Activity remained muted in a holiday-shortened trading week. FIIs were net buyers of equity worth Rs 7.55 Billion; DIIs were also net buyers of equity worth Rs 0.48 Billion, as per provisional figures. Sensex and Nifty gained marginally on weekly closing basis.
Nikkei India Services PMI rose to a 5 month high of 51.5 in Mar '17 against 50.3 in Feb '17. A figure above 50 indicates expansion. "(India’s) rapid recovery from the demonetisation-related downturn was accompanied by job creation and softer inflationary pressures.”
To check excess liquidity in the system, narrow down money market rates and control inflation in FY18, RBI on Thu. Apr 6 increased the reverse repo rate by 25 basis points to 6% from 5.75% earlier.
BSE Sensex index chart pattern
The following were concluding comments in last week's post on the daily bar chart pattern of Sensex: "Announcement of FY 16-17 corporate results is expected to start in about two weeks. Some hesitation among bulls is only to be expected till then."
On Apr 5, the index rose to touch a new 52 week intra-day high of 30007 - testing, but falling just short of, the lifetime intra-day high of 30025 touched in Mar '15. Sensex ended the day at a lifetime closing high 29974.
Three of the four technical indicators - MACD, ROC, RSI - showed negative divergences by touching lower tops. That was a signal for a corrective move. Trump's cruise missile barrage at a Syrian airport exacerbated the index slide.
Note that the index closed just below trend line 2 - within the 3% 'whipsaw' limit, but it should be treated as a second warning about a possible trend change. (The first warning was a close below trend line 1.)
Sensex has formed a small 'rising wedge' pattern from which the likely break out is downwards. It is also possible that the index has formed the left shoulder and head of a 'head and shoulders' reversal pattern.
The index is trading above its three EMAs in a bull market, but is more than 2000 points above its 200 day EMA (an empirical observation of an overbought condition). Daily technical indicators are showing downward momentum. Some more correction or consolidation may follow.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty touched a new high of 9274, but closed at 9198. For the 4th straight week, the index failed to close above the psychological level of 9200.
The index is trading well above its two rising weekly EMAs in a bull market. All four technical indicators are inside their overbought zones. ROC is showing signs of bearishness by crossing below its 10 week MA.
Nifty's TTM P/E remained above 23 during the week - well above its long-term average. The breadth indicator NSE TRIN (not shown) is rising in neutral zone - hinting at more consolidation or correction.
India's manufacturing and services PMI numbers are showing growth. Whether that growth will get reflected in India Inc's Q4 numbers or not may be keeping bulls on tenterhooks.
Bottomline? Sensex and Nifty charts are consolidating after sharp rallies triggered by hopes of better corporate earnings. Both indices are looking overvalued. Some more consolidation or correction is possible. Don't be in a rush to buy or sell. Try to look at the big picture.
What a difference a year can make! Sensex was recovering after a year long down trend when the previous post was written. Since then, the index has taken investors on a a topsy-turvy ride - 4 months of up trend followed by 4 months of down trend and then another 4 months of up trend.
Some sectors that were doing well a year back are not doing so well now. A few sectors that were in complete doldrums have made excellent recoveries. A couple of sectors have remained unaffected by Sensex gyrations.
A smart move will be to stay with the sectors that have not been affected much and look for opportunities in sectors that appear to be on the road to recovery. Partial profit booking can be done in sectors where stock prices have run ahead of fundamentals.
BSE Auto Index
BSE Auto touched a new high in Sep '16 and corrected with the broader market. The subsequent recovery has not kept pace with Sensex - thanks to strong headwinds. First, demonetisation affected sales. Then, Supreme Court strictures on sale of BS III vehicles dealt a body blow. It may take a couple of quarters to recover.
BSE Bankex
Fortunes of BSE Bankex got a sharp boost from demonetisation - with huge inflows of low cost cash. Loan growth remains muted and NPA problems of PSU banks are far from over. Strong action against habitual loan defaulters is a plus; farm loan waivers by state governments is a minus. Negative divergences on technical indicators hint at some correction or consolidation.
BSE Capital Goods Index
BSE Capital Goods has made an excellent recovery - though still 1000 points short of its Mar '15 peak. Technical indicators are looking quite overbought and are suggesting a correction.
BSE Consumer Durables Index
BSE Consumer Durables remains in a bull market after recovering from a sharp demonetisation-induced correction in Nov '16. The last leg of the rally has been too sharp. Overbought technical indicators may trigger a correction.
BSE FMCG Index
BSE FMCG corrected with Sensex from Sep '16 to Dec '16, and has since moved up to touch new highs. The index is correcting after forming what looks like a 'double top' reversal pattern. Any dips can be used to buy into this perennial favourite sector of savvy investors.
BSE Healthcare Index
BSE Healthcare is feeling the adverse effects of a double whammy - US FDA strictures against pharma exporters, and DPCA keeping a lid on domestic pharma prices. The days of windfall gains from reverse-engineered generic drugs are over. Those who spend the time, effort and money on R&D and marketing will emerge victorious.
BSE IT Index
BSE IT is reaping what it had sowed - an over-dependence on 'body-shopping'. New US visa rules may finally put an end to easy money. A lot of small and medium sized IT companies will disappear. The larger ones will survive only if they move up the value chain by strengthening their consultancy activities.
BSE Metal Index
BSE Metal has had a nice bull ran - thanks to 'anti-dumping' actions against China in US and Europe. An expected pick up in infrastructure projects in India will sustain growth. A consolidation within a 'rectangle' pattern for the past three months may lead to an upward breakout.
BSE Oil & Gas Index
BSE Oil & Gas has done very well - mainly due to low international oil prices. Negative divergences on technical indicators can initiate some correction or consolidation. The sector should continue to do well.
BSE Power Index
BSE Power has run a bit ahead of its fundamentals, and looks ripe for a correction. The government's emphasis on renewable energy may put the future of coal-based power plants in jeopardy.
BSE Realty Index
BSE Realty index may appear to have reversed its fortunes - but remains 500 points short of its Jun '14 peak. Technical indicators are looking overbought. If you are holding stocks from this sector, booking profits and making a down payment on an apartment may be a good idea.
FIIs were net buyers of equity worth Rs 8.74 Billion during the two days of trading this week. DIIs were net sellers of equity worth Rs 1.61 Billion, as per provisional figures.
Nifty crossed above the psychological barrier of 9200, its previous (Mar 17) top of 9218, and rose to touch new intra-day and closing highs.
The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to a 5 months high of 52.5 in Mar '17, from 50.7 in Feb '17. A figure above 50 indicates expansion.
The RBI Governor is likely to keep interest rates unchanged in the policy meeting tomorrow in a continued effort to contain inflation.
The daily bar chart pattern of Nifty has resumed its up move after partly filling the upward 'gap' that formed on the chart on Mar 14 (refer last week's post). The index is trading well above its three rising EMAs in a bull market.
Daily technical indicators are looking bullish. However, RSI and Slow stochastic have re-entered their overbought zones. All three indicators are showing negative divergences by failing to touch new highs with the index.
Nifty formed a 'dragonfly doji' candlestick pattern today, which is a sign of indecision. Also, the distance between the index and its 200 day EMA has increased to 740 points - making the chart technically susceptible to a correction.
Nifty's TTM P/E remains above its long-term average at 23.49. The breadth indicator NSE TRIN (not shown) is turning down near the upper edge of its neutral zone - hinting at some more upside.
A stronger Rupee against the US Dollar and reasonably stable oil prices is attracting FII inflows, which is helping the index to move higher.
Some one holding long positions from lower levels can continue to hold, but with a trailing stop-loss. Partial profit booking may also be a good idea. Any corrections can then be used to add. New entrants can enter in SIP mode.
WTI Crude Oil chart
The daily bar chart pattern of WTI Crude Oil had corrected sharply below its 200 day EMA into bear territory, but bounced up after receiving support from the 47 level.
Oil's price failed to sustain above its 200 day EMA for long, and dropped to seek support from the 47 level once again. Note that a 'triple bottom' reversal pattern got formed at 47.
Daily technical indicators corrected oversold conditions, and formed reversal patterns of their own. MACD's signal line has formed a 'rounding bottom' pattern. RSI and Slow stochastic formed 'double bottom' patterns inside their oversold zones.
Those were triggers for oil's price to bounce back into bull territory. After crossing above its 200 day and 20 day EMAs, some resistance is being faced from the 50 day EMA.
Sliding volumes during the past three trading sessions is a concern for bulls. MACD is still in bearish zone. RSI is in neutral zone. Slow stochastic is looking overbought.
Expect some consolidation around current levels. But global inventories remain stubbornly high and investors are betting that it will take many months for oil prices to respond convincingly to lower OPEC output.
On longer term weekly chart (not shown), oil's price has crossed above its 50 week EMA but is facing resistance from its 20 week EMA. It closed well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are looking neutral to bearish.
Brent Crude Oil chart
The daily bar chart pattern of Brent Crude Oil faced a sharp correction below its three EMAs into bear territory. It slipped below the 50 level intra-day on Mar 22, but has recovered smartly after forming a small 'double bottom' reversal pattern.
All three daily technical indicators also formed reversal patterns. MACD's signal line formed a 'rounding bottom' pattern. RSI and Slow stochastic formed 'double bottom' patterns inside their oversold zones.
Oil's price rose above its three EMAs with good volume support, but dropped below its 50 day EMA. MACD is rising above its signal line in negaive zone. RSI is in neutral zone. Slow stochastic has entered its overbought zone, but its upward momentum has stalled.
The conflicting signals from the technical indicators may be hinting at some price consolidation around current levels.
On longer term weekly chart (not shown), oil's price is facing resistance from its 20 week EMA after crossing above its 50 week EMA. It closed well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are looking neutral to bearish.
S&P 500 index chart pattern
The following remark was made in last week's post on the daily bar chart pattern of S&P 500: "The 50 day EMA has provided good support so far. But that support is unlikely to hold."
The index had broken down sharply below a small 'symmetrical triangle' pattern after Trump withdrew his healthcare bill, and was expected to correct further.
It did fall below its 50 day EMA intra-day on Mon. Mar 27, but bounced up to close higher by the end of the day. The support from the 50 day EMA has technically not been breached yet.
The index managed to cross above its 20 day EMA during the next two days, but the rally appears to have fizzled out. For the past month, the index has formed a bearish pattern of 'lower tops, lower bottoms.'
A convincing move above the purple down trend line (currently at about 2375) is required for bulls to regain complete control.
Daily technical indicators are in bullish zones, but MACD and RSI are not showing much upward momentum. Slow stochastic is showing positive divergence by touching a higher top. A test of resistance from the down trend line may be on the cards.
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 the process of correcting overbought conditions.
FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 is showing a text book technical break down and pullback pattern.
After breaking down below the large 'rising wedge' pattern, the index dropped below its 50 day EMA intra-day on Mon. Mar 27, only to bounce up above its 20 day EMA in a pullback to the lower edge of the 'wedge'.
Those who missed selling on the initial breakdown got another opportunity to sell on the pullback. Which they obviously did, as the index dropped below its 20 day EMA.
The index may be forming 'head and shoulders' reversal pattern with the 'neckline' at 7250. A fall below 7250 will technically confirm the pattern - with a downward target of 7050.
Daily technical indicators are looking bearish, and hinting at some more correction.
On longer term weekly chart (not shown), the index closed slightly lower for the week but well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are correcting overbought conditions, and showing downward momentum.
FIIs were net buyers of equity worth a huge Rs 264.7 Billion during the month of Mar '17 - may be their largest ever monthly net buying. DIIs were net sellers of equity worth Rs 43.9 Billion during the month, but were net buyers during the past week.
Sensex gained 3% and Nifty gained 3.3% during Mar '17. For the financial year Apr '16 to Mar '17, Sensex gained 16.9% and Nifty gained 18.5%.
Car makers sold more than 3 million units during FY 16-17 against 2.78 million units in FY 15-16. Supreme Court's recent strictures against sales of BS III vehicles from Apr 1 '17 and liquor sales within 500 metres of highways have cast a pall of gloom on commercial vehicle and liquor manufacturers.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex has managed to stay above up trend line '2' - after breaching up trend line '1' in the previous week. All three EMAs are rising, and the index is trading above them in a bull market.
However, despite strong FII buying, the index is struggling to cross above its Mar '17 top of 29825, and is still 400 points short of its lifetime Mar '15 top of 30025.
Daily technical indicators are not looking all that bullish, and showing negative divergences by touching lower tops while the index rose higher last week. So, don't count the bears out.
MACD is moving sideways below its falling signal line in positive zone. ROC is below its falling 10 day MA and about to slip into negative zone. RSI is facing resistance from the edge of its overbought zone. Slow stochastic is rising towards its overbought zone.
Announcement of FY 16-17 corporate results is expected to start in about two weeks. Some hesitation among bulls is only to be expected till then.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty closed at a new lifetime high of 9174, but continued to face strong resistance from the 9200 level for the third week in a row.
Weekly technical indicators are looking quite overbought. MACD and RSI are showing upward momentum, but ROC and Slow stochastic are moving sideways.
Remember that an index can stay overbought for long periods. But the longer it stays overbought, the greater becomes the possibility of a sharp correction.
Nifty's TTM P/E remained above 23 throughout Mar '17 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is rising in neutral zone - hinting at some consolidation or correction.
What should small investors do in such a situation? Control the urge to jump into the market feet first. Think about reallocation of your portfolio through part profit booking - or, stay invested with a trailing stop-loss.
Bottomline? Both Sensex and Nifty charts are consolidating after touching new highs. Corporate earnings have to catch up as both indices are looking overvalued. Downside risk appears high. Remain cautiously optimistic and avoid 'cheap' shares.
