FIIs were net buyers of equity on Wed. and Thu. (Feb 12 and 13) but net sellers on Mon., Tue. and Fri. (Feb 10, 11 and 14). Their total net buying was worth Rs 0.11 Billion. DIIs were net sellers of equity on Mon. and Thu., but net buyers on the other three days of the week. Their total net selling was worth Rs 7.93 Billion, as per provisional figures.
India's CPI-based retail inflation moved up to 7.59% in Jan '20 from 7.35% in Dec '19. WPI-based wholesale inflation also rose to 3.1% in Jan '20 from 2.59% in Dec '19. The Index of Industrial Production (IIP) contracted 0.3% in Dec '19 against a growth of 1.8% in Nov '19.
Exports fell 1.66% to US $25.97 Billion while imports slipped 0.75% to $41.14 Billion in Jan '20. The trade deficit widened to a 7 months high of $15.17 Billion. A combination of rising inflation, widening trade deficit and contracting production does not augur well for India's economic growth.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex closed above its three EMAs in long-term bull territory, eking out a gain of 115 points on a weekly closing basis. The index is trading just 1000 odd points below its lifetime high of 42274 touched in Jan '20.
Daily technical indicators are looking neutral to bearish. MACD has crossed above its signal line and moved up to the '0' line. RSI is falling towards its 50% level. (Since Nov '19, MACD and RSI have been showing negative divergences by forming bearish patterns of 'lower tops, lower bottoms'.) Slow stochastic has dropped down from its overbought zone.
Declining stocks were outnumbering advancing stocks during the week gone by, making the current rally unsustainable for long. Heavyweight stocks like RIL, HUL are keeping the index afloat as the broader market continues to slide.
[There are signs of a reversal pattern formation in progress at the index top. It could be a 'broadening top' or a 'diamond'. If either of the patterns play out, there could be a sharp index correction below the 200 day EMA.]
Q3 (Dec '19) results season is almost over. Results have been more or less as per lower market expectations, with a few positive earnings surprises on the back of corporate tax rate cuts.
It is not an appropriate time for bargain hunting when an index is trading near a lifetime high. For long-term investors, waiting patiently for lower levels to add is often more rewarding.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty closed above its three weekly EMAs, but formed a 'doji' bar that indicates indecision among bulls and bears. A bullish pattern of 'higher tops, higher bottoms' - formed during the past 18 months - shows that bulls are controlling the chart.
The index is trading just 300 odd points below its lifetime high. Till it crosses convincingly above 12500, caution is advised due to a slowing economy and a rapidly spreading corona virus in China that is affecting global supply chains.
Weekly technical indicators are looking neutral to bearish. MACD has crossed below its signal line after falling from its overbought zone. RSI has moved above its 50% level but its upward momentum has stalled. Slow stochastic has fallen below its 50% level after forming a 'double top' reversal pattern inside its overbought zone.
Nifty's TTM P/E moved up to 27.45, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating about the edge of its oversold zone. More near-term index consolidation is likely.
Bottomline? After touching lifetime highs in Jan '20, Sensex and Nifty charts have been in consolidation modes. With very few positive triggers left for the stock market in the near-term, the indices can drift down. Investors should increase liquidity by booking profits wherever available.
FIIs were net buyers of equity on Tue. (Aug 20), but were net sellers on the other days of the week. Their total net selling was worth Rs 33.4 Billion. DIIs were net buyers on all five trading days of the week. Their total net buying was worth Rs 43.0 Billion, as per provisional figures.
Finance Minister announced a 'package' that comprised a restatement of a few budget proposals; withdrawal of (a) controversial tax surcharge on some categories of FIIs and (b) 'punishment' for not meeting CSR obligations; postponement of (a) higher registration fees for cars, (b) phasing out of BS IV vehicles and (c) introduction of EVs; removal of ban on govt. vehicle purchase and increased depreciation on vehicles purchased till Mar 2020.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex broke out below a 'rising wedge' pattern on Wed. Aug 21. The possibility was mentioned in last week's post. The next day, the index dropped deeper inside the 'support zone' (between 35900 and 37100).
On Fri. Aug 23, the index breached the downward-sloping trend line of the 'broadening top' pattern intra-day, but bounced up to close higher - forming a 'reversal day' bar that often forms at an intermediate bottom.
Daily technical indicators are looking neutral to bearish. MACD is seeking support from its signal line in bearish zone. ROC and RSI are at their respective neutral zones. Slow stochastic is falling below its 50% level.
All four indicators are showing positive divergences (marked by blue arrows) by rising higher while the index dropped lower. That is a clear signal that precedes a technical bounce.
Escalation of the trade war between USA and China caused a sharp fall in US markets on Fri. Aug 23. Emerging markets, including India, may feel the after-effects next week. Bulls would do well to curb their enthusiasm.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty breached the downward-sloping trend line of a 'broadening top' pattern and the 10700 support level intra-week, but bounced up to close inside the 'support zone' (between 10700 and 11100).
The index closed below its 20 week and 50 week EMAs for the fourth straight week - for the first time since Oct '18 - and lost about 2% on a weekly closing basis.
Weekly technical indicators are looking bearish. MACD is falling below its signal line, and has entered its bearish zone. ROC is below its falling 10 week MA and is moving down inside oversold zone. RSI is falling towards its oversold zone. Slow stochastic is moving sideways at the edge of its oversold zone.
Note that RSI and Slow stochastic are showing positive divergences by not falling lower with the index. A technical bounce is likely.
Nifty's TTM P/E has moved down to 26.79 - which remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling sharply inside its oversold zone. Some near-term index upside is likely.
Bottomline? Sensex and Nifty charts are inside long-term support zones. A 'booster package' announced by Finance Minister may temporarily dispel the feeling of despondency in the market. A likely low Q1 (Jun '19) GDP figure and the ongoing US-China trade spat can dampen bullish hopes. Small investors may use any technical bounce to book profits.
In a holiday-shortened trading week, FIIs were net sellers of equity on Tue. and Fri. (Aug 13 and 16), but were net buyers on Wed. Aug 14. Their total net selling was worth Rs 3.6 Billion. DIIs were net buyers on all three trading days of the week. Their total net buying was worth Rs 28.8 Billion, as per provisional figures.
India's CPI based inflation eased marginally to 3.15% in Jul '19 from 3.18% in Jun '19 due to softening fuel prices. CPI inflation was 4.17% in Jul '18. WPI based inflation dropped to a multi-year low of 1.08% in Jul '19 from 2.02% in Jun '19. WPI inflation was 5.27% in Jul '18.
India's merchandise exports grew 2.25% to US $26.3 Billion in Jul '19 against $25.75 Billion in Jul '18. Imports declined 10.4% to $39.76 Billion in Jul '19 against $44.39 Billion in Jul '18. Trade deficit narrowed to $13.46 Billion in Jul '19 from $18.64 Billion in Jul '18.
BSE Sensex index chart pattern
Within a larger 'broadening top' pattern, the daily bar chart pattern of Sensex appears to be forming a 'rising wedge' pattern from which the likely breakout is downwards.
A sharp fall on Tue. Aug 13 dropped the index back inside the 'support zone' (between 35900 and 37100). Sensex bounced up above the 'support zone' on the back of combined FII and DII buying on Wed. Aug 14 and closed the truncated week of trading below its three EMAs in bear territory.
Daily technical indicators are looking neutral to bearish. MACD has crossed above its signal line in bearish zone. ROC, RSI and Slow stochastic have moved up towards their respective neutral zones, but are not showing much upward momentum.
There have been rumours of tax tweaks for FIIs and a stimulus package for the economy as finance ministry and PMO officials have been huddling together to find some way out of the economic mess they have created.
Any 'band aid' policy adjustments are unlikely to provide more than a short-term boost to sentiment. Inverted bond yield curves in Europe and USA may be giving an early warning of a global recession.
Negative sentiment and economic uncertainty are not conducive to bullish animal spirits, but they are ideal for bearish animal spirits. Expect more near-term downside and some consolidation before lower base effect kicks in from Q3 (Dec '19) onwards.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty moved above the 11100 level intra-week, but dropped back to close inside the 'support zone' (between 10700 and 11100) - losing about 0.6% on a weekly closing basis.
The index continued to trade inside a large 'broadening top' pattern and below its 20 week and 50 week EMAs. Bears are threatening to take complete control of the chart. Bullish response has not been very forceful.
Weekly technical indicators are looking neutral to bearish. MACD is below its signal line, and has fallen to its neutral zone. ROC is below its falling 10 week MA and is moving sideways inside oversold zone. RSI has bounced up from the edge of its oversold zone. Slow stochastic is moving sideways at the edge of its oversold zone.
Nifty's TTM P/E has moved down to 27.33 - which is above its long-term average in overbought zone. Despite a sharp fall, the breadth indicator NSE TRIN (not shown) remains well inside its oversold zone. Some near-term index upside or some consolidation is possible.
Bottomline? Sensex and Nifty charts are consolidating near long-term support zones. Rumours of an economic stimulus and a tax tweak for FIIs have raised hopes of battered bulls. Small investors should remain on the sidelines.
FIIs were net sellers of equity during the first four days of the week, but were net buyers on Fri. Aug 9. Their total net selling was worth Rs 47.4 Billion. DIIs were net buyers on all five days of the week. Their total net buying was worth Rs 55.9 Billion, as per provisional figures.
India's Index of Industrial Production (IIP) slipped to a low of 2% in Jun '19, against 4.6% in May '19 and 7% in Jun '18. For the Apr-Jun '19 period, IIP grew 3.6% against 5.1% during Apr-Jun '18.
Instead of taking swift steps to address the serious downturn in the economy, the government has chosen to divert attention by muscle-flexing in Kashmir - a strategy that paid rich dividends before the Lok Sabha elections.
BSE Sensex index chart pattern
Oversold technical indicators triggered a technical bounce on the daily bar chart pattern of Sensex. The possibility was mentioned in last week's post.
After an intra-day breach of the lower (falling) trend line of a 'broadening top' pattern on Mon. Aug 5, the index bounced up to close above the trend line, but well inside the 'support zone' (between 35900 and 37100).
Two days of consolidation within the 'support zone' was followed by a breakout above 37100 on Thu. Aug 8, and another breakout above the 200 day EMA on Fri. Aug 9.
The falling 20 day EMA provided temporary resistance on Friday. However, the index may attempt to rise further next week.
Daily technical indicators are showing upward momentum after correcting oversold conditions. MACD is poised to cross above its falling signal line in bearish zone. ROC, RSI and Slow stochastic have emerged from their respective oversold zones.
The Finance Minister has been meeting with various industry representatives to assess the steps required to revive the economy. Wish she had paid more attention to their suggestions before preparing her maiden budget.
Rumours of tweaks in taxation proposals, which triggered the short-covering bounce, have remained rumours so far. Any minor tweaks - should they occur - may not enthuse FIIs to stop selling.
NSE Nifty index chart pattern
The following comment was made in last week's post on the weekly bar chart pattern of Nifty: "The breadth indicator NSE TRIN (not shown) has risen well inside its oversold zone, and can trigger a near-term index bounce."
The expected bounce formed a weekly 'reversal' bar (lower low, higher close) as the index took support from the lower (falling) trend line of a 'broadening top' pattern and closed just above the 11100 level, but faced resistance from the 50 week EMA.
Weekly technical indicators are looking bearish. MACD is below its signal line, and is falling towards neutral zone. ROC is below its falling 10 week MA and is moving sideways inside its oversold zone. RSI has bounced up from the edge of its oversold zone. Slow stochastic has slipped inside its oversold zone.
Nifty's TTM P/E has moved up to 27.41 - which is above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is well inside its oversold zone, hinting at some more near-term index upside.
Bottomline? Sensex and Nifty charts have recovered from long-term support zones due to short covering on rumours of a likely tax tweak for FIIs. Small investors should remain cautious and stay on the sidelines.
FIIs continued their heavy net selling of equity during the week. Their total net selling was worth Rs 67.9 Billion. DIIs more than matched FII selling, but couldn't prevent sharp falls in Sensex and Nifty. Their total net buying was worth Rs 82.8 Billion, as per provisional figures.
The automobile sector remained in slide mode during Jul '19. Sales tumbled across categories due to weak consumer sentiment. Passenger vehicle sales fell over 30% - worse than the 24.6% fall back in Nov '08.
Gross GST collections during Jul '19 was Rs 1.02 Trillion - marginally up from Jun '19, and 5.8% higher than Jul '18 collection.
Nikkei India's Manufacturing PMI rose to 52.5% in Jul '19 from 52.1% in Jun '19. A figure above 50% indicates expansion. Growth was driven by domestic demand, while growth in export orders slowed to its lowest level in 15 months.
BSE Sensex index chart pattern
The following comment appeared in last week's post on the daily bar chart pattern of Sensex: "A breach of the 200 day EMA will be quite bearish, and can drop the index to the support zone between 35900 and 37100."
On Mon. Jul 29, the index breached its 200 day EMA intra-day, but bounced up to close above it. The next day, the index fell and closed below its 200 day EMA in bear territory.
On Wed. Jul 31, the index dropped to test support from the 37100 level and bounced up to test resistance from its 200 day EMA. The next day, Sensex fell and closed inside the support zone between 35900 and 37100.
On Fri. Aug 2, the index formed a 'reversal day' bar (lower low, higher close) and bounced up to close just above 37100 - giving some respite to bulls.
Note that Sensex appears to be in the midst of a 'broadening top' pattern, which has bearish implications. If the pattern plays out, there could be a rally that propels the index to a new high. But the subsequent correction can be devastating. So, trade at your own peril.
Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line towards its oversold zone. ROC is facing resistance from its 10 day MA after emerging from its oversold zone. RSI has re-entered its oversold zone after briefly emerging from it. Slow stochastic is trying to emerge from its oversold zone. A technical bounce is a possibility.
There were rumours in the market on Friday about the government considering some tax relief for FIIs, which set off short-covering in an oversold market. Remember the market adage: Buy the rumour; sell the news.
NSE Nifty index chart pattern
The following comment appeared in last week's post on the daily bar chart pattern of Nifty: "A breach of the 50 week EMA will be quite bearish, and can drop Nifty to the support zone between 10700 and 11100."
As expected, the breach of its 50 day EMA by the index dropped it further to close inside the support zone between 10700 and 11100.
During the past four months. Nifty appears to have formed a bearish 'broadening top' pattern. If the pattern plays out, a rally to a new high followed by a deeper correction may occur.
Weekly technical indicators are looking bearish and oversold. MACD has crossed below its signal line, and is falling rapidly in bullish zone. ROC faced resistance from its falling 10 week MA and has dropped inside its oversold zone. RSI and Slow stochastic have dropped to the edges of their respective oversold zones.
Nifty's TTM P/E has moved down to 27.09 - but remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen well inside its oversold zone, and can trigger a near-term index bounce.
Bottomline? Sensex and Nifty charts are testing long-term (3.5 yr) up trend lines (not shown). Breach of the trend lines can trigger bear phases and lower levels on both indices. Small investors should remain cautious and concentrate on wealth protection.
S&P 500 index chart pattern
The daily bar chart pattern of S&P 500 seems to have brushed aside feeble bear resistance. The index bounced up after receiving support from its rising 20 day EMA and touched a new high of 3028 on Fri. Jul 26.
The index gained 49 points (1.6%) on a weekly closing basis, and is trading above its three rising EMAs in a bull market. However, bears are refusing to give up. Volumes were heaviest on Thu. Jul 25 - the only down day during the week. A sign that 'smart money' is getting out?
Daily technical indicators are in bullish zones but showing weak upward momentum. MACD is moving sideways below its falling signal line. RSI is moving sideways above its 50% level. Slow stochastic has re-entered its overbought zone.
All three indicators are showing negative divergences by failing to touch new highs with the index. Some correction or consolidation may follow.
On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market, but has formed a 'broadening top' reversal pattern since Jan '18. Weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs.
FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 continued its sideways consolidation with a downward bias for the third straight week. The index touched a high of 7599 in bull territory on Tue. Jul 23, but dropped below its 20 day EMA the very next day.
FTSE dropped to seek support from its 50 day EMA on Thu. Jul 25. On Fri. Jul 26, the index bounced up above its 20 day EMA to close above its three EMAs in bull territory - at 7549 (gaining 40 points for the week).
Daily technical indicators are turning bullish. MACD is moving sideways below its falling signal line in bullish zone. RSI and Stochastic are rising above their respective 50% levels. The index seems ready to resume its up move.
On longer term weekly chart (not shown), the index closed above its three weekly EMAs in long-term bull territory for the 8th straight week. Weekly technical indicators are showing upward momentum in bullish zones. MACD is rising above its signal line. RSI is moving up above its 50% level. Stochastic is rising inside its overbought zone.
FIIs were net buyers of equity on Mon. and Wed. (Jan 7 and 9) but net sellers on the other three days during the week. Their total net selling was worth Rs 5.7 Billion. DIIs were net sellers of equity on Mon., but net buyers on the other four days. Their total net buying was worth Rs 11.3 Billion, as per provisional figures.
India's IIP (Index of Industrial Production) dropped to a disappointing 17 months low of 0.5% in Nov '18 from an upwardly-revised 8.4% in Oct '18, due to a high base effect and a contraction in manufacturing growth. The previous low of 0.3% occurred in Jun '17 (a month before GST introduction).
BSE Sensex index chart pattern
The bearish 'rising wedge' pattern (refer last week's post) on the daily bar chart pattern of Sensex has morphed into a 'diamond' pattern, which usually has bearish implications. In other words, the likely breakout from the pattern is downwards.
Since a 'diamond' - a somewhat rare pattern - tends to be a reversal pattern that forms at a market top (refer this post), its formation was ignored earlier. But now it has become visibly obvious that Sensex has been consolidating within a 'diamond' during the past 10 weeks or so.
Since a 'diamond' can sometimes be a continuation pattern, an upward breakout can't be ruled out. The index has closed above its three EMAs in bull territory with a 0.9% weekly gain. That gives bulls a slight advantage.
Note that a 'diamond' can be viewed as a 'head and shoulders' reversal pattern with a bent 'neckline'. In this case, the 'head' is actually a bearish 'double top' reversal pattern with two left and two right 'shoulders'.
A 'diamond' starts out as a bearish 'broadening top', which is followed immediately by a 'symmetrical triangle' pattern. The eventual breakout follows the 'rules' of a breakout from a 'triangle'.
That means, all four possibilities are on the table - a downward breakout, an upward breakout, a 'false' upward/downward breakout, and a sideways move through the right 'apex' of the 'diamond' that negates the pattern. (Hope you are not thoroughly confused!)
Remember that the 'height' of the 'diamond' (~2300 points on Sensex chart above) should be added/subtracted to the breakout point to set the upward/downward target. Wait for the breakout before taking a buy/sell decision.
Daily technical indicators are giving conflicting signals, which is often the case during periods of consolidation. MACD is facing resistance from its gradually sliding signal line in bullish zone. ROC is about to cross below its 10 day MA in neutral zone. RSI has moved above its 50% level. Slow stochastic is rising towards its overbought zone.
Of the few Q3 (Dec '18) results announced so far, TCS has met expectations but Infosys has slipped badly. IndusInd and Bandhan Bank have shown downward pressure on margins due to large provisions for IL&FS loans.
The macroeconomic environment is favouring bears again. Oil's price has started to rise. The Rupee is slipping against the US Dollar. After weak auto sales growth in Dec '18, the shock of the dreadful IIP number in Nov '18 may be the proverbial straw that breaks the back of bulls.
NSE Nifty index chart pattern
The bearish 'rising wedge' pattern on the weekly bar chart pattern of Nifty has been replaced by a visibly obvious 'diamond' pattern. The 'diamond' is usually a 'reversal' pattern. That means the likely breakout from the pattern is downwards. (Read gory details about the 'diamond' pattern in Sensex post above.)
A 'diamond' has measuring implications. The 'height' of the 'diamond' (~700 points on Nifty chart above) should be added/subtracted to the breakout point to set the upward/downward target. Wait for the breakout before taking a buy/sell decision.
Weekly technical indicators are giving conflicting signals. MACD has merged with its signal line, and is moving sideways just below its '0' line. ROC has dropped sharply from its overbought zone. RSI has moved above its 50% level. Slow stochastic is rising towards its overbought zone.
Nifty's TTM P/E is at 26.00, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is rising in neutral zone, hinting at near-term index correction.
Bottomline? Sensex and Nifty charts have been consolidating within 'diamond' patterns for the past 10 weeks. Breakouts from the patterns appear imminent. Remember that an upward breakout should be accompanied by a volume surge. A downward breakout doesn't require volume support for confirmation. Wait for the breakout before initiating any buy/sell decisions.
(Note: Markets fluctuate, but there are always opportunities if you know where to look. Learn how to choose fundamentally strong stocks. Become a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions are being offered till Jan 21, 2019. Enrollments have started. Contact me for details: mobugobu@yahoo.com.)
In a reversal of roles, FIIs were net buyers of equity on Mon. & Wed. (Nov 12 & 14), but net sellers of equity on Tue. Nov 13. Their total net buying was worth Rs 6.1 Billion. DIIs were net sellers on Mon. & Wed., but net buyers on Tue. Their total net selling was worth Rs 10.1 Billion, as per provisional figures.
India's CPI inflation eased to a 13 months low of 3.31% in Oct '18 on the back of lower food prices, from a downward-revised 3.7% in Sep '18. However, WPI inflation rose to a 4 months high of 5.28% in Oct '18 due to higher petrol and diesel prices, from 5.13% in Sep '18.
India's IIP grew marginally at 4.5% in Sep '18 against 4.3% in Aug '18, indicating that there has not been any significant acceleration in factory output despite waning of the impact of demonetisation and GST.
During the past 8 trading sessions, the daily bar chart pattern of Nifty has been consolidating sideways within a 210 points range - as FIIs turned net buyers of equity after heavy selling in Oct '18 while DIIs turned net sellers.
Note that the index has formed a small 'broadening top' pattern that has bearish implications. Today's trading resulted in formation of a 'reversal day' pattern (higher high, slightly lower close). The index may be heading downwards soon.
On Oct 4 '18, Nifty had dropped below its 200 day EMA with a 'downward gap'. It has remained below the 'gap' and its 200 day EMA in bear territory since then.
Bulls have fought hard to prevent the 'death cross' of the 50 day EMA below the 200 day EMA so far. But the longer the index trades below its 200 day EMA, the greater is the chance that it will fall below its Oct 26 low of 10005.
Daily technical indicators are giving conflicting signals, which is often the case during periods of consolidation. MACD is rising above its signal line in bearish zone. RSI is meandering sideways in neutral zone. Slow stochastic has started to correct inside its overbought zone.
Nifty's TTM P/E has slipped a bit to 25.43, which remains higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has bounced up sharply from the edge of its overbought zone, hinting at near-term downside.
Q2 (Sep '18) earnings growth of India Inc. has belied expectations. Without the fuel of earnings, the index engine will continue to sputter and stall.
FIIs were net sellers of equity on all five trading days. Their total net selling during the week was worth Rs 39.3 Billion. DIIs were net buyers of equity on all five trading days. Their net buying was worth Rs 58.5 Billion, as per provisional figures.
Despite heavy buying by DIIs, Sensex gained only 77 points (0.22%) on a weekly closing basis. Nifty closed almost flat - gaining just 9 points over the previous week.
India's GDP growth rate will accelerate to 7.5% in FY 2018-19 against 6.6% in FY 2017-18 on better performance from industrial and agricultural sectors, as per a CARE report. Inflation, lending rates, fiscal and current account deficits, exchange rates remain concerns.
BSE Sensex index chart pattern
The following comments were made in last week's post on the daily bar chart pattern of Sensex: "The index touched an intra-day low of 34822 on Fri. May 18, falling below its previous (May 4) low of 34848 which can lead to further downside. However, by closing exactly at 34848, the index has kept open the possibility of a technical bounce."
Bears had the upper hand during the first three days of trading. The index corrected below the 'gap' on Mon. May 21, received support from the 50 day EMA and bounced up a bit the next day.
On Wed. May 23, the index fell below its 50 day EMA to an intra-day low of 34303. Short covering triggered a technical bounce. The index recovered more than the first three days' losses in two days - closing inside the 'gap' on Fri. May 25.
Daily technical indicators are still looking bearish. MACD is below its falling signal line in bullish zone. ROC is below its falling 10 day MA in bearish zone. The up move of RSI towards its 50% level has stalled. Slow stochastic is trying to emerge from its oversold zone.
Q4 (Mar '18) results announced so far have clearly shown top line growth but bottom line pressure. Higher oil and commodity prices are starting to take a toll on corporate earnings.
Oil prices were not allowed to rise before the Karnataka state elections. Once the election got over and BJP failed to form the government, oil prices have been raised for 13 straight days!
When oil prices had fallen rapidly from US $60 to $40 during Jul-Aug '15, the NDA government raised excise duties and pocketed the benefits by depriving consumers. Now that prices have touched US $80, the government has refused to reduce excise duties and is burdening consumers with daily price hikes.
This disregard for the middle-class may hurt NDA's prospects in forthcoming state and general elections. It will also stoke the inflation fire - forcing RBI to raise interest rates. Neither event will be liked by the stock market.
Caution is suggested for those holding long positions. Sensex is trading well above its rising 200 day EMA in a bull market. That doesn't mean the corrective move from the Jan 29 top is over.
NSE Nifty index chart pattern
The following comments were made in last week's post on the weekly bar chart pattern of Nifty: "The previous 3 weeks' trading has formed a bearish 'broadening top' pattern (higher high, lower low) from which a downward breakout is likely."
The index did breakout below the 'broadening top' and the 20 week EMA intra-week, but short covering on Thu. & Fri. (May 24 & 25) ensured a pullback and close within the pattern.
Nifty has formed a 'hammer' candlestick that can trigger an up move towards the Feb 5 'gap'. Bears can be expected to 'sell on rise'. Weekly technical indicators are in bullish zones, but showing weak upward momentum.
Nifty's TTM P/E is at 26.24 - slightly lower than last week but well above its long-term average. The breadth indicator NSE TRIN (not shown) is about to fall from its oversold zone, and can limit near-term index upside.
Bottomline? The downward 'gaps' formed on Feb 5 are becoming 'lines of control' on Sensex and Nifty charts. Some more consolidation or correction is likely. At times like these, preservation of capital should take priority. Book partial profits and/or reallocate assets.
FIIs were net sellers of equity on four of the five trading days. Their total net selling during the week was worth Rs 15 Billion. DIIs were net buyers of equity on all five trading days. Their net buying was worth Rs 20.3 Billion, as per provisional figures.
Sensex and Nifty both lost 1.9% on a weekly closing basis. What can be more worrisome for bulls is that both indices closed below the downward 'gaps' formed on Feb 5.
India's import bill could bloat by $25-50 billion in the current financial year due to spike in crude oil prices, but the government sees no reason for panic. However, a report by Goldman Sachs says that India's Current Account Deficit (CAD) may increase to 2.4% of GDP in FY 2018-19.
BSE Sensex index chart pattern
Negative divergences visible last week on overbought technical indicators on the daily bar chart pattern of Sensex had hinted at a likely corrective move.
A hung Karnataka assembly provided bears with just the trigger they were looking for. The index touched an intra-day high of 35994 on Tue. May 15 - its highest level in more than 3 months - as initial results showed a BJP majority.
However, as the day progressed and more results came in, it became clear that BJP will fall short of a simple majority. Profit booking ensued. The index dropped to close near its opening level - forming a 'shooting star' candlestick pattern that often marks an intermediate top.
Bears went on the warpath. The index corrected for three straight sessions, falling below its 20 day EMA and closing just below the downward 'gap' formed on Feb 5.
The index touched an intra-day low of 34822 on Fri. May 18, falling below its previous (May 4) low of 34848 which can lead to further downside. However, by closing exactly at 34848, the index has kept open the possibility of a technical bounce.
Daily technical indicators are looking bearish and showing downward momentum. MACD has crossed below its signal line in bullish zone. ROC has dropped below its 10 day MA to its neutral zone. RSI has also dropped to its neutral zone. Slow stochastic is falling below its 50% level.
Resignation of Karnataka's BJP CM before the floor test on Sat. May 19 - as he failed to engineer defections from the opposition Congress and JD(S) - will give bears added incentive to sell.
Small investors need not be in a rush to 'buy the dip'. As mentioned in several previous posts, filling of the Feb 5 downward 'gap' was expected to be followed by a resumption of the corrective down move from the Jan 29 top.
The 'support-resistance zone' between 32500 and 33800 can come back into play. Note that the rising 200 day EMA is in the middle of the 'support-resistance zone' and is likely to provide strong support should the index fall that far.
NSE Nifty index chart pattern
Small investors were advised caution in last week's post on the weekly bar chart pattern of Nifty because of fundamental and technical headwinds. The index touched a 3 months high of 10929 but closed at a 3 weeks low of 10596 - forming a 'reversal' bar (higher high, lower close) with good volume support that can lead to further correction.
The previous 3 weeks' trading has formed a bearish 'broadening top' pattern (higher high, lower low) from which a downward breakout is likely.
Weekly technical indicators are in bullish zones, but their upward momentum have stalled. The index is trading above its two rising weekly EMAs - so the bullish structure of the chart is intact.
Nifty's TTM P/E has decreased to 26.27 - which is still much above its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply to enter its oversold zone, and can limit near-term index downside.
Bottomline? Counter-trend rallies on Sensex and Nifty appear to have ended. Some more correction or consolidation will help improve the technical 'health' of both charts. Don't rush to 'buy the dip'. Better entry points may become available with a bit of patience.
