Sensex, Nifty charts (Sep 04, 2020): up trend lines breached but bull markets still intact

FIIs were net buyers of equity on Tue, Wed. and Thu. (Sep 1, 2 and 3), but net sellers on Mon. and Fri. Their total net selling was worth Rs 38.0 Billion. DIIs were net buyers of equity on Mon. and Thu., but net sellers on the other three days. Their total net selling was worth Rs 10.89 Billion.

IHS Markit India Manufacturing PMI rose to a 6 month high of 52 in Aug '20 from 46 in Jul '20. A reading above 50 indicates expansion. Services PMI increased to 41.8 in Aug '20 from 34.2 in Jul '20, but remained in contraction zone. The Composite (Mfg. + Serv.) PMI rose to 46 in Aug '20 from 37.2 in Jul '20 - its 5th straight month of contraction.  

During Apr-Jul '20, India's fiscal deficit touched Rs 8.23 Trillion - which is already 103% of the budget estimate for FY 2020-21. Total revenue receipts was Rs 2.27 Trillion, while expenses were Rs 10.5 Trillion.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex shows that bulls stumbled at the very last hurdle - the 335 points downward 'gap' formed on Feb 28 '20 - in an effort to rise to a new high.

The index touched a 6 months high of 40010 intra-day on Mon. Aug 31, but formed a large 'reversal day' bar (higher high, lower close) and dropped to close below the 'gap' and the (blue) up trend line.

Sensex received support from its 20 day EMA, which encouraged bulls to attempt a pullback above the trend line during the next three days. But bears held firm. The index re-entered the 'gap' zone, but failed to move above it.

The stage was set for a confirmed reversal of the 5.5 months long up trend. The index opened trading with a downward 'gap' and slid down further to close below its 20 day EMA - forming a 5-days bearish pattern of 'lower top, lower bottom.'

Note that Sensex is trading almost 1900 points above its 200 day EMA. That means the bull market is intact. However, a convincing breach of a trend line should be treated with respect and caution.

Daily technical indicators are looking neutral to bearish. MACD has slipped below its signal line in bullish zone. ROC has dropped below its 10 day MA in neutral zone. RSI is falling towards its 50% level. Slow stochastic has moved below its 50% level to enter bearish zone.

Some more correction and/or consolidation can be expected. The economy is in doldrums - with a worse-than-expected contraction in GDP growth. Ignore all talk about a 'V' shaped recovery, as the pandemic is spreading like wild fire.

The 'easy money' has been made already. The next 12-18 months will test the mettle of small investors. Make your decisions wisely. You can only grow your wealth if you know how to protect your capital.

NSE Nifty index chart pattern

After touching a 6 months intra-week high of 11794, the weekly bar chart pattern of Nifty formed a large weekly 'reversal' bar (higher high, lower close) and closed well below the (purple) up trend line drawn from the Mar '20 low.

Convincing breach of an up trend line usually indicates a trend reversal. However, all three weekly EMAs are moving up and the index is trading above them in long-term bull territory. No need for bulls to panic yet. The 'support-resistance zone' between 11000-11250 should provide some near-term support.

Weekly technical indicators are in bullish zones but not showing any upward momentum. MACD is above its signal line inside its overbought zone. RSI has turned down towards its 50% level. Slow stochastic is moving down inside its overbought zone. 

Nifty's TTM P/E touched a new lifetime high of 33.04 on Thu. Sep 3 before slipping down to 32.49, which is well above its long-term average and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is rising in neutral zone. Some more correction or consolidation is likely.
 
Bottomline? 5 months long up trend lines on Sensex and Nifty charts have been breached. Corrections in US stock indices motivated bears to put up a fight. Some more correction or some consolidation is likely. Rushing in to buy the dip may be counter-productive. Let the dust settle first.

Sensex, Nifty charts (Jul 31, 2020): a temporary pause or a trend reversal?

FIIs were net buyers of equity on Tue. and Thu. (Jul. 28 and 30), but were net sellers on the other three trading days. Their total net selling was worth Rs 13.11 Billion. DIIs were net buyers of equity on Fri. Jul. 31, but were net sellers on the first four trading days. Their total net selling was worth Rs 24.45 Billion.

During Jul. '20, FIIs were net buyers of equity worth Rs 24.9 Billion - thanks to their strong buying during the week of Jul. 20-24. It was their third straight month of net buying. DIIs were net sellers of equity worth Rs 100.08 Billion during Jul. '20. It was their heaviest monthly selling since Mar. '19.

The index of eight core sector industries contracted 15% in Jun '20, compared with 22% in May '20 and 37% in Apr '20. During Q1 (Apr-Jun '20), the index contracted 24.6%. Only fertilisers showed 4% growth. The other seven (coal, crude oil, natural gas, refinery products, steel, cement, electricity) contracted between 6 to 34%.

Gross tax revenue shortfall of 32.6% during Q1 (Apr-Jun '20) widened India's fiscal deficit to Rs 6.62 Trillion, which is 83.2% of the Rs 7.96 Trillion budget estimate for FY 2020-21. This is the highest fiscal deficit in percentage terms since Q1 (Apr-Jun 1998)

BSE Sensex index chart pattern

An interesting tussle between bulls and bears is evident on the daily bar chart pattern of Sensex. Despite buying pressure from FIIs, bears continued their last-ditch resistance at the 640 points downward 'gap' formed back on Mar 6th.

On Tue. Jul. 28, the index closed above the 'gap' zone. However, formation of a 'reversal day' bar (higher high, lower close) on Wed. Jul. 29 provided a psychological boost to bears. The index corrected during the rest of the week, and closed just below the 'gap'.

What next? Technically, the balance remains tilted towards bulls. The index is trading above its three daily EMAs in bull territory. The up trend line - drawn through Mar '20 and May '20 lows - remains intact. The 50 day EMA is poised to cross above the 200 day EMA - the 'golden cross' will technically confirm a return to a bull market.

Bears are not out of the game yet. As per 'gap' theory, part or complete filling of a 'gap' is usually followed by a resumption of the trend prior to formation of the 'gap'. That means the down trend that started from Wed. Jul. 29 can continue.

On the downside, the wide range between 35700 (level of 50 day EMA) and 37200 (level of 20 day EMA) can provide good support. However, a convincing breach of the up trend line (at 36500) will confirm a trend reversal.

Daily technical indicators are in bullish zones, but starting to show downward momentum. MACD is moving sideways but has slipped below its signal line. ROC has crossed below its 10 day MA. RSI and Slow stochastic have dropped down from their respective overbought zones.

There is no rush to buy the dip. It is possible that the index will test support from the up trend line. Add if the index bounces up from trend line support. Book profits if the trend line gets breached.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above its three weekly EMAs for the fourth straight week, but formed a weekly 'reversal' bar (higher high, lower close) that stalled the upward momentum of the rally from its Mar '20 low.

The index moved above the 'support-resistance' zone between 11000-11250 intra-week, but failed to sustain above 11250. Bear resistance forced a second weekly close inside the 'support-resistance' zone.

The 20 week EMA has crossed above the 200 week EMA after forming a bullish 'rounding bottom' pattern. The 50 week EMA is in the process of forming a 'rounding bottom' pattern. So, bulls have no reason to panic just yet. However, a test of support from the 200 week EMA (at 10273) may be on the cards.

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

Nifty's TTM P/E has moved up to 30.2, a new lifetime high and deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) is in neutral zone, hinting at more consolidation or correction.
 
Bottomline? Counter-trend rallies on Sensex and Nifty charts have expectedly stalled at resistance zones after re-entering bull territories. The current dip may not be a buying opportunity. Sometimes, staying on the sidelines can be a good strategy.

S&P 500 and FTSE 100 charts (Jun 07, 2019): short covering triggers pullback rallies

S&P 500 index chart pattern

Note the following comment from last week's post on the daily bar chart pattern of S&P 500: "Some more correction, and a drop towards the support zone between 2700-2725 is likely."

The index corrected further below its 200 day EMA on Mon. Jun 3, but received good support from the zone between 2700-2725. A 'V' shaped technical bounce propelled the index above its 20 day and 50 day EMAs back into bull territory by Thu. Jun 6.

On Fri. Jun 7, the index breached the (purple) down trend line after spending 5 weeks below it, and closed with a 121 points (4.4%) weekly gain. The week's rally was accompanied by sliding volumes. A pullback towards the down trend line is a possibility. 

Daily technical indicators are looking bullish, and showing upward momentum. MACD has crossed above its signal line in bearish zone. RSI has moved above its 50% level after bouncing up from the edge of its oversold zone. Slow stochastic is rising sharply towards its overbought zone. 

The rally may have been triggered by short covering. So don't be surprised if bears start to 'sell on rise' to regain control.

On longer term weekly chart (not shown), the index formed a large 'reversal' bar (lower low, higher close) and closed above its three weekly EMAs in a long-term bull market. Weekly technical indicators are turning bullish. MACD is below its signal line in bullish zone, but has stopped falling. RSI has moved above its 50% level after falling below it. Slow stochastic is below its 50% level, but has stopped falling.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 touched a low of 7080 on Mon. Jun 3, but formed a 'reversal day' bar (lower low, higher close) that triggered a 'V' shaped pullback rally.

By not falling below 7000, the 'cup and handle' pattern (refer this post) remains alive. The index closed above its three EMAs in bull territory, gaining 170 points (2.4%) on a weekly closing basis.

The bearish 'head and shoulders' pattern (mentioned in last week's post) will get negated if the index can close convincingly above its previous (May 22) top of 7373. 

Daily technical indicators are looking bullish and showing upward momentum. MACD has crossed above its signal line in bearish zone. RSI has moved above its 50% level. Stochastic has entered its overbought zone.

Near-term index upside may be limited. Sliding volumes during last week's rally can encourage bears to 'sell on rise'.

On longer term weekly chart (not shown), the index formed a large 'reversal' bar (lower low, higher close) and closed above its three weekly EMAs in a long-term bull territory. Weekly technical indicators are in bullish zones, and showing upward momentum. 

Nifty chart: a midweek technical update (May 29, 2019)

FIIs were net buyers of equity on Mon. (May 27), but were net sellers during the next two days. Their total net buying was worth Rs 4.1 Billion. DIIs were net sellers of equity on Mon. and Wed. (May 29), but were net buyers on Tue. Their total net selling was worth Rs 2.5 Billion, as per provisional figures.

The 2nd NDA government has its task cut out as India is facing one of the worst job crisis in several decades. According to an analysis based on data from Centre for Monitoring Indian Economy (CMIE), nearly 5 million people lost their jobs during 2016-18.

According to an ICRA report which analysed the Q4 results of 300 odd companies, weakness in consumer spending and lower commodity prices have led to a revenue growth of 10.7% during Jan-Mar '19 - a 6-quarter low. 

After forming a 165 points upward 'gap' on May 20, the daily bar chart pattern of Nifty rose to touch a lifetime high of 12041 on May 23 (the day election results were announced). But it formed a large 'reversal day' bar (higher high, lower close), and dropped to test support from the 'gap' zone (shaded in grey).

Though the index bounced up, and touched a new closing high of 11929 on Tue. May 28, it has failed to test its May 23 top so far. The index is trading well above its three rising EMAs in a bull market - so rising to a new high may be just a matter of time.

Daily technical indicators are in bullish zones, but not showing much upward momentum. MACD is rising above its signal line in overbought zone. RSI is moving sideways above its 50% level, but appears to be forming a small 'rounding top' reversal pattern. Slow stochastic is moving sideways after re-entering its overbought zone. 

All three indicators continue to show negative divergences by failing to touch new highs with the index. Some consolidation or correction may follow.

Nifty's TTM P/E has moved up to 29.44, which is in overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has fallen sharply from its oversold zone, hinting at some near-term consolidation.

A correction that partly or completely fills the May 20 'gap' will improve the technical 'health' of the chart, enabling Nifty to rise much higher. But corrections hardly ever happen if you wish for them.

There is a remote possibility of Nifty forming an 'island reversal' pattern - if it falls below the upward 'gap' of May 20 with a downward 'gap'. In such an unlikely event, the outcome will be very bearish. Not saying such a rare reversal pattern will actually form - but forewarned is forearmed.

S&P 500 and FTSE 100 charts (May 17, 2019): pullback after corrective moves

S&P 500 index chart pattern

Note the following comment in last week's post on the daily bar chart pattern of SPX 500: "Friday's 'outside day' candlestick may be hinting at a continuation of the down trend that started after the index touched its lifetime high of 2954 on May 1."

On Mon. May 13, the index dropped to test support from the 2800 level, and closed below its 50 day EMA. A technical bounce followed during the next three days. The index breached the 20 day EMA intra-day on Thu. May 16, but failed to close above it.

Bears came to the fore on Fri. May 17. The index dropped below its 50 day EMA intra-day, but managed to close just above it. 

The index remains in a down trend (marked by purple trend line) that started after the index touched a lifetime high of 2954 on May 1.

Daily technical indicators are in bearish zones. MACD is moving sideways below its falling signal line. RSI has dropped down after facing resistance from its 50% level. Slow stochastic has bounced up from the edge of its oversold zone. 

Some consolidation or more correction can be expected.

On longer term weekly chart (not shown), the index dropped below its 20 week EMA, but bounced up to close above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing downward momentum. 

FTSE 100 index chart pattern

Note the following comments in last week's post on the daily bar chart pattern of FTSE 100: "The 'cup and handle' pattern has not been negated yet. Daily technical indicators are looking bearish and oversold...and can trigger a technical bounce."

On Mon. May 13, the index touched a low of 7151 and closed below its three EMAs in bear territory at 7164. A technical bounce during the next three days propelled the index to a close above its three EMAs and the 7350 level on Thu. May 16.

On Fri. May 17, the index closed just below 7350 but above its three EMAs in bull territory. However, formation of a small 'hanging man' candlestick can lead to some correction or consolidation.

Daily technical indicators are looking bullish after correcting oversold conditions. MACD is about to cross above its falling signal line in bearish zone. RSI and Stochastic have moved above their respective 50% levels.

A convincing move above the Apr 23 top of 7529 is necessary to complete the 'cup and handle' pattern.

On longer term weekly chart (not shown), the index formed a 'reversal' bar (lower low, higher close) and closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators are in bullish zones, and showing slight upward momentum. 

Nifty chart: a midweek technical update (Mar 13, 2019)

FIIs were on a buying spree on all three trading days this week. Their total net buying in equity was worth a massive Rs 90.1 Billion. DIIs were net sellers of equity on all three trading days. Their total net selling was worth Rs 44.5 Billion, as per provisional figures.

The Index of Industrial Production (IIP) slowed to 1.7% in Jan '19 from 2.6% in Dec '18 due to deceleration in manufacturing, capital goods, consumer, non-durables and electricity sectors.  

Retail (CPI) inflation rose to 2.57% in Feb '19 from 1.97% in Jan '19 due to higher food prices (except vegetables). Lower IIP and higher CPI may force RBI to cut interest rates in its Apr '19 policy meeting.

The daily bar chart pattern of Nifty has shot up like a rocket - fuelled by renewed FII buying. Announcement of dates of general elections, and likely return of NDA for a second term (as per recent polls) has given a big boost to bullish sentiment.

Note that the index has closed above the upper Bollinger Band two days in a row, and also formed a 'hanging man' candlestick today. The two together may be a warning of a potential downward reversal.

Daily technical indicators are looking bullish, and overbought. MACD is rising above its signal line inside its overbought zone. RSI has entered its overbought zone for the first time since Aug '18. Slow stochastic is moving sideways inside its overbought zone, and can trigger a correction.

Remember that an index (or stock) can remain overbought for long periods. That doesn't mean one should throw caution to the winds. The index is just 400 points away from its lifetime high. Charts tend to have 'memory'. Profit booking can emerge as the index approaches 11760.

Nifty's TTM P/E has moved up to 27.80, which is way higher than its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone, and can limit near-term index upside.

Polls have often proved incorrect - probably because of insufficient sample sizes among a heterogenous population. So, they should always be taken with a pinch of salt. 

The stock market - and specifically, FIIs - seem certain of a win for NDA. But there have been many a slip between the cup and the lip. NDA was supposed to be a shoo-in in 2004.

S&P 500 and FTSE 100 charts (Mar 08, 2019): pullback rallies stall at resistance levels

S&P 500 index chart pattern

The following comment appeared in last week's post on the daily bar chart pattern of S&P 500: "...the index closed above its three weekly EMAs in a long-term bull market for the fifth week in a row, but has formed a long-legged doji candlestick pattern that can halt the rally."

On Mon. Mar 4, the index touched an intra-day high of 2817, but formed a 'reversal day' bar by closing below the resistance zone (between 2800 and 2825). That was just the excuse bears needed to swing into action.

The index corrected during the rest of the week, falling below its 20 day EMA but receiving support from its 50 day and 200 day EMAs. The 'golden cross' of the 50 day EMA above the 200 day EMA has not been a convincing one. The index lost 2.2% on a weekly closing basis.

Daily technical indicators are looking bearish after correcting overbought conditions. MACD is falling below its signal line in bullish zone. RSI is seeking support from its 50% level. Slow stochastic has fallen sharply below its 50% level. 

Signs of a global economic slowdown - if not a recession - and a not-so-great jobs report have taken the wind out of bullish sails. A possible fall below the 200 day EMA can lead to more correction.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the sixth week in a row, but has formed a large 'reversal' bar (higher high, lower close) that can trigger a correction. 

Weekly MACD is in neutral zone. RSI has formed a small 'rounding top' reversal pattern and dropped towards its 50% level. Slow stochastic has started to correct inside its overbought zone.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 rose to touch an intra-day high of 7212 on Wed. Mar 6, but fell short of testing resistance from its 200 day EMA. The index dropped to seek support from its rising 50 day EMA, and closed just above 7100 - losing only 2 points for the week.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. RSI has again dropped to seek support from its 50% level. Stochastic is falling towards its oversold zone. 

The unresolved BrExit deal continues to affect bullish sentiments. The index can consolidate or correct some more. 

On longer term weekly chart (not shown), the index received support from its 20 week EMA but faced resistance from its 50 week EMA, and closed above its 200 week EMA in long-term bull territory. 

Weekly technical indicators are giving conflicting signals. MACD is rising above its signal line in bearish zone. RSI is seeking support from its 50% level. Stochastic has slipped down from its overbought zone.

Sensex, Nifty charts (Feb 22, 2019): sideways consolidations continue

FIIs were net sellers of equity on Mon. and Tue. (Feb 18 and 19) but turned net buyers on the last three days. Their total net buying was worth Rs 50.3 Billion. DIIs were net buyers of equity on all five trading days. Their total net buying was worth Rs 46.5 Billion, as per provisional figures.

On Fri. Feb 22, net buying by FIIs exceeded Rs 63 Billion, which turned them into net buyers month-to-date. A bulk deal in Kotak Mahindra Bank (ING sold its residual 3% holding) was the probable reason.

Nifty's EPS for Q3 (Dec '18) hit an 11-quarter low of Rs 96.50. This is the first instance since Q1 (Jun '16) when the EPS slipped below Rs 100. It was also the 4th consecutive quarter of lower-than-estimated earnings for the Nifty 50 companies.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex closed below the 200 day EMA on Mon. and Tue. (Feb 18 and 19) after 2 months - thanks mainly to FII selling.

Just when it seemed bears were getting the upper hand, the index pulled back above its 200 day EMA towards the Fibonacci resistance zone (between 36140 and 36810).

Despite strong combined buying by FIIs and DIIs, resistances from the merging 20 day and 50 day EMAs capped the pullback rally. 

The index closed above its 200 day EMA in bull territory, but eight straight days of lower closes and the Valentine's Day massacre at Pulwama has dented bullish sentiments.

Daily technical indicators are looking bearish. MACD is moving sideways below its falling signal line in neutral zone. ROC is moving up towards its falling 10 day MA in bearish zone. RSI is sliding down towards its oversold zone. Slow stochastic has emerged from its oversold zone.

The government has been announcing several sops for various sections of citizens in a belated effort to curry favour with voters before the general election. The stock market has so far reacted with indifference.

With no visible bullish triggers on the horizon - monsoon is too far away and Q4 (Mar '19) results of India Inc. are unlikely to be any better - there is a distinct possibility that Sensex may succumb to gravity.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty formed a 'reversal' bar (lower low, higher close) for the 6th time in the past thirteen weeks. Bulls need not expect a strong pullback rally. 

The index closed above its 50 week EMA but faced strong resistance from its 20 week EMA. FII buying can cause some more upside, but is unlikely to propel the index above the Fibonacci resistance zone (between 10880 and 11090). 

Weekly technical indicators are looking neutral to bearish. MACD, ROC and RSI are moving sideways in neutral zone. Slow stochastic is falling towards its 50% level. 

Nifty's TTM P/E has moved down to 26.32, but remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has fallen into its overbought zone, and can limit near-term index upside.

Bottomline? For more than 3 months, Sensex and Nifty charts have been consolidating sideways after sharp corrections during Sep-Oct '18. Both indices managed to close above their long-term moving averages in bull territories, but are unlikely to cross above Fibonacci resistance zones. The consolidations may continue with a downward bias.

Sensex, Nifty charts (Dec 21, 2018): bears stamp their authority once again

FIIs were net sellers of equity on Mon. & Thu. (Dec 17 & 20), but net buyers on the other three days of the week. Their total net buying was worth Rs 10.4 Billion. DIIs were net buyers of equity on Thu. (Dec 20), but net sellers on the other four days. Their total net selling was worth Rs 11.4 Billion, as per provisional figures.

Equity mutual fund schemes registered a lower net inflow of Rs 84.14 Billion in Nov '18, compared to Rs 126.22 Billion in Oct '18 and Rs 111.72 Billion in Sep '18, mainly due to a volatile market. During the Apr-Nov '18 period, total inflow into equities have exceeded Rs 822 Billion. 

S. Naren, who manages Rs 3.1 Trillion as CIO of ICICI Pru AMC, says investors need to brace for a run of constrained returns that will last until the US Fed makes a policy U-turn. For 2019, Naren doesn't see investments in Indian equities fetching more than 'mid-teen' percentage gains. 

BSE Sensex index chart pattern

Note the following cautionary comments from last week's post on the daily bar chart pattern of Sensex: "... (bulls) have still not been able to extricate themselves from the medium-term down trend that started on Aug 29... Anyone holding long positions should think of taking some profits home."

The index rose to touch an intra-day high of 36555 on Wed. Dec 19 - its highest level since Oct 3 (the day before it had formed a downward 'gap' and dropped into bear territory). However, it continued to face resistance from the (blue) up trend line  that was breached on Dec 6.

Even as Sensex touched its highest level in more than 10 weeks, MACD and RSI showed negative divergences by failing to rise higher with the index. ROC reached the edge of its overbought zone. Slow stochastic re-entered its overbought zone. Bears took advantage of technical weakness visible on the chart.

The index closed around 50 points lower on Thu. Dec 20, and then plunged head-first below its 20 day EMA and the downward 'gap' (formed on Oct 4) on Fri. Dec 21 - perhaps a belated reaction to US Fed's 25 bps (0.25%) interest rate increase, but in tandem with the sharp fall in US markets.

Sensex closed above its 50 day and 200 day EMAs in bull territory, but lost about 220 points (0.6%) on a weekly closing basis. A single day's trading on Fri. Dec 21 wiped out all gains made during the previous 6 trading sessions. 

Daily technical indicators are looking bearish and showing downward momentum. MACD is poised to cross below its signal line in bullish zone. ROC has dropped to seek support from its sliding 10 day MA in neutral zone. RSI has fallen below its 50% level. Slow stochastic is ready to fall from its overbought zone.

A curtailed trading week due to X'mas holiday plus F&O expiry should keep trading activity muted. Expect bears to try and press home their advantage.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched an intra-week high of 10985 - its highest level in 11 weeks - but formed a 'reversal' bar (higher high, lower close) and closed just below its 20 week EMA.

The index closed above its 50 week EMA and well above its 200 week EMA in a long-term bull market, but lost about 50 points (0.5%) on a weekly closing basis - thanks to the sharp correction on Fri. Dec 21. 

The index appears to be trading within a bearish 'rising wedge' pattern for the past 10 weeks. (The pattern is more clearly visible on the daily and weekly closing/line charts.) The likely breakout from the 'wedge' is downwards.

Three of the weekly technical indicators remain in bearish zones - MACD is moving sideways with slight upward bias below its signal line; RSI is moving sideways above its oversold zone; Slow stochastic is moving sideways just below its 50% level. ROC is above its 10 week MA in bullish zone, but has turned down. 

Nifty's TTM P/E has slipped to 26.02 (after touching a mid-week high of 26.53), which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has dropped to the edge of its overbought zone, hinting at near-term index downside.

Bottomline? Despite valiant effort by bulls, Sensex and Nifty charts appear to be transitioning to bear markets. Increased volatility during intra-day trading is a sign of the balance shifting towards bears. Both indices are likely to fall lower before they can rise to touch new highs in 2019. 

3 Early Warning Signs That You Should Exit a Trade

Profits in the financial markets require multiple skills that can locate appropriate risk vehicles, enter positions at the right time, and manage them with wisdom and a strong stomach before finally taking an exit when opportunity cost turns adverse. 

Many investors, market timers and traders can perform the first three tasks admirably but fail miserably when it comes time to exit positions.

Getting out at the right time isn't difficult, but it does require close observation of price action looking for clues that may predict a large-scale reversal or trend change. 

This is an easier chore for short-term traders than long-term investors who have been programmed to open positions and walk away – holding firm through long cycles of buying and selling pressure.

Read more at:
https://www.investopedia.com/articles/markets/010816/3-early-warning-signs-you-can-use-exit-positions.asp

Nifty chart: a midweek technical update (Oct 24, 2018)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 29 Billion. DIIs were net buyers on all three days. Their total net buying was worth Rs 22.9 Billion, as per provisional figures.

The net direct tax collection in India grew by 15.7% to Rs 4.89 Trillion YoY during the period Apr - Oct 3rd week, 2018 - meeting 42.5% of the full fiscal year target of Rs 11.5 Trillion.

Tight monetary conditions for NBFCs may soon begin to hit the economy as funds for consumption and investment are slowly getting squeezed. Sale of motorcycles, tractors, plywood and cement have slowed in the past few weeks.

The daily bar chart pattern of Nifty touched an intra-day low of 10102 on Tue. Oct 23 - its lowest level since Mar 28 '18. All gains made during Apr-Aug '18 got wiped out during Sep-Oct '18. The index is trading well below its three falling EMAs in bear territory. 

Daily technical indicators are in bearish zones, and are not showing any upward momentum. MACD is facing resistance from its falling signal line inside its oversold zone. RSI is getting support from the edge of its oversold zone. Slow stochastic has re-entered its oversold zone.

Note that all three indicators showed positive divergences by touching slightly higher bottoms, when the index dropped lower. That may have triggered today's upward bounce. Is it possible that the index has formed a small 'double bottom' reversal pattern? 

Technically, such a pattern will get confirmation only if Nifty manages to rally past its Oct 17 top of 10710 (where it had faced strong resistance from its falling 20 day SMA and had dropped towards the lower Bollinger Band). The odds for such a rally doesn't favour bulls.

Nifty's TTM P/E has moved down to 24.60, but still remains higher than its long-term average. The breadth indicator NSE TRIN (not shown) is moving down in neutral zone, suggesting some near-term upside.

Oil's price has come down from lofty levels and Rupee's fall against the US Dollar has temporarily stalled. That has provided brief respite to bulls. But FIIs are still in exit mode - so, more downside is likely.