Nifty chart: a midweek technical update (Dec 04, 2019)

FIIs have turned net sellers of equity during the first three trading days this week. Their total net selling was worth Rs 36.4 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 26.2 Billion, as per provisional figures.

The IHS Markit India Manufacturing PMI rose to 51.2 in Nov '19 from a two year low of 50.6 in Oct '19. A figure above 50 indicates expansion. India's GST collection rose to Rs 1.03 Trillion in Nov '19 against Rs 0.95 Trillion in Oct '19 and Rs 0.97 Trillion in Nov '18.

Passenger vehicle sales continued to disappoint. 262,892 units were sold in Nov '19 against 284,048 units in Oct '19 and 263,455 units in Nov '18. New product launches helped reduce steep double-digit decline in sales before the festive season.

For the past five weeks, the daily bar chart pattern of Nifty had been trading within a bearish 'rising wedge' pattern - from which a downward breakout occurred on Tue. Dec 3.

The index found support at its 20 day EMA, and pulled back to the lower edge of the 'wedge' on Wed. Dec 4. All three EMAs are rising, and Nifty is trading above them in a bull market.

Daily technical indicators are in bullish zones, but not showing any upward momentum. MACD is moving down below its falling signal line. RSI and Slow stochastic are falling towards their respective 50% levels. 

All three indicators showed negative divergences by failing to touch new highs with the index. A breach of the 20 day EMA can lead to a fall towards the support level of 11800. 

Nifty's TTM P/E is at 28.07, which is well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has moved up sharply to enter oversold zone, hinting at some near-term index upside.

Nifty rallied during Nov '19 on the back of strong FII buying. FIIs have now turned net sellers of equity during the first three trading days of Dec '19. If they continue to sell, the index can see more down side. 

The index is trading less than 1% below its lifetime high of 12159 (touched on Nov 28). Stay invested but avoid any bulk buying.

Sensex, Nifty charts (Jun 07, 2019): pause after touching new highs

During a holiday-shortened trading week, FIIs were net buyers of equity on Mon. Jun 3, but net sellers on Tue., Thu. and Fri. (Jun 4, 6, and 7). Their total net buying exceeded Rs 7.2 Billion. DIIs were net buyers of equity on Fri. Jun 7, but net sellers on the other three days. Their total net selling was worth Rs 12.9 Billion, as per provisional figures.

Nikkei India's Manufacturing PMI increased to 52.7 in May '19 from 8-months low figure of 51.8 in Apr '19 - remaining above 50 (indicating growth) for the 22nd month in a row. 

However, Nikkei India's Services PMI slipped to 50.2 in May '19 from 51 in Apr '19 - its slowest growth in a year. The Composite PMI (Manufacturing + Services) was 51.7 in May '19 - the same as in Apr '19.

Passenger vehicle sales in India declined 21.6% YoY in May '19 due to high finance costs and economic uncertainty. Monthly sales for Maruti, Tata Motors, Honda, Toyota declined between 7.5% to 38%. M&M sales were marginally lower. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex gained more than 550 points on the back of heavy FII buying on Mon. Jun 3. The index rose further to touch a new high of 40312 on Jun 4, but formed a small 'reversal day' bar (higher high, lower close) due to profit-booking before the Eid holiday.

A 25 bps (0.25%) cut in repo and reverse repo rates by the RBI Governor on Thu. Jun 6 had already been 'discounted' by the market. Downward revision in the GDP growth rate led to profit booking by both FIIs and DIIs. Sensex lost 550 points.

The index bounced up after receiving support from its rising 20 day EMA on Fri. Jun 7, and formed a 'reversal day' bar (lower low, higher close) that brought some relief for bulls. The index is trading above its three EMAs in a bull market.

Daily technical indicators are in bullish zones after correcting overbought conditions. MACD is falling towards its rising signal line. ROC has crossed below its 10 day MA and dropped from its overbought zone. RSI and Slow stochastic have slipped down from their respective overbought zones. 

All four technical indicators showed negative divergences by failing to touch new highs with the index on Jun 4. Some more correction, and a part or complete filling of 'Gap 2' (formed on May 20) will improve the technical 'health' of the chart and enable Sensex to rise higher.

The NBFC debt mess continues, with DHFL being the latest defaulter after IL&FS. Remember Buffett's quote: "There's never just one cockroach in the kitchen." Several mutual funds, PSU and private banks have large outstanding loans to both NBFCs.

Expect the problem to get worse before it gets better. Banks are very wary of loaning money to NBFCs. Some of the smaller NBFCs will die. Others will be forced to borrow overseas just to survive - and will get into bigger trouble. 

Easy finance fuelling India's consumption growth is a thing of the past. Manufacturing growth has been weak for a while. For the next few quarters, earnings growth for Indian companies may not improve much. 

Don't get fooled by the high index level into thinking all is well. No need to sell off in a panic. Remain cautiously optimistic. Maintain trailing stop-losses. Avoid bargain-hunting when Sensex is near a lifetime high.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new high of 12103, but formed a 'reversal' bar (higher high, lower close) due to profit booking by FIIs and DIIs.

Three of the weekly technical indicators - MACD, RSI, Slow stochastic - are inside their respective overbought zones, but only Slow stochastic is showing some upward momentum. ROC is falling below its 10 week MA towards neutral zone. 

All four indicators showed negative divergences by failing to touch new highs with the index. Some more correction or consolidation is likely. 

After touching a high of 29.90 on Mon. Jun 3, Nifty's TTM P/E has moved down to 29.39, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen sharply to the edge of its oversold zone, hinting at some near-term index upside.

Bottomline? Sensex and Nifty charts are consolidating near lifetime highs, as bulls have not been able to shake off tenacious bears. A weakening economy and debt crisis of NBFCs will be detrimental to earnings growth of India Inc. Stay invested with trailing stop-losses. Avoid bargain hunting near lifetime highs.

Nifty chart: a midweek technical update (Oct 04 ‘17)

FIIs were net sellers of equity worth Rs 13.2 Billion during the two days of trading this week, as per provisional figures. DIIs were net buyers of equity worth Rs 21.4 Billion.

After a breakout below a 'rising wedge' pattern, Nifty received good support from the 9700 level and started a pullback rally that closed above 9900 today.

Passenger vehicles had robust sales in Sep '17. Maruti showed growth of 9.6% over Sep '16 sales, while M&M and Hyundai reported growths of 23% and 17.4%. Tata Motors and Toyota had muted growth of 5.7% and 2.2%.

As was widely expected, RBI maintained interest rate status quo at today's policy meeting announcement. Only SLR was cut by 50 bps to 19.5%.

The daily bar chart pattern of Nifty had breached the 9700 support level intra-day on Sep 28, but bounced up after touching a low of 9688 - testing its previous low of 9686 (touched on Aug 11).

That was a trigger for a pullback rally towards the 'rising wedge'. Resistance from the 20 day EMA halted the rally today. 

By touching an intra-day high of 9938, the index has retraced 50% of its recent fall from the Sep 19 top of 10179 to the Sep 28 low of 9688. However, the rally needs to continue beyond 10000 for bulls to regain some control.

Daily technical indicators are in bearish zones, but showing upward momentum. The breadth indicator NSE TRIN (not shown) is falling in neutral zone. Some more upside is possible.

Note that Nifty's TTM P/E has moved up to 25.75 - which is much higher than its long-term average. High index valuation is one of the main reasons why FIIs are selling.

Nifty is trading well above its rising 200 day EMA in a bull market. That means dips are supposed to be buying opportunities. However, with FIIs selling continuously - and they may use the pullback rally to sell more - it is better to err on the side of caution.

Sensex, Nifty charts (Sep 01, 2017): Are the corrections over? Or, will bears strike again?

FIIs were net sellers of equity worth Rs 160 Billion during the month of Aug '17. It was their highest amount of monthly selling since Nov '16. DIIs more than matched them with net buying of equity worth Rs 162 Billion during Aug '17.

The GDP growth figure for Q1 (Jun '17) was at a 3 year low of 5.7%, against 7.9% for Q1 (Jun '16) and 6.1% for Q4 (Mar '17). It was the fifth straight quarter of GDP decline - thanks to demonetisation, de-stocking prior to GST implementation and a rising trade deficit.

Passenger vehicle sales showed decent growth during Aug '17. Maruti and Honda had double-digit growth over Aug '16. M&M, Hyundai and Tata Motors had single-digit growth. However, Ford and Toyota showed decline in growth. 

BSE Sensex index chart pattern

There are bullish and bearish scenarios developing on the daily closing chart pattern of Sensex.

First, the bullish scenario. The index broke out above the (blue) down trend line (refer last week's post), and closed above its 20 day and 50 day EMAs.

Daily technical indicators are looking bullish. MACD has just crossed above its falling signal line. ROC and RSI have entered bullish zones. Slow stochastic has risen sharply towards its overbought zone.

Now, the bearish scenario. The index had corrected sharply below its 20 day and 50 day EMAs after forming a small head-and-shoulders reversal pattern. It has been consolidating sideways within an upward-sloping 'flag' pattern for the past three weeks.

Since a 'flag' is usually a continuation pattern, and the index entered the 'flag' after a corrective move, the chance of a break out below the 'flag' is greater.

Daily MACD is still in bearish zone. ROC is showing negative divergence by failing to rise higher with the index. Slow stochastic is looking overbought, and can trigger a corrective move. 

There seems to be no respite from selling by FIIs. A test of support from the 200 day EMA may be on the cards. If such a dip occurs, use it to add to existing holdings.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty managed to move above the (blue) down trend line (refer last week's post), but appears to be consolidating within a 'flag' or a 'falling wedge' pattern. The likely break out from either pattern is downwards.

The index is trading above the support level of 9700, and its 20 week and 50 week EMAs in a bull market. Any further dip will be a good opportunity to add to existing holdings.

Weekly technical indicators are in bullish zones, but only ROC and Slow stochastic are showing upward momentum. MACD and RSI are showing negative divergences by failing to rise with the index. Some more consolidation is likely.

Nifty's TTM P/E is at 25.99 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is oscillating in neutral zone, and may limit index upside.

Consequences of a good monsoon have already been discounted by the index. The demonetisation flop show has dented NaMo's image. Quite a few IPOs are in the pipeline. The near-term outlook for the index is not looking bullish.

Bottomline? Sensex and Nifty charts appear to be consolidating within 'flag' patterns for the past three weeks. FIIs continue to sell heavily. DII buying has protected the downside so far. Both indices are trading in bull markets, but stagnant earnings growth of India Inc. and the shocking GDP number can trigger a deeper correction. So, don't be in a rush to buy.

Nifty chart: a midweek technical update (Aug 02 ‘17)

For the month of Jul '17, FIIs were net buyers of equity (worth Rs 14.6 Billion) after three straight months of net selling. DIIs were also net buyers of equity (worth Rs 47.8 Billion) for the 4th month in a row. Nifty had its first ever monthly close above the 10000 level.

Passenger vehicle sales picked up in Jul '17 - thanks to price cuts after GST implementation. Maruti (22.4%), Honda (21.7%), M&M (21%), Ford (18.9%), Tata Motors (10.2%), Toyota (43%) showed double-digit sales growth over Jun '17. Two-wheeler and Commercial vehicles also had good growth in sales. 

In a widely expected move, RBI cut both the repo and reverse repo rates by 25 bps (0.25%) each during today's monetary policy meeting. Nifty corrected 33 points, as the interest rate cut had already been 'discounted' by the market.

The daily bar chart pattern of Nifty touched a new high of 10138 prior to RBI's policy announcement, but slipped 56 points to close at 10082 - forming a 'reversal day' bar (higher high, lower close) that may temporarily halt the bull rally.

The index is trading well above its three rising EMAs in a bull market. All three daily technical indicators are in their respective overbought zones. Slow stochastic is showing negative divergence by touching consecutive lower tops.

The index is almost 950 points above its 200 day EMA - a sign of extremely overbought condition. Nifty's TTM P/E is at 25.63 - considerably higher than its long-term average. The breadth indicator NSE TRIN (not shown) is trying to emerge from deep inside its overbought zone.

In the near term, large liquidity flows can keep an index overbought for long periods. Eventually, there will be a correction if earnings fail to catch up with index levels. Aug '17 may well turn out to be a month of correction or consolidation. 

Stay invested. Maintain SIPs. But no need to go on a buying spree just because the index is touching new highs. Partial profit booking may be a better idea.

Fundamentals are improving – why is the stock market still correcting?

Are the fundamentals really improving? The short answer is: Yes. Let us look at some facts:

1. WPI inflation dropped to its lowest level in 5 years. CPI inflation also dropped - below 6.5%. The primary reason for this drop is lower food prices – which is not due to any monetary action by RBI or fiscal action by the government.

However, there is no denying that inflation is moderating, which raises the prospect of an interest cut by RBI sooner than later.

2. Commercial vehicle sales have picked up in Sep. ‘14 after 16 months of decline. That is a clear sign of a turnaround in the economy.

Passenger vehicle sales dipped slightly in Sep ‘14 – but that is probably due to seasonal reason. Dussehra, Eid, Dhanteras, Diwali are being celebrated in Oct ‘14 – an ‘auspicious time’ for vehicle buyers. Purchases may have been postponed in Sep ‘14.

3. Oil prices have fallen significantly – due to oversupply in the international market. India’s oil import bill has come down. Petrol price has been reduced. Expect a cut in diesel price soon. This will help in curbing inflation.

4. The trade deficit has narrowed by 8.2% during the first half of the year (Apr to Sep ‘14) compared to the same period last year – despite a sharp jump during the month of Sep ‘14 due to a big increase in gold imports.

In US Dollar terms, exports grew by 6.5%, while imports grew by 1.6% during Apr to Sep ‘14.

5. Despite a surge in the Dollar index, the Rupee has been relatively stable in the 60-62 range against the US Dollar. Infosys has already declared good Q2 results. Expect other large IT players to also show improvement in top and bottom lines.

The macro fundamentals are definitely better than a year ago. To answer the larger question, one needs to remember the famous quote from Benjamin Graham, who is considered the ‘father’ of value investing:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

What it means is that sentiments rule the market in the near-term. Why are sentiments bearish now? The main reason is selling by FIIs. Despite record inflows into Indian mutual funds, DII buying hasn’t kept pace with FII selling.

Why are FIIs selling? There has been some disappointment with the lack of speed of the Modi government in implementing much-needed reforms in financial and labour sectors. Declining growth in China and Germany, and a likely hike in interest rate in the USA have also caused a more cautious approach by FIIs.

Eventually, the market will ‘weigh’ the improving fundamentals, and the stock market will resume its up move and touch new highs. The question is: When?

How about from Mon. Oct 20 ‘14? Exit polls indicate a possible sweep by the BJP in the just-concluded state elections in Maharashtra and Haryana. Results will be declared on Sun. Oct 19 ‘14.

Government formation by BJP in both states may be just the positive fillip the stock market is awaiting.