Nifty 50 Chart
Both long-term trend lines - TL1 and TL2 - are intact. Current level of TL2 is at 10800 - which may get breached. Strong support exists at 10000. If that gets breached, then a drop to 9000 is possible.
Nifty Midcap 100 Chart
Long-term uptrend line TL1 is intact, but TL2 has been breached. The index is at a support level now. If that gets breached, a fall to 14000 is possible.
Nifty Smallcap 100 chart
Long-term uptrend line TL1 is intact, but TL2 has been breached. The index is at a strong support level now. If that gets breached, a fall to 4500 is possible.
This may be a good time to look for selective opportunities in growth-oriented mid cap and small cap companies with strong balance sheets.
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.
FIIs were net sellers of equity on Mon., Wed. & Thu. (Sep 3, 5 & 6), but net buyers on the other two days. Their total net selling was worth Rs 7.9 Billion. DIIs were net buyers of equity on Wed., Thu. & Fri. but net sellers on Mon. & Tue. Their total net buying was worth Rs 11.7 Billion, as per provisional figures.
During Apr-Jun '18, India's overall balance of payments slipped into deficit for the first time in six quarters due to large Dollar outflows. The deficit stood at US $11.3 Billion against a surplus of $11.4 Billion during Apr-Jun '17.
The Current Account Deficit (CAD) rose to US $15.8 Billion (2.4% of GDP) from $15 Billion (2.5% of GDP) in the year ago quarter. Outflows of US $8.1 Billion compared with inflows of $12.5 Billion a year ago led to a sharp depreciation of the Rupee.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex broke out below last two months' upward-sloping trading channel on Mon. Sep 3, and continued to correct during the next two days - closing below its 20 day EMA for the first time in two months.
A combination of short covering and some value buying led to a pullback and a close above the 20 day EMA by Fri. Sep 7. The index lost 255 points (0.7%) on a weekly closing basis, but remained above its three EMAs in bull territory.
Daily technical indicators have corrected overbought conditions. MACD has crossed below its signal line and descended from its overbought zone. RSI has bounced up after receiving support from its 50% level. Stochastic fell below its 50% level but is trying to cross above it.
Sensex may correct or consolidate some more before it can resume its up move. Note that the MSCI Emerging Markets ETF (EEM) has been in a bear market for more than two months, so FII outflows are expected to continue.
That means the Rupee will depreciate some more, and consequent higher cost of imported oil will stoke the inflation fire. Expect RBI to hike interest rates again at its Oct '18 monetary policy meeting. A deeper index correction is likely to follow.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty touched a slightly lower top of 11752 and broke out below the steep upward-sloping trading channel within which it had traded for more than two months.
After slipping below 11400 intra-week, the index retraced more than 50% of its 366 points fall from its previous week's high if 11760. All three weekly EMAs are rising, and the index is trading above them in a long-term bull market.
Weekly technical indicators are inside their respective overbought zones. MACD is still moving up above its signal line, but its upward momentum has reduced. RSI and Slow stochastic have started to move down.
Nifty's TTM P/E touched a high of 28.72 on Mon. Aug 27 but has corrected a bit to 28.17 - still well above its long-term average, and in overbought territory. The breadth indicator NSE TRIN (not shown) is in neutral zone. Some index consolidation is likely.
Bottomline? Bulls are still in control of Sensex and Nifty charts, but bears have signalled their willingness for a fight. Macro headwinds like high oil prices, a depreciating Rupee, widening trade and fiscal deficits, and US-China tariff war have enabled bears to stall two months long rallies. Stay invested but stay wary. This is not the time for making easy money.
(Note: I'm planning to take a short break - so there will be no blog posts next week. Regular readers may please bear with me till then.)
Activity was expected to be at a low key during a 3-day trading week truncated by Holi and Good Friday holidays. Continued buying interest from FIIs ensured that both Sensex and Nifty gained about 1.5% each on a weekly closing basis.
As per provisional figures, FIIs were net buyers of equity worth nearly Rs 3500 Crores during the week. DIIs were net sellers of equity worth Rs 2600 Crores. Both indices are facing resistances from long-term support/resistance levels.
Stock indices may remain volatile next week due to F&O expiry and financial year end on Thu. Mar 31 '16. Hopes of an interest rate cut by RBI in April and short covering can continue to sustain the market rally from the Feb 29 low.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex has traded above its 20 day and 50 day EMAs for the past 3 weeks. The 20 day EMA has crossed above the 50 day EMA after 5 months. These are short-term bullish signals.
However, after breaking out above the support/resistance level of 24830, the index is facing resistance from the 25450 level. The 200 day EMA is still falling, and the index is trading below it in bear territory.
Bears may put up a fight to defend the 200 day EMA. When - not if - the index moves above the 200 day EMA, expect stronger resistances from the support/resistance level of 26300 and the blue downtrend line.
Three of the four daily technical indicators - MACD, RSI, Slow stochastic - are in their overbought zones. ROC has corrected from its overbought zone, but remains positive.
Some correction or consolidation is likely as the index approaches its 200 day EMA.
On longer-term weekly chart (not shown), Sensex closed above its 20 week EMA for the first time after 5 months. The index is now 1750 points above its rising 200 week EMA in a long-term bull market.
Weekly MACD and ROC are still in negative zones. RSI is in neutral zone. Slow stochastic has crossed above its 50% level. Bulls are gradually gaining ground, but bears haven't given up the fight yet.
NSE Nifty 50 chart pattern
The weekly bar chart pattern of Nifty 50 closed higher for the 4th straight week. It also managed to close just above the next support/resistance level of 7700, but remains below its 50 week EMA in bear territory.
Bears may try to defend the 50 week EMA. Stronger resistances are likely from the blue downtrend line and the next support/resistance level of 7950.
A change of trend will be confirmed only when the index crosses above the downtrend line convincingly (i.e. supported by a significant increase in volumes).
Weekly technical indicators are showing decent upward momentum. ROC and Slow stochastic have entered bullish zones. MACD has crossed above its signal line in negative zone. RSI is facing resistance from its 50% level.
Nifty closed 600 points above its rising 200 week EMA (not shown) in a long-term bull market. The scale continues to tilt towards bulls.
Bottomline? Chart patterns of Sensex and Nifty are testing long-term 'support/resistance' levels. Some correction or consolidation is a possibility. Use dips to enter fundamentally strong stocks. Long-term bull markets are recovering slowly but surely from year-long corrections.
FIIs were net buyers of equity worth more than Rs 4000 Crores during the past week. DIIs were net sellers of equity worth Rs 2350 Crores, as per provisional figures. Forex reserves increased by $2.54 Billion during the week.
Since the beginning of the month, FII net buying in equity has touched Rs 12700 Crores, exceeding their net selling during Feb '16. DII net selling in equity month-to-date is worth Rs 8000 Crores.
Both Sensex and Nifty closed higher for the third week in a row - at their highest levels in more than 2 months. However, long-term resistance levels on both indices have not been convincingly breached yet - keeping bearish hopes alive.
Next week has only three trading sessions because of Holi and Good Friday holidays. Volumes may remain muted, and both indices are expected to consolidate near current levels.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex consolidated sideways with a slightly upward bias, and closed with a weekly gain of 235 points (about 1%).
The index traded the entire week above its 20 day and 50 day EMAs, and closed above the long-term resistance level of 24830. The 20 day EMA is about to cross above the 50 day EMA. These are bullish signs in the near term.
Note that the 200 day EMA is still sliding down, and the index is trading below it. The close above the 24830 level has not been a convincing one yet - because the index remains within the 3% 'whipsaw' limit above it. The blue downtrend line continues to rule the chart. These are longer term bearish signs.
Three of the four daily technical indicators - MACD, RSI, Slow stochastic - are inside their overbought zones. ROC has already corrected from its overbought zone, and crossed below its 10 day MA.
Some more consolidation or a correction may be just around the corner. Any dip can be used to add to existing positions. The 23840 level should provide good support on the downside.
In case the rally continues on the back of buying by FIIs, overhead resistances can be expected from the 200 day EMA, the downtrend line and the 26300 level.
On longer term weekly chart (not shown), Sensex closed nearly 1400 points above its rising 200 week EMA in a long-term bull market, but is facing resistance from its 20 week EMA. Weekly technical indicators are showing some upward momentum, but MACD, ROC and RSI remain in bearish zones.
NSE Nifty 50 chart pattern
The weekly bar chart pattern of Nifty 50 gained 94 points (1.25%) on a weekly closing basis. It closed above the long-term resistance level of 7540, and also above its 20 week EMA for the first time since the week ending on Oct 23 '15.
However, the index is trading below its falling 50 week EMA. The blue downtrend line continues to dominate the chart. Bears may have lost a couple of recent battles, but can regroup and fight back at any time.
Weekly technical indicators are showing upward momentum, but haven't quite turned bullish yet - except Slow stochastic, which has crossed above its 50% level. MACD has crossed above its signal line in negative zone. ROC and RSI are in neutral zones.
If the rally continues, expect resistances from the 50 week EMA, the 7950 level and the downtrend line. Any dip towards 7240 can be used as a buying opportunity.
Nifty closed almost 500 points above its rising 200 week EMA (not shown) in a long-term bull market. The scale is gradually tilting towards bulls.
Bottomline? Chart patterns of Sensex and Nifty have managed to close above long-term 'support/resistance' levels. Some correction or consolidation can be expected. Use any dips to enter fundamentally strong stocks. Long-term bull markets are gradually recovering from year-long corrections.
FIIs have been net buyers of equity worth Rs 1600 Crores this week, as per provisional figures, despite net selling of Rs 54 Crores on Tue. Mar 15. DIIs have been net sellers on all three days - their sales totalling almost Rs 1800 Crores.
WPI inflation for Feb '16 was negative for the 16th straight month at -0.91% against -0.9% in Jan '16. CPI inflation eased to a 4 months low of 5.18% against 5.69% in Jan '16. Lower food prices helped. RBI may now consider a rate cut in Apr '16.
Exports fell for the 15th month in a row by 5.66% to $20.73 Billion in Feb '16. Imports also fell, by 5.03% to $27.28 Billion. The trade deficit of $6.54 Billion was the lowest this fiscal year.
The 1 year closing chart pattern of Nifty 50 shows the importance of the long-term 'support/resistance' level of 7550. After acting as a support level in Sep '15, it has been providing strong resistance during the past 2 months.
A couple of recent attempts by the index to overcome the resistance have failed. Remember that a support or resistance level gets weakened by frequent tests.
So, will Nifty breakout upwards soon? Daily technical indicators are not giving much encouragement to bulls. Upward momentum on all three have stalled.
The 'double bottom' reversal pattern formed in Feb '16 may have ended the year-long down trend, but bears are in no mood to give up just yet.
The TRIN breadth indicator (not shown) is just above its overbought zone. The index is trading below its falling 200 day EMA in bear territory.
Odds are favouring a correction more than a rally. Bulls can take heart that every dip is being used as a buying opportunity - clearly indicating a change in sentiment.
Several companies are falling over each other in declaring interim dividends to beat the Apr 1 deadline for an additional tax on those receiving more than Rs 10 Lakh in dividends (viz. promoters).
Please don't rush in to buy such company stocks in the hope of dividend stripping. Do so only if fundamentals justify a buy.
Remain patient and stay focussed on your asset allocation plan and your own portfolio. As regular blog reader Eswar mentioned recently: Some times the best stock to buy is something you already own.
After 4 straight months of net selling in equities, FIIs have firmly turned bulls in Mar '16. Their net buying in equities was worth Rs 2700 Crores during the week, and Rs 8600 Crores during the first 8 trading days of the month.
DIIs have turned bears after 4 consecutive months of net buying in equities. Their net selling in equities was nearly Rs 3200 Crores during the week, and Rs 5600 Crores during the first 8 trading days of the month.
Both Sensex and Nifty have rallied more than 10% from their 52 week lows touched on Feb 29 '16, and closed with weekly gains for the 2nd week in a row, but are facing resistances from long-term support/resistance levels.
The IIP number in Jan '16 was -1.53%, against -1.18% in Dec '15. It was the 3rd straight month of contraction in factory output, due mainly to degrowth in manufacturing and capital goods. However, the cumulative figure for the first 10 months of the fiscal year (Apr '15 to Jan '16) was 2.7%, against 2.6% in the previous 10 months period.
"With young workforce and continuing policy reform, India has not only emerged as the fastest-growing economy, but its stars also shine bright amid the current global gloom", IMF Managing Director Christine Lagarde said earlier today.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex closed with a small weekly gain of 72 points, and managed to trade above its 20 day and 50 day EMAs in a holiday-shortened week.
But the index continues to trade below its falling 200 day EMA and the blue downtrend line in bear territory, and failed to cross above the long-term 'support/resistance' level of 24830.
All four daily technical indicators are in bullish zones. MACD and ROC are showing upward momentum, but RSI and Slow stochastic are not. ROC and Slow stochastic are well inside their overbought zones.
Expect some correction or consolidation in the zone between 23840 and 24830, before the index can gain sufficient technical 'strength' to rise higher.
If the index does manage to break out above 24830, it will face resistance from its falling 200 day EMA (currently at 25700), and twin resistances from the next 'support/resistance' level of 26300 and the downtrend line. On the downside, 23840 should provide support.
On longer term weekly chart (not shown), Sensex closed more than 1150 points above its rising 200 week EMA in a long-term bull market, but is facing resistance from its 20 week EMA. Weekly technical indicators are showing upward momentum, but remain in bearish zones.
NSE Nifty 50 chart pattern
The weekly bar chart pattern of Nifty 50 gained about 25 points on a weekly closing basis, but is facing twin resistances from the long-term 'support/resistance' level of 7540 and its sliding 20 week EMA.
If the index overcomes the twin resistances, expect more resistances from the falling 50 week EMA (currently at about 7800), the next 'support/resistance' level of 7950, and the blue downtrend line.
Weekly technical indicators have corrected oversold conditions, but remain in bearish zones. MACD, RSI and Slow stochastic are showing some upward momentum.
The NSE TRIN market breadth indicator (not shown) is looking overbought - hinting at a correction towards 7240. The likely dip will be an adding opportunity.
Bottomline? Chart patterns of Sensex and Nifty are facing strong resistances from long-term 'support/resistance' levels. Some correction or consolidation can be expected. Use the opportunity to enter fundamentally strong stocks. Long-term bull markets are in the process of recovering from year-long corrections.
After Monday's holiday, FIIs continued their buying in equities. Their net buying crossed Rs 1200 Crores on Tuesday and Wednesday, as per provisional figures. In a reversal of roles, DIIs have turned bears. Their net selling exceeded Rs 2150 Crores.
The salaried middle-class heaved a sigh of relief as the Finance Minister withdrew his budget proposal of taxing 60% of EPF savings made after Apr. 1, 2016. The Finance Bill will need to be amended accordingly.
Oil's price has been rising on speculation that major producers may agree to a cut in production. Meanwhile, Vijay Mallya has flown the coop as banks tried to pressurise him to honour his personal guarantees against huge loans taken by the now-defunct Kingfisher Airlines.
After touching a 52 week intra-day low of 6826 on Feb 29 '16, Nifty rallied sharply above its 20 day EMA, the 'support/resistance' level of 7240 and its 50 day EMA - gaining more than 700 points (10.3%).
All three daily technical indicators touched higher bottoms (marked by blue arrows) while the index dropped lower. The combined positive divergences had provided a technical trigger for the rally.
The possibility of the index facing resistance from the next 'support/resistance' level of 7540 was mentioned in last week's update.
What will Nifty do next? In the past 2 days, DII selling has exceeded FII buying. Slow stochastic is well inside its overbought zone. The TRIN market breadth indicator (not shown) has entered its overbought zone for the first time since the third week of Dec '16.
A correction towards 7240 may be just around the corner. The dip will be a good buying opportunity.
Some experts are suggesting that the index may fall below 7240 and test its Feb 29 low. That seems unlikely - unless there is a sudden global sell-off for some reason.
A third possibility is Nifty overcoming the resistance from the 7540 level and moving up to 7700, which is the next 'support/resistance' zone.
Can the index move even higher? Sure it can. But there is a limit to how far short-covering can propel this rally.
Eventually, fundamentals need to be conducive for the bull market to resume in earnest - such as, an interest rate cut by RBI in Apr '16 and better Q4 results from India Inc.
Till then, use every opportunity to get rid of any dud stocks from your portfolio, and switch to fundamentally stronger ones.
The Finance Minister stuck to the fiscal deficit target of 3.5% of GDP, and maintained status quo on long-term capital gains tax on equity holdings in his budget proposals.
FIIs were reassured - despite lack of clarity on retrospective taxation - and have turned buyers. During the first 4 days of Mar '16, their net buying in equities crossed Rs 5900 Crores, as per provisional figures. DIIs were net sellers of equity worth Rs 2400 Crores.
India's manufacturing PMI (Purchase Manager's Index) was 51.1% in Feb '16 - the same as in Jan '16. A number above 50% indicates growth. However, services PMI dropped to a 3 months low of 51.4% in Feb '16. It was 54.3% in Jan '16 - a 19 months high.
RBI relaxed capital adequacy requirements of banks by allowing 45% of readily-saleable property value and foreign currency translation reserves to be included in Tier - I capital calculations. This has come as a big relief for PSU banks struggling with huge NPAs.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex touched a new 52 week low of 22495 on budget day (Feb 29 '16) but recovered to close just above the 23000 level. It rallied during the next 3 days as FIIs suddenly turned bulls.
The index easily crossed above its 20 day EMA, the support/resistance level of 23840 and its 50 day EMA before facing resistance from the next support/resistance level of 24830.
All four daily technical indicators touched higher bottoms (marked by blue arrows) while the index dropped to a new low. The combined positive divergences was a technical trigger for the rally.
Is the year-long correction finally over? It may be a bit early to call. The index is still trading below its falling 200 day EMA and the blue downtrend line, and technically remains in a bear market. Things can change quickly if FIIs continue to buy.
What is Sensex likely to do next? Shorts have been covered and there are no immediate positive triggers for the market. RBI has hinted at a possible interest rate cut in April '16.
Till then, expect some consolidation in the zone between 23840 and 24830. A possible move can be a test of support from the 23840 level before the index tries to overcome resistance from the 24830 level. In that case, an 'inverse head and shoulders' reversal pattern will form.
Sensex can also breach the support at 23840 and re-test its Feb 29 low - but that seems a low probability event as of now. A third possibility is a continuation of the current rally past 24830, in which case the next resistance level will be 26300.
On longer term weekly chart (not shown) the index has closed 1100 points above its 200 week EMA, keeping the long-term bull market alive. If you missed buying on the rally, use any dips to add. Otherwise, stick to your asset allocation plan.
NSE Nifty 50 chart pattern
The weekly bar chart pattern of Nifty has formed a large 'reversal bar' on strong volumes, hinting that the year-long correction from the Mar '15 top is coming to an end.
The index needs to overcome overhead resistances from the support/resistance level of 7540, its falling 20 week and 50 week EMAs and the blue downtrend line before bulls can regain control of the chart.
Weekly technical indicators have recovered from oversold conditions and are showing good upward momentum, but remain in bearish zones.
On weekly closing chart (not shown), Nifty has formed a 'double bottom' reversal pattern and bounced up to close nearly 400 points above its 200 week EMA.
Bottomline? Chart patterns of Sensex and Nifty have bounced up to close well above their respective 200 week EMAs. The threat to long-term bull markets has been averted. With FIIs turning buyers, bullish sentiment is back in the market. Don't get caught up in the euphoria. Be patient, and stick to your investment plans.
During Feb '16, FIIs were net sellers of equity worth Rs 12500 Crores. DIIs were net buyers of equity worth Rs 10500 Crores. Nifty touched a new 52 week low of 6826 on the last day of the month and closed with a 7.6% loss for the month.
Budget proposals did not appear to be market-friendly despite only a token 0.5% increase in Service tax, and a less-then-expected increase in excise duty on cigarettes. Corporate tax was not reduced. The tax on EPF withdrawal came as a major shock to the salaried class.
Just when everyone expected the index to collapse, Nifty did the unexpected and jumped 550 points from its Feb 29 low. What happened? Have a look at the chart and analysis below to find out.
The following comments from last Sunday's post on Sensex and Nifty charts may be worth repeating:
"The door remains open for bears to push the index down to a new 52 week low, if the budget doesn't contain any market-friendly proposals."
"...if 6869 gets breached after the budget announcements, Nifty is likely to find strong support in the zone between 6647 and 6869."
"There are very little expectations from the budget on Feb 29 - which may turn out to be a contraindicator for a market rally."
The daily bar chart pattern of Nifty 50 did touch a new 52 week intra-day low on budget day, found support at 6826 and then rallied strongly. After crossing above its 20 day EMA on Mar 1 '16, the index faced resistance from the long-term support/resistance level of 7240.
That resistance was easily overcome with an upward 'gap' with good volume support today. The resistance level is likely to turn into a support level once more. The falling 50 day EMA is now providing resistance.
Is the worst over for the index? It would appear so from FII activity. They were net buyers of equity worth a huge Rs 4350 Crores on Mar 1 & 2. DIIs turned net sellers of equity worth Rs 1430 Crores, as per provisional figures. FIIs were reassured by the FM's decision of sticking to the fiscal deficit target of 3.5% of GDP.
Note that all three daily technical indicators touched higher bottoms while Nifty dropped to a new low (marked by blue arrows). The combined positive divergences was a technical trigger for the rally.
On the daily closing chart (not shown), Nifty has formed a 'double bottom' reversal pattern, and should continue to rally.
There is also a possibility that Nifty faces resistance from the next 'support/resistance' level of 7540, pulls back towards 7240, and then resumes its uptrend. That will provide a good buying opportunity.
In case 7240 gets breached again, Nifty may test its Feb 29 low - but such a possibility appears slim, and can only be triggered by some cataclysmic global event.
After a long time, shorts have been squeezed out. Time to start activating your 'buy list'.
Not quite 'acche din' yet - but getting there.
FIIs were net sellers of equity for the 4th month in a row, and have been sellers in 6 of the last 7 months. Their net selling during Feb '16 has nearly touched Rs 10500 Crores.
DIIs were net buyers of equity worth Rs 9000 Crores, as per provisional figures. That wasn't enough to prevent both Sensex and Nifty from touching new 52 week lows during the month, and losing 2.5% on a weekly closing basis.
The Railway Minister tried to walk a fine line between a populist and a realistic budget. The result was a bit of a damp squib, and questions were raised about resource generation for funding new projects.
The budget session has started on a combative mode, with the opposition pillorying the government for its ham-handed approach towards subduing various protest movements. There are very little expectations from the budget on Feb 29 - which may turn out to be a contraindicator for a market rally.
BSE Sensex chart pattern
The following comments were made in last week's post on the daily bar chart pattern of Sensex: "Bears may use the pullback to sell. Sensex is likely to test the Feb 12 low, and even breach it if budget proposals disappoint the market."
As expected, bears (i.e. FIIs) used the pullback towards the 23840 level (marked by 2nd red arrow) to sell. The index stopped short of testing the Feb 12 low of 22600 - thanks to short covering on Fri. Feb 26 '16.
On the Sensex chart above, green arrows point to intermediate bottoms that acted as support levels, which subsequently turned into resistance levels (marked by red arrows).
Three of the daily technical indicators - MACD, RSI, Slow stochastic - are in bearish zones and not showing any upward momentum. ROC is the only one looking bullish by crossing above its 10 day MA and managing to enter positive zone.
The door remains open for bears to push the index down to a new 52 week low, if the budget doesn't contain any market-friendly proposals.
All three EMAs are falling, and the index is trading below them in a bear market. Sensex has closed below its 200 week EMA (not shown) for the second time in three weeks - keeping long-term bulls on tenterhooks.
NSE Nifty 50 chart pattern
The weekly bar chart pattern of Nifty is showing an interesting, but not surprising, phenomenon. Resistance levels that are almost 2 years old (intermediate tops marked by the two red arrows on the left of the chart) got breached on the up side and subsequently turned into support levels (marked by green arrows).
The support levels (intermediate bottoms) were breached on the down side almost 2 years later and then turned into resistance levels (marked by red arrows on the right of the chart).
Reminds me of Miles Davis' famous composition: So what? Just a reminder that calculated levels - like Fibonacci retracement levels - tend to be less reliable than actual support/resistance levels.
What if a Fibonacci retracement level coincides with a previous support level? For e.g. the 61.8% retracement level of the entire 4000 points rise in Nifty (from 5119 in Aug '13 to 9119 in Mar '15) is 6647, which happened to provide support to the index during Apr. '14.
Well, 6647 is likely to be a stronger support level (may be even a turning point) than the support/resistance level of 6869 (corresponding to the Feb 12 low).
In other words, if 6869 gets breached after the budget announcements, Nifty is likely to find strong support in the zone between 6647 and 6869. Remember that technical levels are never exact, but mostly approximate.
What if 6647 also gets convincingly breached on the downside? All bullish bets should be taken off the table.
Weekly technical indicators are in bearish zones, and looking oversold. That doesn't mean Nifty can't correct some more. The index closed below its 200 week EMA (not shown) again after two weeks, but touched a higher bottom - keeping faint bullish hopes of a revival alive.
Bottomline? Chart patterns of Sensex and Nifty have again closed below their respective 200 week EMAs. The threat to long-term bull markets has been renewed. Remain extremely cautious, but keep faith in your investment plans.
Short covering, some amount of value buying and hopes of market-friendly announcements in the forthcoming budget may have triggered last week's rally in the stock market.
There was also a slight let-up in FII selling in equities. Their net selling, as per provisional figures, was Rs 2600 Crores - thanks to net buying of Rs 400 Crores on Thu. Feb 18. DII were net buyers of equity worth Rs 3700 Crores.
Sensex and Nifty gained more than 3% each on a weekly closing basis - their biggest weekly gains in 4 months - and pulled back to test resistance from their respective Jan '16 lows.
Can the resistances be overcome, or will both indices resume their downward journeys? A lot will depend on whether budget announcements are able to meet or exceed already low market expectations.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex pulled back to its Jan 20 '16 low of 23840, where it is facing resistance from its falling 20 day EMA. The reasons for a likely technical bounce were explained in last week's post.
In the chart above, green arrows have been used to indicate previous bottoms that acted as supports. Once these supports got breached, they turned into resistance levels (marked by red arrows) for subsequent up moves.
Observant readers may see similar patterns near the 26300 level - supports turning into resistances. The reverse also occurs - resistances, when breached, turn into supports during bull phases.
Daily technical indicators have recovered from oversold conditions, but remain in negative zones and are not showing much upward momentum. RSI is showing positive divergence by touching a higher bottom while Sensex touched a 52 week low of 22600 on Fri. Feb 12.
Bears may use the pullback to sell. Sensex is likely to test the Feb 12 low, and even breach it if budget proposals disappoint the market.
There is also a possibility - however slim - of the index forming an 'inverse head and shoulders' reversal pattern. The left 'shoulder' has already formed, and the 'head' is in the process of being formed. One has to wait about 5-6 weeks for the pattern to play out.
After dropping and closing below its 200 week EMA (not shown) last week, Sensex has pulled back to close above it. The threat to the long-term bull market has been averted - for now.
NSE Nifty 50 chart pattern
The following remarks appeared in last week's analysis of the weekly bar chart pattern of Nifty 50:
"A close below the 200 week EMA is considered very bearish. But a single week's breach should not cause panic. Faint bullish hopes were kept alive as the index closed the week within the 3% 'whipsaw' limit below its 200 week EMA."
Nifty pulled back to its Jan '16 low of 7241, and in the process, closed more than 100 points above its 200 week EMA (not shown).
Weekly technical indicators remain in negative zones, but RSI and ROC are showing signs of upward momentum. MACD is still sliding down. Slow stochastic is muddling along the edge of its oversold zone.
Bears (i.e. FIIs) remain in control of the chart, and they are not showing any signs of relinquishing it.
Bottomline? Chart patterns of Sensex and Nifty have pulled back to their Jan '16 lows, and managed to close above their respective 200 week EMAs. The threat to long-term bull markets has been temporarily averted. Remain watchful and cautious, but don't give up on your investment plans.
FIIs were heavy net sellers of equity worth more than Rs 3000 Crores last week, as per provisional figures. DIIs were net buyers of equity worth Rs 2050 Crores - not enough to prevent vertical plunges on Sensex and Nifty charts.
Retail (CPI) inflation inched up to 5.69% in Jan '16 from 5.61% in Dec '15, due to higher food prices. The Jan '15 number was 5.19%. Rising inflation may prevent any further interest rate cuts by RBI.
The IIP number for Dec '15 was -1.3%. It was the second month of contraction. In Nov '15 IIP was -3.4%. In Q3, IIP was 1.5% vs. 4.8% in Q2. However, for the 9 months period from Apr to Dec '15, IIP was 3.1% against 2.6% for the same period in 2014.
Auto sales slipped marginally (-0.72%) in Jan '16 on a YoY basis after 14 straight months of growth. The good news is robust double-digit growth in CV sales.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex dropped vertically like a falling knife, as it sliced through known support levels to touch a 21 months low of 22600 on Friday, Feb 12. The unfilled 'gap' formed back in May '14 in the euphoria of NDA's election victory was filled easily.
Daily technical indicators are inside their oversold zones. However all three are showing positive divergences by not falling lower with the index.
Though an index can stay oversold for long periods during bear phases, a technical bounce may be imminent. The index formed a 'reversal day' pattern (lower low, slightly higher close) with strong volume support (not shown on chart).
Sensex closed the week more than 3000 points below its 200 day EMA. Such a huge drop below the 200 day EMA in a short span of time is unsustainable.
In candlestick parlance, Friday's trading formed a 'hammer' pattern, which usually has bullish implications when formed at the end of a down trend. Next week's trading will indicate whether bulls will be in a mood to fight back.
The index dropped below its 200 week EMA (not shown) for the first time since Aug '13, but managed to close within the 3% 'whipsaw' limit. The long-term bull market is now under threat.
NSE Nifty 50 chart pattern
The weekly bar chart pattern of Nifty 50 collapsed on heavy selling by FIIs, touching its lowest level since May '14 and breaching the 200 week EMA for the first time since Aug '13.
A close below the 200 week EMA is considered very bearish. But a single week's breach should not cause panic. Faint bullish hopes were kept alive as the index closed the week within the 3% 'whipsaw' limit below its 200 week EMA.
Weekly technical indicators are looking oversold and showing downward momentum. If the index fails to bounce up within the next 2-3 trading weeks, much lower levels may be on the cards.
How much lower? Check the previous post on Nifty. Likely lower support levels have been mentioned there.
Bottomline? Chart patterns of Sensex and Nifty have closed below their respective 200 week EMAs. Long-term bull markets are now under real threat. This is not the time to panic and sell off. Stick to your investment plans. Bottom fishing should be attempted in a very gradual manner - if at all.
