lifetime high and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is in neutral zone, hinting at some more consolidation or correction.
 
Bottomline? Counter-trend rallies on Sensex and Nifty charts have stalled at resistance zones after re-entering bull territories. Bulls have the advantage, but bears are trying their best to hold them back. Stay invested, but avoid fresh buying.