Sensex, Nifty charts (Sep 20, 2019): short covering causes euphoric upward breakouts

FIIs were net sellers of equity during the first four trading days of the week, but were net buyers on Fri. (Sep. 20). Their total net selling was worth Rs 33.7 Billion. DIIs were net buyers of equity on all five days of the week. Their total net buying was worth Rs 48.2 Billion, as per provisional figures.

After three disappointing 'booster' packages, the Finance Minister hit the ball out of the park by announcing a significant cut in corporate taxes on Fri. Sep 20. Sensex and Nifty soared - trapping unwary short sellers - and business leaders sang 'Hallelujah'. 

The GST council announced reduction in rates for hotels, outdoor caterers, precious/semi-precious stones but hiked rates for caffeinated drinks and railway wagons. No major relief was provided to auto and cement sectors.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex fell steadily on the back of sustained FII selling, and dropped to test support from the lower edge of the 'support zone' (between 35900 and 37100) on Thu. Sep 19.

There was a sea change in market sentiment after the FM announced corporate tax rate cut on Fri. Sep 20. The index did a sharp U-turn as traders rushed to cover their shorts. Sensex closed above its three EMAs in bull territory for the first time in nearly three months.

Daily technical indicators are turning bullish. MACD has crossed above its rising signal line in bearish zone. ROC has risen sharply to the edge of its overbought zone. RSI has moved above its 50% level. Slow stochastic has emerged from its oversold zone. Some more near-term upside is possible.

Small investors should avoid getting caught in the sudden euphoria. The devil is in the details. How many companies actually pay more than 25% tax? If they do, will they be willing to forego existing tax incentives? Will tax benefits be passed on to consumers, or used to pare debt? Will rural consumers rush out to buy two-wheelers, tractors and cars? Will MSMEs start opening new factories just because tax has been reduced by 3.5%?

Only time will provide answers to those questions. In the meantime, follow your asset allocation plan, continue SIPs, use the sentiment boost to get rid of non-performing stocks/funds and stay invested in good companies/funds for the long-term. That is the best way to build wealth - whether Sensex is falling or suddenly jumping northwards.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty breached the lower edge of the 'support zone' (between 10700 and 11100) intra-week, but bounced up sharply on Fri. Sep 20 to close above both its 50 week and 20 week EMAs for the first time since early Jul '19.

Reduction in corporate taxes - announced by the Finance Minister on Fri. Sep 20 - triggered a sharp technical bounce due to short-covering. Nifty closed at its highest level in eight weeks.

Weekly technical indicators are in bearish zones, but showing upward momentum. MACD appears to be forming a bullish 'saucer' pattern below its falling signal line. ROC has crossed above its falling 10 week MA. RSI has emerged from its oversold zone. Slow stochastic has started rising towards its 50% level. Expect some more near-term index upside.

Nifty's TTM P/E has moved up to 27.72 - which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating near the edge of its oversold zone, hinting at near-term index consolidation.

Bottomline? Sensex and Nifty charts have broken out upwards after consolidating sideways for seven weeks. Sharp short-covering bounces were triggered by a cut in corporate taxes, which may not boost consumer demand in the near term. Stay calm, and follow your investment plans.

S&P 500 and FTSE 100 charts (Jul 27, 2018): bulls on top but bears still fighting

S&P 500 index chart pattern

It took almost 6 months but bulls finally managed to fill the downward 'gap' formed on Jan 30 on the daily bar chart pattern of S&P 500. By touching an intra-day high of 2848 and closing 2 points lower on Jul 25, the 'gap' between 2838 and 2851 (refer last week's post) was almost completely filled.

Bears expectedly put up a fight to defend the 'gap'. The index dropped and closed below the 'gap' on Jul 26. That was a trigger for bears to go on the offensive. On Fri. Jul 27, the index dropped sharply below 2820 before recovering to close at 2819.

Daily technical indicators are showing downward momentum in bullish zones. MACD has started to fall towards its rising signal line. RSI is falling after facing resistance from the edge of its overbought zone. Slow stochastic has dropped sharply from its overbought zone.

The index is trading above its three EMAs in a bull market. However, some more correction or consolidation is likely before the index can move up to a new high.

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly MACD and RSI are rising in bullish zones. Slow stochastic is showing negative divergence by starting to correct inside its overbought zone. 

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 touched a lifetime high of 7903.50 on May 22 '18. Since then, it has been consolidating sideways, and may be forming a 'saucer' or a 'cup and handle' pattern. Both are bullish continuation patterns.

Daily technical indicators are giving mixed signals, which is often the case during periods of sideways consolidation. MACD is moving sideways with slight upward bias, and is above its signal line in bullish zone. RSI is moving sideways just above its neutral zone. Slow stochastic is oscillating below its overbought zone.

Expect the consolidation to continue till the index can move above the 7800 level. (At the time of writing this post, the index is trading above 7680.)

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but giving conflicting signals. MACD is moving sideways. RSI is rising gradually. Slow stochastic is sliding down.

S&P 500 and FTSE 100 charts (Jul 20, 2018): bulls regaining control but still facing bear resistance

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: "A convincing move above 2800 is likely to face resistance from the 'downward gap' formed back in Jan '18."

The index touched an intra-day high of 2817 on Wed. Jul 18 - well short of the 'GAP' (formed back in Jan '18) - and dropped back towards 2800 to close absolutely flat on a weekly basis.

Strong volumes on Thu. & Fri. (Jul 19 & 20) - both down-days - show bears are not ready to yield ground without a fight. All three EMAs are rising, and the index is trading above them in a bull market.

Daily MACD and RSI are in bullish zones, but not showing any upward momentum. Slow stochastic is inside its overbought zone and beginning to correct. All three indicators are showing negative divergences by failing to rise higher with the index.

Some more correction or consolidation is likely before the index makes another attempt to close the 'GAP'. Trump's trade war with China may lead to a currency war, which is making bulls hesitant.

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market, but formed a 'doji' candlestick. Weekly MACD and RSI are in bullish zones. Slow stochastic is rising inside its overbought zone. RSI is showing negative divergence by not rising higher with the index.

FTSE 100 index chart pattern

After touching a lifetime high of 7903.50 on May 22 '18, the daily bar chart pattern of FTSE 100 has been consolidating sideways, and appears to be forming a 'saucer' or a 'cup and handle' pattern. Both are bullish continuation patterns.

Daily technical indicators are giving mixed signals, which is often the case during periods of sideways consolidation. MACD is moving sideways above its signal line in bullish zone. RSI and Slow stochastic are in neutral zones and showing downward momentum.

Expect the consolidation to continue for a while. (At the time of writing this post, the index is trading a little below 7650.)

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are showing downward momentum in bullish zones.

Sensex, Nifty charts (Sep 15, 2017): bulls trying to regain control

FIIs were net sellers of equity worth Rs 33.6 Billion for the week. DIIs were net buyers of equity worth Rs 38.3 Billion, as per provisional figures. Sensex gained 1.8% and Nifty gained 1.5% on weekly closing basis.

WPI inflation rose to a 4 month high of 3.24% in Aug '17, against 1.88% in Jul '17 and 1.09% in Aug '16 as prices of vegetables soared.

India's exports grew 10.29% while imports grew 21% in Aug '17. The trade deficit widened to $11.64 Billion against $7.7 Billion in Aug '16 - mainly due to higher oil and gold imports. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex gained nearly 600 points for the week as bulls tried to regain control of the chart. The index is trading above its three rising EMAs in a bull market.

The 20 day EMA and the MACD signal line are forming bullish 'saucer' patterns, but bears have not been routed yet. 

Sensex is more than 400 points below its lifetime high of 32686 (touched on Aug 2). After breaking out above a bearish 'rising wedge' pattern (refer last week's post), the index is consolidating within a bearish 'flag' pattern.

Daily technical indicators are in bullish zones, but sending conflicting signals. MACD is rising above its signal line. ROC has dropped to seek support from its 10 day MA. RSI is retreating after facing resistance from the edge of its overbought zone. Slow stochastic is moving sideways inside overbought zone.

Some more consolidation within the 'flag' and a breakout below it are possibilities. Note that FIIs were net buyers of equity on Fri. Sep 15. If they continue buying, the scales will tip towards bulls.

Stay invested. Remain cautiously optimistic.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty moved above the 'rising wedge' pattern formed during the previous 4 weeks, but faced resistance from the lifetime high level of 10138 (touched in the week ending on Aug 4 '17).

The past 7 weeks' trading appears to have formed an 'ascending triangle' pattern from which the likely break out is upwards.

Note that the index is in the process of forming either a continuation or a reversal pattern. Just as a bearish 'rising wedge' turned into a bullish 'ascending triangle', the pattern may further evolve to form a 'rectangle' or a 'broadening top' pattern.

The index is trading above its two rising weekly EMAs in a bull market. Bulls will regain control only after a convincing move above the lifetime high of 10138. That hasn't occurred yet. 

Weekly technical indicators are looking overbought. MACD is moving sideways below its signal line inside overbought zone. ROC  has merged with its 10 week MA and moving sideways below its overbought zone. RSI is rising towards its overbought zone. Slow stochastic is about to enter its overbought zone.

Nifty's TTM P/E is now at 26.24 - way higher than its long-term average. The breadth indicator NSE TRIN (not shown) is oscillating near the edge of its overbought zone and can limit index upside. 

Bottomline? Sensex and Nifty charts have been consolidating sideways with upward biases for the past 5 weeks. DII buying seems to have negated the 
earlier bearishness. FIIs are still selling. Inflation and the trade deficit are rising. The low Jul '17 IIP number shows that manufacturing growth remains muted. So, caution is advised.

BSE Sensex and NSE Nifty index chart patterns – Jun 17, 2016

Global concerns regarding Britain's possible exit ('Brexit') from the European Union turned FIIs into bears during the week - though their net selling in equities was worth less than Rs 150 Crores, as per provisional figures.

DIIs were also net sellers of equity worth less than Rs 600 Crores. Sensex and Nifty closed almost flat for the week. Concerns about a delayed monsoon and rising inflation led to bearish market sentiments.

India's exports slipped by 0.8% YoY in May '16. Imports dipped by 13.2%, bringing down trade deficit to $6.3 Billion in May '16 compared to $10.4 Billion in May '15.

For FY 2015-16, the Current Account Deficit (CAD) was 1.1% of GDP against 1.8% of GDP in FY 2014-15. Exports declined by 15.8% and Imports declined by 14.1% during FY 2015-16.

BSE Sensex chart pattern

The following remarks appeared in last week's post on the daily bar chart pattern of Sensex: "Some more correction and/or consolidation within the 'support-resistance' zone is likely. The rising 20 day EMA and the 26300 level may prevent the index from falling too far."

As expected, the index consolidated within the 'support-resistance' zone for the third week in a row and received good support from its 20 day EMA and the 26300 level.

Daily technical indicators have corrected overbought conditions and are turning bearish. MACD has crossed below its signal line in positive zone. ROC, RSI and Slow stochastic have slipped into bearish zones.

Some more correction or consolidation is likely till results of the 'Brexit' vote are declared on Jun 24. Those voting for Britain to remain in the Eurozone should win, but global markets may 'sell on news'.

The index is trading above its three EMAs in bull territory, so dips can be used to add. However, there is a possibility that the index may drop to seek support from its 50 day EMA (as it had done 4 times in the past 3 months).

NSE Nifty chart pattern

The weekly bar chart pattern of Nifty traded within a range of less than 150 points and remained within the 'support-resistance' zone between 7950 and 8275 for the third week in a row.

The index is trading above the blue down trend line and its two weekly EMAs in bull territory. The 20 week EMA is about to cross above the 50 week EMA. The 50 week EMA is completing a bullish 'saucer' pattern. Bulls are slowly regaining control of the chart.

However, weekly technical indicators are looking overbought. The market breadth indicator, NSE TRIN (not shown), has dropped to extreme overbought level not seen in the past year.

A correction towards 7950 level is likely. In case 7950 gets breached on the downside, expect strong support from the 20 week and 50 week EMAs.

Bottomline? Bears are using global and local concerns to fight back and prevent bulls from regaining control of Sensex and Nifty charts. It is a losing battle, as bull markets usually climb a 'wall of worries'. Stock selection will be a key. Don't get sucked into sector-rotation - a strategy that 'smart money' appears to be following.

BSE Sensex and NSE Nifty index chart patterns – Jun 10, 2016

FIIs were net buyers of equity on all 5 days of the week. Their net buying totalled less than Rs 1500 Crores. DIIs were net sellers of equity worth Rs 925 Crores, as per provisional figures.

Concerns about 'Brexit' led to a global sell off in equity markets during Thursday and Friday. Sensex and Nifty closed less than 1% lower for the week.

The IIP number for Apr '16 was a disappointing -0.8%, against a revised figure of 0.3% in Mar '16 and 2% in Feb '16. Industrial growth remains a major challenge for India Inc.

BSE Sensex chart pattern

The daily bar chart pattern of Sensex traded above its three EMAs and the blue down trend line in bull territory for the 2nd week in a row. The 'golden cross' of the 50 day EMA above the 200 day EMA (marked by light blue circle) has technically confirmed a return to a bull market for the index.

Bears are refusing to give up without a fight after dominating the chart for 15 long months. Note that for the past 2 weeks, the index has consolidated within the long-term 'support-resistance' zone between 26300 and 27250.

The index needs to cross above 27250 convincingly for bulls to regain full control over the chart.

Daily technical indicators are correcting overbought conditions. MACD has dropped to touch its rising signal line. ROC has dropped sharply to its '0' line. RSI and Slow stochastic have started moving down inside their respective overbought zones.

Some more correction and/or consolidation within the 'support-resistance' zone is likely. The rising 20 day EMA and the 26300 level may prevent the index from falling too far.

The dip can be used as an adding opportunity, but maintain a stop-loss at 26100 in case global factors lead to a deeper correction.

NSE Nifty chart pattern

For the 2nd week in a row, the weekly bar chart pattern of Nifty failed to overcome resistance from the 8275 level, and formed a 'reversal bar' (higher high, lower close) that often marks an intermediate top.

The index traded well above the blue downtrend line and its two weekly EMAs in bull territory. The 50 week EMA is forming a 'saucer' (rounding bottom) pattern that has bullish implications.

Weekly technical indicators are correcting overbought conditions but remain in bullish zones. MACD is rising above its signal line in positive zone. ROC is showing negative divergence by touching a lower top and slipping below its rising 10 week MA. 

RSI is about to drop from its overbought zone. Slow stochastic is inside its overbought zone. Some consolidation within the 'support-resistance' zone between 7950 and 8275, or a correction towards 7950 is likely.

The 15 months long downtrend has been reversed and a new bull phase is starting. Use dips to add.

Bottomline? Bears are trying to fight back as bulls are slowly regaining control of Sensex and Nifty charts. The onset of monsoon in southern India should provide further incentive to bulls to charge ahead. Brexit concerns may keep global indices in consolidation mode. Pick your stocks carefully. Stay away from penny stocks and unknown small-caps.

Technical updates – Exide and Hero Moto

The automobile industry has been going through a period of transition and upheaval due to the overall economic slowdown. Lower oil prices have helped the industry. But withdrawal of excise duty concessions haven’t.

Commercial vehicle sales have just started to improve after a prolonged slump. Passenger vehicle sales are struggling. Even 2-wheelers (Royal Enfield aside) are troubled by poor rural sales.

It is no surprise that the 2 years closing charts of Exide and Hero Moto are reflecting the challenges being faced by the auto industry.

Exide

Exide’s stock touched a 2 years closing low of 100 in Jan 2014, before embarking on a strong bull phase that took the stock to a 2 years closing high of 198.70 in Jan 2015 – almost doubling in a year.

The stock has been in a correction since then, dropping to a closing low of 141.90 on Jun 12 ‘15 – retracing almost 58% of its bull rally and falling into bear territory.

The stock price has bounced up from the 142 level, but is trading below all its three EMAs. The ‘death cross’ (marked by light blue oval) of the 50 day EMA below the 200 day EMA has technically confirmed a bear market, but the bear phase may not last long.

Technical indicators are turning bearish, which can lead to a test of support from the 142 level. Exide is a market leader. The dip can be used to add, with a stop-loss at 138.

Hero Moto

The stock price of Hero Moto formed a bearish ‘inverted saucer’ pattern from July 2013 to Feb 2014 and closed briefly below all three EMAs in bear territory.

Bulls used the dip to rally strongly. The stock price soared to a 2 years closing high of 3258 on Dec 1 ‘14 – gaining almost 70% from its Feb ‘14 low.

The subsequent correction dropped the stock price below all three EMAs into bear territory. The stock formed a ‘double bottom’ reversal pattern at 2300 and has closed above its three EMAs in bull territory.

All four technical indicators are in bullish zones, but showing negative divergences by touching lower tops (marked by blue arrows). The stock price may correct a bit before resuming its up move.

Technical update – 6 Housing Finance stocks

During the past couple of years, high interest rates, slow economic growth and inflation took a huge toll on the performance of most companies in general, and rate-sensitive companies in particular.

Commercial real estate business took a beating. Even residential real estate business suffered. So, it is no surprise that housing finance companies felt the heat of the slowdown.

However, there are always one or two companies in each sector that manage to stand out from the rest due to their transparency and efficiency of operations. Those are the companies that long-term investors should consider including in their portfolios. 

Can Fin Homes

The stock price of CanFin Homes was drifting sideways around the 105 level before rising sharply to touch a high of 182 in Jan ‘13. It then entered a year-long period of consolidation, forming a bullish ‘saucer’ pattern that touched a low of 114 in Aug ‘13.

After completing the ‘saucer’, the stock price rose quickly to touch a high of 365 earlier this month – gaining a huge 220% in less than a year. Such a sharp up move is difficult to sustain. The stock appears to be forming a head-and-shoulders reversal pattern that can drop it below 300 to its 50 day EMA, or even lower.

Dewan Housing Finance

Dewan Hsg Fin stock formed a small double-top reversal pattern at 220 in Jan ‘13, and dropped all the way to 103 in Sep ‘13 – losing more than 50% from its high. A ‘V’ shaped recovery took the stock price to a new high of 237 in Jan ‘14. The stock regained all its losses over the previous 9 months in 4 months to enter a bull market.

Three months of sideways consolidation was followed by a sharp rally to a high of 373 earlier this month – a gain of more than 250% from its low. The stock appears to be forming a head-and-shoulders reversal pattern that can drop it to 250 or lower. Note that RSI has completed a head-and-shoulders pattern, and Slow stochastic has formed a double-top pattern. ROC touched a much lower top.

GIC Housing Finance

The stock of GIC Hsg Fin touched a high of 149 in Jan ‘13 and a low of 80 in Aug ‘13. For the next 7 months, the stock struggled to return to bull territory before finally managing to do so in end-Mar ‘14. The subsequent rally was swift.

The stock price touched a new high of 174 earlier this month – more than doubling from its Aug ‘13 low – but overbought conditions led to a correction down to 154, where it is trying to find a bottom. If 154 gets breached, the stock may drop to 140.

GRUH Finance

The price chart of Gruh Fin is a clear stand-out. It has been in a bull market right through the slowdown. Note that during a 13 months long sideways consolidation within a ‘rectangle’ pattern, the 200 day EMA kept rising – indicating that the eventual break out from the ‘rectangle’ would be upwards.

Rectangles are usually continuation patterns, but tend to be unreliable. So, it is better to wait for the break out. Note that the break out in end-Dec ‘13 was followed by a pullback to the top of the ‘rectangle’ a month later. The subsequent parabolic rally touched a high of 203 (adjusted for bonus and split). The stock is undergoing correction, and may drop to 180.

HDFC

HDFC stock is a favourite of FIIs, and has been in a bull market technically despite a sharp drop from a high of 924 (in May ‘13) to 654 (in Aug ‘13). Note that the stock price drops below its 200 day EMA periodically – providing adding opportunities.

After touching a new high of 978 earlier this month, the stock is correcting a bit. Being a large-cap and FII-owned company, it does not give spectacular returns like a small-cap or mid-cap company, but is one of the best stocks to own because of its transparency and consistent performance year after year.

LIC Housing Finance

Though a favourite of many small investors, the chart of LIC Hsg Fin doesn’t inspire confidence. From a high of 295 (in Jan ‘13), the stock dropped to 157 (in Aug ‘13). After forming a small double-bottom reversal pattern, the stock price struggled for the next 6 months to enter bull territory.

Once it broke out above all three EMAs in Mar ‘14, it rose rapidly to touch 345 earlier this month, but seems to be forming a head-and-shoulders reversal pattern. The downside target is 280.

All 6 stocks are undergoing bull market corrections, which means they are providing adding opportunities. But please don’t forget to do your due diligence before deciding to buy/sell.

Stock Chart Pattern - SpiceJet

Before starting the technical analysis of the stock chart pattern of SpiceJet (a reincarnation of ModiLuft), I need to clarify why I'm writing about a stock from the airline sector that is in perennial doldrums worldwide.

The airline industry in India has been a tale of missed opportunities, poor service, government intervention, over-estimation of passenger traffic, hubris of owners with little or no experience in the travel industry and mounting losses.

What attracted me to the SpiceJet stock? Firstly, it is a low-cost airline. In the USA - the 'mecca' of air travel - only low-cost airlines like JetBlue and SouthWest make any money.

Secondly, its Jun '09 (Q1) results. 21% growth in passengers, that led to a 15% growth in revenues and a Rs 26 Crore net profit, compared with a Rs 129 Crore loss in Q1 '08. (Jet Airways posted a loss of Rs 225 Crore in Q1 '09 against a profit of Rs 143 Crore in Q1 '08.)

Most importantly, the company has got financial backing from billionaire Wilbur Ross, who has invested about Rs 350 Crores that has given the company financial stability and provided relief from cash flow problems.

Needless to say, the stock price has reacted very favourably, as the 2 years bar chart pattern of SpiceJet will show:-

After making a high of Rs 100 in Jan '08, the stock dropped more than 90% during the bear market. A sideways consolidation, followed by a bull rally, took the stock to the Rs 28 level in early Jun '09, above the 200 day EMA.

A strong correction quickly brought the stock below both the 50 day and 200 day EMA, to the Rs 17 mark, when the news of the positive Q1 '09 results were declared.

A sharp rally on good volumes followed, as the stock entered a bull market, moving above the medium term and long term averages to Rs 43. It is facing some resistance at the 38.2% Fibonacci retracement level of the entire bear market fall.

Notice the bullish saucer pattern that the stock has formed. That means it can reach its previous high in the medium term, giving it a 100% upside target. Provided that the Q2 '09 results are not too disappointing. The monsoon months are not the best period for air travel.

The RSI has slipped below the overbought zone. So has the slow stochastic. The MACD is mildly positive and just above the signal line. The clincher is the OBV. After steady accumulation by smart investors, volumes have perked up strongly for the past month.

Bottomline? The stock chart pattern of SpiceJet indicates that there is plenty of upside left. But the fundamentals have a long way to improve to reach investment-worthy levels. This one is for investors with large risk appetites. Can be bought on dips with strict stop-loss.