Nifty chart: a long-term outlook

After Monday's holiday, FIIs were net sellers of equity on both trading days this week. Their total net selling was worth Rs 37.5 Billion. DIIs were net buyers of equity on both trading days. Their total net buying was worth Rs 25.6 Billion, as per provisional figures.

The IHS Markit India Manufacturing PMI slipped to a 15 month low of 51.4 in Aug '19 from 52.5 in Jul '19, but remained above 50 indicating growth. The Services PMI also declined to 52.4 in Aug '19 from 53.8 in Jul '19. The Composite (Manufacturing + Services) PMI moved down to 52.6 in Aug '19 from 53.9 in Jul '19.

GST collection in Aug '19 slipped to Rs 98.2 Billion from Rs 1.02 Trillion in Jul '19, but was 4.5% higher than Rs 93.9 Billion collected in Aug '18.

The weekly line chart of Nifty has breached two up trend lines drawn from the Feb '16 low (also called Fan Lines - marked FL1 and FL2). This is a sign that the long-term up trend is getting weak, but is not yet over.

As per Corrective Fan Principle, downward breach of a third up trend line - that has not yet been drawn on the chart - will technically confirm the reversal of the long-term up trend.

The index is struggling to hold on to the support level of 10800, and may move lower. A test of support from the 200 week EMA appears increasingly likely.

Weekly technical indicators are in bearish zones. MACD is showing downward momentum. RSI and Slow stochastic are moving sideways - hinting at near-term index consolidation.

Nifty's TTM P/E has moved down to 26.61, but remains inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone. Some near-term index up side is possible.

The market is hoping that a third round of economic booster 'package' - promised by the Finance Minister - will help stop the slide in the index. But the two earlier 'packages' have failed to revive bullish sentiment.

FIIs have intensified their selling after a weak Q1 GDP number and sliding auto sales. They may not turn buyers in a hurry.

Nifty chart: a midweek technical update (Aug 07, 2019)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 45.1 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 46.9 Billion, as per provisional figures.

IHS Markit India's Services PMI rose to a 1 year high of 53.8 in Jul '19 from 49.6 in Jun '19. A figure above 50 indicates expansion. The Composite PMI (Manufacturing + Services) rose to an 8 month high of 53.9 in Jul '19 from 50.8 in Jun '19.

RBI cut the repo rate by 35 bps (0.35%) to 5.4% today, and kept the door open for lowering rates further but flagged worries over economic growth prospects. It was the fourth straight cut in repo rate since Feb '19.

An interesting pattern according to Corrective Fan Principle is developing on the long-term weekly bar chart pattern of Nifty. Note the effects of the two trend lines - TL1 and TL2 - which are also called fan lines.

TL1 has been drawn through the lows touched in Feb '16 and Dec '16. This up trend line was breached in Oct '18. Nifty found support at 10000, and resumed its up move. Though the index touched a lifetime high of 12103 in Jun '19, it faced strong resistance from TL1.

TL2 has been drawn through the lows touched in Feb '16 and Oct '18. This second up trend line was breached last week. A third up trend line - TL3 - will be drawn once the ongoing correction finds an interim bottom.

The Fan Principle states that a downward breach of (a not-yet-drawn) TL3 will signal the beginning of a bear market. Such a situation may not arise if the index bounces up from the support zone between 9700 and 10000 and moves above TL2. (Nifty's 200 week EMA is within this support zone.)

Weekly technical indicators are looking bearish. MACD is falling rapidly below its signal line and is poised to enter bearish zone. RSI is falling below its 50% level. Slow stochastic has fallen inside its oversold zone. Expect some support in the zone between 10500 and 10800.

Nifty's TTM P/E has moved down to 26.74, but remains inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is well inside its oversold zone and can limit near-term index down side.

Thanks partly to heavy selling by FIIs, the Rupee is touching 71 against the US Dollar. That may negate any positive effect of the 35 bps interest rate cut by RBI. When sentiment turns bearish, even good news attracts selling.

Nifty is trying to find support at the 10800 level. But the support may not hold for long.

Sensex, Nifty charts (Jun 23, 2017): consolidating before GST implementation

After the previous week's heavy selling, FIIs were net sellers of equity worth only Rs 2.5 Billion - thanks to their net buying on the last two days of the week. DIIs were net buyers of equity worth Rs 13.7 Billion, as per provisional figures.

The battle between bulls and bears remained unresolved. Sensex closed marginally higher (by 0.2%) while Nifty closed marginally lower (by 0.1%) for the week.

Trading activity may remain muted next week. Monday's Eid holiday will be followed by F&O expiry on Thursday. Market participants appear somewhat jittery about GST implementation from July 1.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex has been consolidating sideways within a 'rectangle' pattern for the past four weeks. Such a pattern is unreliable, because a breakout can occur in either direction.

The index received good support from 'fan line 3' during the first four days of the week, and rose to touch a new high of 31523 on Thu. Jun 22. However, all four technical indicators touched lower tops.

The combined negative divergences led to a sharp drop below 'fan line 3' towards the lower edge of the 'rectangle' on Fri. Jun 23. Like in the previous week, the 20 day EMA provided support to the index.

In case supports from the 20 day EMA and the lower edge of the 'rectangle' get breached, the index can drop to test support from its rising 50 day EMA.

Daily technical indicators are looking bearish. MACD is sliding down below its signal line in bullish zone. ROC, RSI and Slow stochastic are re-entering their respective bearish zones.

Some more consolidation is likely. The index may try to pullback towards 'fan line 3'. But only a convincing breakout above the 'rectangle' will restore control to bulls.

Stay invested, but maintain a stop-loss.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed lower for the second week in a row, but stayed well above its two rising weekly EMAs in a bull market. 

For the past four weeks, the index has been consolidating sideways within a 'rectangle' pattern - from which a breakout can occur in either direction. An upward breakout is more logical in a bull market. But markets often defy logic.

Weekly technical indicators are inside their respective overbought zones, but MACD, RSI and Slow stochastic are showing downward momentum.

Nifty's TTM P/E is at 24.37 - much above its long-term average. The breadth indicator NSE TRIN (not shown) has fallen deep inside its overbought zone.

Some more consolidation within the 'rectangle' is likely before a breakout occurs. Bulls may feel encouraged that FIIs were net buyers of equity on Thu. & Fri. (Jun 22 & 23).

Bottomline? Sensex and Nifty charts are consolidating after touching new highs. Some more consolidation or correction will improve valuations and enable the indices to climb higher. Stay invested. Avoid impulsive buying or selling.

Sensex, Nifty charts (Jun 16, 2017): bears stop charging bulls

FIIs were net sellers of equity worth a huge Rs 20.5 Billion for the week. DIIs more than matched them with their net buying of equity worth Rs 20.6 Billion, as per provisional figures.

Both Sensex and Nifty closed lower for the week - Sensex by about 0.7% and Nifty by 0.8%.

The NDA government has initiated two long awaited banking sector reforms. 12 corporate entities with huge outstanding debts from PSU banks are being wound up. Several smaller PSU banks are going to get merged with larger PSU banks.

BSE Sensex index chart pattern

The following comments appeared in last week's post on the daily bar chart pattern of Sensex: "It is important that the index receives support from 'fan line 3' if the correction continues. In case 'fan line 3' is breached, a deeper correction towards 30000 may ensue."

On Fri.Jun 16, the index closed just below 'fan line 3'. Technically, it is not a convincing breach because of the 3% 'whipsaw' rule. Also, the index is receiving good support from its 20 day EMA, and can bounce up from here.

Note what happened back on Mar 8, when 'fan line 1' was initially breached. The index recovered and moved back above 'fan line 1', but subsequently breached 'fan line 1' more convincingly on Mar 21.

Any breach of a trend line - even if unconvincing at first - should be treated with caution. It is a warning about things to come. In other words, don't jump in to buy the dip just yet.

Daily technical indicators are looking bearish and hinting at some more correction. MACD is sliding down below its signal line in bullish zone. ROC, RSI and Slow stochastic have dropped inside their respective bearish zones, and showing downward momentum.

Sensex continues to trade above its three EMAs in a bull market. Stay invested. Let the correction play out.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty broke its 7 week stretch of touching higher tops. Last week's 'doji' candlestick pattern may have marked an intermediate top.

The index is trading well above its two rising weekly EMAs in a bull market. Some more correction will improve the technical 'health' of the chart.

Weekly technical indicators are inside their respective overbought zones, but showing downward momentum.

Nifty's TTM P/E is at 24 - lower than last week but much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has bounced up a bit after dropping sharply into its overbought zone.

The correction may continue a bit longer - specially with FIIs in sell mode.

Bottomline? Sensex and Nifty charts have started to correct after touching new highs in the previous week. The corrections will enable the indices to gather strength to climb to new highs. Stay invested. Wait for the correction to play out before buying.

Sensex, Nifty charts (Jun 09, 2017): pause after touching new highs again

FIIs and DIIs were net buyers of equity during the week, as per provisional figures. FII net buying was worth Rs 6 Billion, which included net selling worth Rs 1 Billion on Fri. Jun 9. DII net buying was worth Rs 8.8 Billion.

Both indices closed flat for the week. The Sensex closed marginally lower. Nifty closed slightly higher. On weekly charts, 'doji' candlestick patterns got formed, which indicate indecision among bulls and bears.

According to RBI, India's forex reserves surged by $2.4 Billion to reach a life-time high of $381.2 Billion in the week ending June 2 on account of rise in foreign currency assets. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex touched a new high of 31430 on Tue. Jun 6, but formed a 'reversal day' bar (higher high, lower close) that triggered a corrective move towards 'fan line 3'.

It is important that the index receives support from 'fan line 3' if the correction continues. In case 'fan line 3' is breached, a deeper correction towards 30000 may ensue.

Daily technical indicators are in the process of correcting overbought conditions. MACD has formed a 'rounding top' reversal pattern and is about to cross below its signal line. 

ROC has crossed below its 10 day MA and is falling rapidly towards its neutral zone. RSI and Slow stochastic have dropped to the edge of their respective overbought zones.

All three EMAs are rising, and Sensex is trading above them in a bull market. The correction will improve the technical 'health' of the chart, enabling it to rise higher.

A further dip can be used to add to existing positions. Stay invested.

NSE Nifty index chart pattern

For the 7th week in a row, the weekly bar chart pattern of Nifty touched a new high (9709) but closed just 15 points higher on a weekly closing basis - forming a 'doji' candlestick pattern that has the potential of reversing the up trend.

The two weekly EMAs are rising, and the index is trading well above them in a bull market. However, lower volumes during the week indicate bulls are getting a bit weary.

Weekly technical indicators are looking overbought - as they have done for almost 4 months. ROC and RSI are showing negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E is at 24.38 - slightly lower than last week but much higher than its long-term average. The breadth indicator NSE TRIN has dropped sharply from its oversold zone - hinting at some more upside.

Bottomline? Sensex and Nifty charts touched new highs again. Both indices may consolidate or correct a bit before resuming their up moves. Foreign investors are pouring money into emerging market bond funds, as per Wall Street Journal. Stay invested, but maintain a trailing stop-loss.

Sensex, Nifty charts (Jun 02, 2017): rising higher in 'blue sky' territory

FIIs were net sellers of equity worth Rs 4.54 Billion during the week - but they were net buyers worth more than Rs 10 Billion on Wed. May 31. 

As per provisional figures, DIIs were net buyers of equity worth Rs 1.12 Billion for the week - but they were net sellers worth worth more than Rs 9 billion on Wed. May 31.

Both Sensex and Nifty touched new highs - gaining 0.8% and 0.6% respectively on a weekly closing basis. 

Passenger vehicle sales grew about 9% in May '17 against 14.7% in Apr '17. Maruti, Tata Motors, Ford and Honda sales grew in double digits. M&M, Hyundai and Renault sales grew in low single digits. Toyota had negative growth.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex had closed for the first time above the 31000 level on Fri. May 26. It failed to make much progress, closing within a 50 points range during the first four days of the week.

On Fri. Jun 2, the index crossed the 31300 level intra-day and closed at a new high of 31273. All three EMAs are rising, and the index has closed above them in a bull market.

The up trend from the Dec '16 low is intact, as the index continues to trade above 'fan line 3' (after breaching 'fan lines' 1 & 2).

Daily technical indicators are looking overbought. Three of them - ROC, RSI, Slow stochastic - continue to show negative divergences by failing to touch new highs with the index.

Sensex can remain overbought for long periods during a bull market. However, a correction may be just around the corner. The index is trading 2750 points above its 200 day EMA, which is an indication of extremely overbought condition as per empirical observation.

Stay invested, but with a trailing stop-loss. Try to avoid any impulsive buying. 

NSE Nifty index chart pattern

For the sixth week in a row, the weekly bar chart pattern of Nifty touched a new high, and closed above 9650 for the first time in its history.

The index is trading well above its two rising weekly EMAs in 'blue sky' territory (i.e. with no known resistances).

Weekly technical indicators are inside their respective overbought zones. But three of them - ROC, RSI, Slow stochastic - continue to show negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E is at 24.43 - slightly higher than last week, and well above its long-term average. However, the breadth indicator NSE TRIN (not shown) is rising towards its oversold zone - hinting at more index upside.

Bottomline? Bulls are in complete control of Sensex and Nifty charts, which are touching new highs every week. Both indices look overbought. Corporate earnings may take another couple of quarters before catching up with index valuations. Stay invested but maintain a trailing stop-loss. 

Sensex, Nifty charts (May 26, 2017): touch new highs as bulls overrun bears

FIIs were net sellers of equity worth Rs 3.25 Billion during the week, as per provisional figures. But they were net buyers on Wed.(May 24) and Thu.(May 25). DIIs were net buyers of equity worth Rs 25.8 Billion, but were net sellers on Thu.

Sensex and Nifty broke out of sideways consolidations to touch lifetime highs. Market experts have started talking about much higher index targets - and that should be a signal for extreme caution.

India has retained its No. 1 position as world's top greenfield FDI investment destination for the second straight year - ahead of China and USA. FDI by capital investment rose 2% to US $62.3 Billion in 809 projects during 2016.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex was in consolidation mode till mid-week. A sudden spate of buying by FIIs on Thu. May 25 launched the index above its trading range. 

DIIs picked up the buyers' mantle on Fri. - propelling the index above the 31000 level for the first time ever.

'Fan line 3' and the 20 day EMA have provided good support to the index during the month. All three EMAs are rising, and the index is trading above them in a bull market.

Any sense of euphoria should be tempered with caution. Daily technical indicators are looking overbought. Three of them - MACD, ROC, Slow stochastic - are showing negative divergences by failing to touch new highs with the index.

An index can remain overbought for long periods during a bull market. But the negative divergences can lead to some correction or consolidation.

Stay invested. Maintain SIPs. Remember that wealth creation is comparatively easier. Wealth preservation is more difficult. Judicious profit booking is better than impulsive buying near an index top.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new high of 9605 on Fri. May 26 but closed 10 points lower. It was the first time ever that the index managed to cross above 9600.

Both the weekly EMAs are rising, and the index is trading above them in a bull market - with no known resistances. In such situations, the index often stalls near a round figure.

(The index had crossed above 9100 for the first time ever in Mar '15 - but had failed to close above 9100 till two years later. The same pattern may not get repeated. But it is good to learn from history - so that mistakes are not repeated.)

Weekly technical indicators have been looking overbought for the past 4 months. However, ROC, RSI and Slow stochastic are showing negative divergences by failing to touch new highs with the index. Some consolidation or correction may follow.

Nifty's TTM P/E is at 24.32 - a bit lower than last week but much above its long-term average. The breadth indicator NSE TRIN (not shown) is rising inside its neutral zone, hinting at some more upside.

Bottomline? Sensex and Nifty charts are touching new highs on a regular basis. Both indices are looking overbought. Corporate earnings have not caught up with index valuations yet. Liquidity flow is keeping the stock market buoyant. Stay invested but maintain a trailing stop-loss.  

Sensex, Nifty charts (May 19, 2017): rally to touch new highs, but bulls looking a bit tired

During the week, FIIs were net sellers of equity worth Rs 9.9 Billion while DIIs were net buyers of equity worth Rs 13.9 billion. Interestingly, during the first two days of the week, FIIs were net buyers and DIIs were net sellers.

Sensex closed about 0.9% higher, and Nifty closed about 0.3% higher on a weekly closing basis. Both indices touched new highs during the week.

Different slabs of GST rates have been finalised at a recent meeting of state Finance Ministers in Srinagar, and implementation from July 1 seems on the cards. However, the feisty West Bengal CM is trying to put a spanner in the works by claiming that small businesses are not yet ready to implement GST.

BSE Sensex index chart pattern

The following remark was made in last week's post on the daily bar chart pattern of Sensex: "... the bullish structure is looking a bit shaky as any downward breach of 'fan line 3' can bring bears to the fore."

The index rose to touch a new high of 30712 on Fri. May 19, only to drop lower and seek support from 'fan line 3' before bouncing up.

Bulls may heave a sigh of relief that 'fan line 3' was not breached. But if FIIs remain in selling mode, that support may get breached soon.

All three EMAs are rising, and the index is trading above them in a bull market. However, Q4 (Mar '17) results show that corporate earnings are lagging behind index valuation.

Technical indicators are in bullish zones, but giving conflicting signals. MACD is moving sideways. ROC and RSI have reversed their downward slide. Slow stochastic is about to drop from its overbought zone.

All four are showing negative divergences by failing to touch new highs with the index. Expect some consolidation or correction.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new high of 9533 but could not sustain above the 9500 level.

The index closed just below its opening level of the week (9434) to form a 'shooting star' candlestick pattern that often marks the end of an intermediate up move. (Note a similar pattern that formed in the week ending on Sep 9 '16.)

The index is trading well above its two weekly EMAs in a bull market. Weekly technical indicators are inside their respective overbought zones. Three of them - ROC, RSI, Slow stochastic - are showing negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E is at 24.91 - much above its long-term average. The breadth indicator NSE TRIN (not shown) is falling deeper inside its overbought zone.

A correction towards the Mar '15 top of 9119 will improve the technical 'health' of Nifty's chart and provide a good adding opportunity. But hoping for a correction never caused one. It'll happen when it is least expected.

Bottomline? Sensex and Nifty charts continue to touch new highs. Both indices are looking overbought. Corporate earnings are far from catching up with market expectations. If FIIs and DIIs keep trading at cross purposes, upside for both indices will remain capped. Stay invested but maintain trailing stop-losses.  

Sensex, Nifty charts (May 12, 2017): touch new highs on the back of FII buying

In a surprising change of strategy near a market top, FIIs turned net buyers of equity - worth Rs 28.3 Billion. DIIs turned net sellers of equity worth Rs 13.0 Billion.

Sensex and Nifty touched new highs during the week, and closed at their highest ever weekly closing levels.

Calculated according to new series (base year shifted to 2011-12 from 2004-05), IIP rose 2.7% in Mar '17 against 1.9% in Feb '17; WPI inflation declined to a 4 months low of 3.85% in Apr '17 against 5.29% in Mar '17; CPI inflation declined to 2.99% in Apr '17 against 3.81% in Mar '17.

For FY 2016-17, IIP grew 5% against 3.4% in FY 2015-16. However, as per old series, IIP growth was a dismal 0.7% in FY 2016-17 against 2.5% in FY 2015-16.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex received good support from 'fan line 3' and its 20 day EMA during the week. It rose to touch a new high of 30366 on Thu. May 11 but corrected a little by the end of the week.

All three EMAs are rising, and the index is trading above them in a bull market. However, the bullish structure is looking a bit shaky as any downward breach of 'fan line 3' can bring bears to the fore.

Daily technical indicators are in bullish zones, but giving conflicting signals. MACD and ROC are showing negative divergences by failing to touch new highs with the index. RSI and Slow stochastic are looking overbought. Of the four indicators, only Slow stochastic is showing upward momentum.

Bulls may feel encouraged that FIIs have resumed buying. But DII selling is likely to act as a brake to the Sensex rally.

Stay invested and carry on with your SIPs.  

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new intra-week high of 9451 and closed just above 9400 for the first time ever.

The index is trading well above its two rising weekly EMAs in a bull market.

Weekly technical indicators are looking overbought. Three of them - ROC, RSI, Slow stochastic - are showing negative divergences by failing to touch new highs with the index.

With FIIs resuming their buying, liquidity inflow may push the index even higher. But the higher the index climbs, the sharper will be the subsequent correction.

Nifty's TTM P/E is at 23.88 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising inside its overbought zone - hinting at some correction or consolidation.

Bottomline? Sensex and Nifty charts touched new highs during the week. Both indices are looking overbought. Earnings are yet to catch up with growth expectations. With FIIs and DIIs at cross purposes, upside for both indices may be limited. Stay invested but avoid any impulsive buying.  

Sensex, Nifty charts (May 05, 2017): pausing before correcting?

There was no let-up in FII selling in a holiday-shortened week. As per provisional figures, FIIs were net sellers of equity worth Rs 20.9 Billion. DIIs were net buyers of equity worth Rs 18.8 Billion.

Both Sensex and Nifty closed slightly lower for the week, but well above their long-term moving averages in bull markets.

The Nikkei India Services PMI slipped to 50.2 in Apr '17 from 51.5 in Mar '17 - growing at its slowest pace in three months. (A number above 50 indicates growth.) 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex tested its Apr 27 top of 30184 on Fri. May 5 but fell just short. Profit booking by FIIs dropped the index to seek support from its 20 day EMA and 'fanline 3'.

Note the following comment from last week's post: "If Sensex fails to take support from 'fan line 3', it may signal the beginning of an intermediate down trend." 

For almost two weeks, the index has been consolidating sideways within a 'rectangle' pattern. Since the index is in a bull market and entered the pattern from below, the probability of an upward breakout from the 'rectangle' is higher.

However, a 'rectangle' is an unpredictable pattern. That means a downward breakout can't be ruled out - specially if FIIs keep up their selling.

All four technical indicators are in bullish zones. MACD and Slow stochastic are moving sideways. ROC and RSI are showing a bit of downward momentum.

Some more consolidation, and a breach of 'fanline 3' seems on the cards.

Stay invested but remain watchful. Companies declaring good Q4 (Mar '17) results can be put on your 'buy list' for accumulation during corrections.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new intra-week high of 9377.10 but closed about 19 points lower for the week - forming a small 'reversal' bar.

Three of the four weekly technical indicators - MACD, RSI, Slow stochastic - are inside their overbought zones, but showing negative divergences by failing to touch new highs with the index. 

ROC is sliding below its 10 week MA, which is forming a 'rounding top' reversal pattern, giving advance warning of a correction.

Nifty's TTM P/E remains well above its long-term average at 23.59. The breadth indicator NSE TRIN (not shown) is deep inside its overbought zone - hinting at a likely correction.

If FIIs continue to keep up their selling, the much awaited correction may finally happen.

Bottomline? Sensex and Nifty charts have paused after touching new highs. Both indices are overvalued. Earnings have not yet caught up with expectations. Without FII buying support, upside for both indices will be limited. Stay invested and avoid any impulsive buying.  

Sensex, Nifty charts (Apr 28, 2017): touch new highs in a flood of domestic liquidity

Net selling in equities by FIIs eased a little to Rs 19.2 Billion, as per provisional figures. DIIs were net buyers of equity worth a huge Rs 49.1 Billion. Both Sensex and Nifty touched new highs during the week gone by.

Q4 (Mar '17) results have been a mixed bag so far, but not as bad as some experts had expected. There were a few positive surprises as well - from Indian Bank, UPL and Ambuja Cements.

Thanks to demonetisation, advance tax and self-assessment tax collections in FY 2016-17 registered the highest growth rate in at least five years, suggesting many people regularised their unaccounted income by recording it in the books.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex touched a new high of 30184 on Apr 27, but formed a 'reversal day' bar (higher high, lower close) and corrected 265 points. The index closed 1.9% higher for the week.

The possibility of a 'head and shoulders' reversal pattern - mentioned in last week's post - may have been negated. However, bears haven't been vanquished yet. Why?

There is a confluence of technical headwinds. All four technical indicators are showing negative divergences by failing to touch new highs with the index. That has triggered a correction.

The index has already breached 'fan lines 1 & 2' with corrective moves. If Sensex fails to take support from 'fan line 3', it may signal the beginning of an intermediate down trend. 

There is also a possibility that the index is forming a more complicated 'head and shoulders' pattern with multiple shoulders, and a 'neckline' at about 29200.

The last two events haven't occurred yet - and may not occur at all - but it is better to be cautiously optimistic than be wildly euphoric at a market top.

Sensex is trading above its three EMAs in a bull market. All four technical indicators are in bullish zones, but not showing much upward momentum.

Some sort of a reversal pattern may be forming. Stay invested. Let the pattern play out before going 'all in' (as poker players often do - when they are trying to bluff their opponents).

NSE Nifty index chart pattern

The upward 'gap' formed in the week ending on Mar 17 '17 continued to provide good support to the weekly bar chart pattern of Nifty. The index rose to touch a new high of 9367 and closed just above the 9300 level during the week.

All four technical indicators are looking overbought. ROC, RSI and Slow stochastic are showing negative divergences by touching lower tops. Expect some correction or consolidation before the index can move higher.

Nifty's TTM P/E is at 23.63 - much above its long-term average. The breadth indicator NSE TRIN (not shown) is falling deeper into its overbought zone. Index upside appears limited in the near term.

The index is trading well above its two rising weekly EMAs in a bull market. A correction will improve the technical 'health' of the chart - but may not happen unless FIIs step up their selling.

Steady flows into domestic mutual funds have fuelled the index rally despite poor credit off-take and weak earnings of India Inc.

Bottomline? Despite touching new highs, Sensex and Nifty charts may be forming reversal patterns that can lead to deeper corrections. Both indices are overvalued. Earnings need to catch up with expectations, but that can take one or two quarters more. Stay invested and continue your SIPs.  

Stock Index Chart Patterns - BSE Sectoral Indices, Feb 22, '12

A few days after the previous post two months back on the chart patterns of BSE’s Sectoral indices, the Sensex touched a bottom and embarked on a two months long rally. It may be a good time to check how the Sectoral indices have fared.

BSE Auto Index

The BSE Auto index received good support from the lower end of the rectangular consolidation zone between 8000 and 9700 and rallied smartly to the upper end of the band earlier in Feb ‘12. After a brief consolidation, the index has broken out to test its Jan ‘11 top.

A pullback down to the top of the rectangular band can be expected. The ‘golden cross’ of the 50 day EMA above the 200 day EMA and more than a 20% rise from its recent bottom have confirmed a return to a bull market. Add on dips.

BSE Bankex

The BSE Bankex has risen more than 40% from its Dec ‘11 low, but is yet to test its 2011 tops. The index has moved well past the support/resistance level of 11400 and its 200 day EMA, but the ‘golden cross’ is still awaited. That should not deter investors from accumulating.

BSE Capital Goods Index

The BSE Capital Goods index is struggling to break the stranglehold of the bears. It is trading below the support/resistance level of 12300 and is yet to convincingly move above its 200 day EMA. Accumulate selectively.

BSE Consumer Durables Index

The BSE Consumer Durables index has risen almost 40% from its Dec ‘11 low and is on the verge of entering a bull market. Three ‘fan lines’ have been drawn through the Nov ‘10 top. Note that the second line drawn through the Apr ‘11 top became a support level in Jun, Aug and Nov ‘11. After getting breached in Dec ‘11, it briefly acted as a resistance level. Accumulate selectively.

BSE FMCG Index

One look at the BSE FMCG index should make it clear to all why it is my favourite sector. Despite a brief drop below the 200 day EMA in Feb ‘11, the index remained in a bull market and outperformed the Sensex. Nothing spectacular or exciting, just a steady climb along the second fan line. Add on dips.

BSE Healthcare Index

After a 13 months long consolidation within a triangle pattern, the BSE Healthcare index has broken out upwards and returned to a bull market. It is currently consolidating within a small ‘falling wedge’ pattern from which it should break out upwards. Accumulate.

BSE IT Index

The BSE IT index has sailed above the blue down trend line and back into a bull market. The expected slow down in the Eurozone didn’t happen. Add on dips.

BSE Metal Index

The BSE Metals index is still in a bear market, despite rising 37% from its Dec ‘11 low and a brief foray above the 200 day EMA. The blue down trend line continues to rule the chart. One can be a contrarian, but be very selective in choosing stocks.

BSE Oil & Gas Index

The BSE Oil & Gas index is trying desperately to stay above the 200 day EMA, but has still not broken its down trend line. Interference by the government has almost ruined this sector. Avoid the oil PSUs. The gas PSUs are in better shape.

BSE Power Index

A spectacular rally in the beaten down BSE Power index has almost propelled it into a bull market. The index is trading above its 200 day EMA and has pulled back to the blue down trend line after climbing past it. The ‘golden cross’ is still awaited. Rumours of likely sops in the forthcoming budget has fuelled the rally. Unless coal supply is ensured, the power sector may continue to face headwinds. Avoid.

BSE Realty Index

The BSE Realty index had been hammered to a pulp by the bears, but is trying to make a strong recovery. The chart shows an upward break out from a bullish inverse head-and-shoulders reversal pattern. The ‘head’ of the pattern is itself a mini inverse head-and-shoulders pattern. Note that the minimum upward target from the inverse head-and-shoulders pattern has been met.

After climbing above the 200 day EMA and the support-resistance level of 1900, the index is pulling back towards both. If you want to invest in the sector, you may want to read this recent post.

Stock Index Chart Patterns - BSE Sectoral Indices, Dec 2, '11

The BSE Sectoral index charts were looking down and out when I had looked at them three months back. The Sensex rally in Oct ‘11 was led by the auto and FMCG sectors. The other sectors failed to make much progress.

BSE Auto Index

The BSE Auto index chart has been redrawn from a bearish descending triangle to a more neutral rectangular consolidation pattern. The Oct ‘11 rally propelled the index above its blue down trend line, and all the way up to the 9770 support-resistance level. The index subsequently dropped back inside the triangle to the 8115 level (the lower edge of the rectangle), only to jump up above the down trend line last week.

The technical indicators are correcting the oversold condition but haven’t turned bullish yet. The 200 day EMA is moving sideways with the index oscillating around it. A break below 8115 will push the Auto index into a bear market. Hold.

BSE Bankex

The BSE Bankex had broken below the support level of 11400 in Aug ‘11. The support level turned into a strong resistance level and effectively thwarted all subsequent up moves. The ‘death cross’ in Aug  ‘11 had confirmed a bear market, and the index is falling deeper inside bear territory. Q3 results may be worse. Stay away.

BSE Capital Goods Index

The BSE Capital Goods index struggled vainly to cling on to the support level of 12160 in Sep ‘11, failed to cross above the falling 50 day EMA, and has been sliding down ever since. The sector has been hard-hit by the slow down in infrastructure projects due to the high interest rate regime. It may take a couple more quarters before the sector shows some signs of life. Avoid.

BSE Consumer Durables Index

The BSE Consumer Durables sector tried valiantly to remain in a bull market. The lower top formed in Oct ‘11 seemed to be the last straw that broke the sector’s back, as it plunged into a bear market.

Technically interesting are the three fan lines drawn on the chart. Note how the index kept rising in Sep ‘11 but stopped short of the first fan line. The failure to move above the first fan line was a sign of weakness. The index got good support from the second fan line before breaking below it. A break below the third fan line (where it is currently receiving support) may push the sector deeper into a bear market. Sell.

BSE FMCG Index

The BSE FMCG index is still in a bull market, despite its failure to cross above the first fan line. The 200 day EMA is rising; the 20 day and 50 day EMAs as well as the index are trading above the 200 day EMA. The second fan line is acting as the revised up trend line.

It is the only sector still in a bull market and has prevented the Sensex from collapsing. Now you know why it is my favourite sector. It saves your portfolio during bear markets. Accumulate.

BSE Healthcare Index

The BSE Healthcare index has been trading within a large triangle pattern. In spite of the ‘death cross’ (of the 50 day EMA below the 200 day EMA) in Sep ‘11, the index hasn’t fallen much. It may continue to consolidate within the triangle for some more time before finally breaking out.

Logically, the break out should be upwards, since consolidations tend to be continuation patterns. But triangles are unreliable, so be prepared for a downward break. Hold.

BSE IT Index

The BSE IT index collapsed into a bear market in Aug ‘11. The recovery has been quite stunning. The index rallied for three straight months before stalling at the upper edge of the downward sloping channel. It has been trading within the channel for the past month.

The technical indicators are showing some bullish signs. Unless the Eurozone debt problems get resolved satisfactorily, the IT sector will continue to face headwinds. The good news is that the US economy is finally showing some signs of improvement. Hold.

BSE Metal Index

The BSE Metals index had dropped below its downward sloping channel in Aug ‘11, and has stayed below it – making a series of lower tops and lower bottoms as it falls deeper inside a bear market. Unless the metals sector and the capital goods sector turn around, the Sensex will not be able to come out of the bear’s grip. Avoid.

BSE Oil & Gas Index

The BSE Oil & Gas index is falling within a broad downward sloping channel in a bear market. The government continuous meddling and failing to take tough decisions of decontrolling diesel and kerosene prices is pushing the sector into huge losses and increasing the subsidy burden.

Reliance, the market favourite, is under all kinds of threats and pressures. The company has been an acknowledged expert not just in backward and forward integration of its businesses, but in bending every rule in the book. Thanks to Anna Hazare’s anti-corruption campaign, government officials are now seeing snakes under every rock. Without the support of ONGC and Reliance, the sector will remain in the doldrums. Avoid.

BSE Power Index

The BSE Power index failed to rise above the support-resistance level of 2250 during the Oct ‘11 rally. After breaking down below the downward sloping channel, it is attempting a pullback towards the channel. If it fails to do so, the index may fall much lower. The great hype about the power sector has fizzled out. Avoid.

BSE Realty Index

The BSE Realty sector continues to be the worst performer among the BSE Sectoral indices. After three months of sideways consolidation between 1625 and 1900 the index broke down below the rectangular zone. It is attempting to re-enter the rectangular band but facing resistance from the falling 20 day EMA. Avoid.

(Note: I have suggested a few ‘Hold’s and an ‘Accumulate’. The rest are ‘Avoid’s. That doesn’t mean individual stocks in the sectors should be avoided. One or two may be good contrarian buys. It may be better to avoid basket buying in the underperforming sectors.)