Last week, FIIs were net sellers of equity worth Rs 47.7 Billion, as per provisional figures. DIIs were net buyers of equity worth Rs 50.1 Billion.
Sensex gained 417 points (1.3%) and Nifty gained 144 points (1.4%) on a weekly closing basis. Both indices are consolidating sideways with downward biases for the past 5 weeks.
Loan growth of banks hit a 3 years high of 9.6% in Nov '17, against 6.6% in Nov '16 and 9.3% in Nov '15, according to provisional RBI data. Low base effect may have contributed to the higher growth number. Since Oct '17, trend in loan growth to large corporate houses has turned positive.
BSE Sensex index chart pattern
The following comments in last week's post on the daily bar chart pattern of Sensex may be noted: "Some more correction is possible. But bears should not get too enthusiastic. The index is close to the upper edge of the downward-sloping channel, which had provided good support on Nov 15 - and may do so again."
As expected, the index corrected during the first three days of the week to the upper-end of the downward-sloping channel - only to bounce up after receiving good support.
The index closed above its 50 day EMA on Thu. Dec 7. On Fri., it formed an upward 'gap' of 42 points and closed above its 20 day EMA. So, is the correction-cum-consolidation over?
Not yet. The index needs to cross convincingly above its previous (Nov 28) top of 33770 for bulls to wrest control. Bears may try to prevent that from happening - at least till Gujarat state election results are announced.
Daily technical indicators are showing signs of turning bullish. MACD has stopped falling, and is at its neutral zone. ROC and Slow stochastic have emerged from their respective oversold zones. RSI is rising towards its neutral zone.
If the index continues to rally, resistance can be expected from the zone between 33700 and 33900.
NSE Nifty index chart pattern
The following comments were made in last week's post on the weekly bar chart pattern of Nifty: "Some more correction can't be ruled out. But proximity to the 'support/resistance zone' between 10100 and 9700 should stall a deeper correction."
The index corrected below its rising 20 week EMA into the 'support/resistance zone' intra-week, but bounced up to close above its three weekly EMAs in a bull market.
For the past 5 weeks, the index has been consolidating within a downward-sloping channel. A convincing upward breakout above the channel will restore control of the chart to bulls.
Weekly technical indicators are in bullish zones. Only ROC is showing upward momentum. MACD, RSI and Slow stochastic are moving sideways.
Nifty's TTM P/E has increased to 26.26 - well above its long-term average. The breadth indicator NSE TRIN (not shown) has fallen sharply from its oversold zone and is hinting at some more index upside.
Bottomline? Sensex and Nifty charts have bounced up from important support levels that were successfully tested three weeks back. Both indices may continue their rally next week, but need to overcome resistance zones.
The erstwhile promoter of Pantaloon Retail - a debt-laden company subsequently sold to the Aditya Birla Group - used to be a market darling.
Aggressive growth at the cost of profits led to his downfall. But you can't keep an ambitious entrepreneur down for long. He reappeared as the promoter of Future Group of companies.
Regular appearances at industry seminars and recent forward-looking statements to various TV channels about becoming one of the leading players in the retail segment had caught my attention.
Two recent articles in moneycontrol.com motivated me to look a little closer at Future Group stocks. The first, published on Dec 7, had a headline: Future Supply Chain IPO subscribed 72% on Day 2.
The second, published on Dec 8, had a headline: Future Consumer Spikes 15%; Morgan Stanley initiates Overweight; sees 61% upside. My mental 'alarm bells' started ringing. Was this article 'planted' to ensure full subscription of Future Supply Chain?
There are already several listed Group companies - Future Enterprises, Future Lifestyle Fashions, Future Consumer, Future Retail, Future Market Networks. Now, Future Supply Chain. What is going on?
Ambition to succeed is fine - but should it be at the cost of gullible small investors? Future Group can hardly be compared to Tata Group, Birla Group, Ambani Group or Mahindra Group. So many listed companies seem like a ploy to raise (and siphon off?) money.
Here is a quick look at the fundamentals of Future Group companies (based on Mar '17 annual figures from money.rediff.com):-
1. Future Enterprises: Sales - Rs 3782 Cr; Net Profit Margin - 1.09%; P/E - 59.4
2. Future Lifestyle: Sales - Rs 3877 Cr; Net Profit Margin - 1.18%; P/E - 146.2
3. Future Consumer: Sales - Rs 1645 Cr; Net Profit Margin - 0.46%; P/E - 1359
4. Future Retail: Sales - Rs 17075 Cr; Net Profit Margin - 2.15%; P/E - 67.6
5. Future Market: Sales - Rs 82.5 Cr; Net Profit Margin - (20.8)%; P/E - (36.2)
The five listed companies have a total debt of almost Rs 7000 Cr, and are barely making any profits. How will they service their debt? By raising more equity or, even more debt? The same operating pattern of top line growth at the cost of non-existent bottom line is getting repeated.
Can a leopard change its spots? Caveat emptor.
The iShares MSCI Emerging Markets ETF (EEM) has been on a steady progression higher for the past 11 months, ever since hitting a swing low of $33.94 in December of last year. Last month, EEM reached a high of $47.93 before it started to weaken.
From the December low to last month's high, EEM had advanced $13.99, or 41.22%. During that advance, there was a steady pattern of higher monthly lows and higher monthly highs, which identified an uptrend. As of yesterday, that pattern has changed.
Read more at:
https://www.investopedia.com/trading/bearish-monthly-reversal-eem-emerging-markets-etf/
During the first three days of trading this week, FIIs were net sellers of equity worth Rs 30.2 Billion. DIIs were net buyers of equity worth Rs 28.5 Billion, according to provisional figures. Nifty lost 78 points (~0.8%).
Low demand due to GST dropped the Nikkei India Services PMI to 48.5 in Nov '17 against 51.7 in Oct '17. (A number below 50 indicates economic contraction.) The Composite PMI (Manufacturing+Services) fell to a 3 months low of 50.3 in Nov '17 against 51.3 in Oct '17.
RBI Governor maintained status quo on interest rates at the MPC meeting today. Higher oil and vegetable prices and their effect on inflation were the main reasons for not reducing rates any further.
The daily bar chart pattern of Nifty had plunged below its 20 day and 50 day EMAs on Thu. Nov 30 & Fri. Dec 1 but had found support from the lower edge of the 'support/resistance zone' between 10200 & 10100.
Strong bear selling breached the support at 10100 intra-day on Tue. Dec 5. Today the index fell further to test support from its 100 day EMA. (Note that the index had earlier bounced up after receiving support from its 100 day EMA on Sep 27.)
Can the index bounce up from here? Technical signals (discussed below) are conducive, but a sharp rally - like the one during Oct '17 - seems unlikely.
Daily technical indicators are in bearish zones and showing downward momentum. Slow stochastic is inside its oversold zone and touched a slightly higher bottom while the index fell lower. The positive divergence can cause an upward bounce.
Nifty's TTM P/E has slipped to 25.7 - which is still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen vertically inside its oversold zone - to a level slightly higher than its Sep 27 level - and can limit index downside.
F&O settlement and RBI's policy meeting are out of the way. But uncertainty about the outcome of Gujarat state elections is keeping bulls on tenterhooks.
A likely technical bounce could face resistance from the 'support/resistance zone' and consolidate a little. If the NDA wins more than 100 seats in the 182 seats Gujarat assembly - which they probably will - expect the index to resume its rally.
If the NDA wins less than 100 seats, a deeper correction towards the rising 200 day EMA (now at the support level of 9700) may ensue. Either way, the bull market remains intact and corrections can be used to add to existing holdings.
WTI Crude Oil chart
On Nov 21, the daily bar chart pattern of WTI Crude Oil broke out above the 'symmetrical triangle' pattern within which it was consolidating since the beginning of Nov '17 (refer previous post).
Oil's price rose with good volume support to touch a new high of 59 on Nov 24, but all three daily technical indicators touched lower tops. The negative divergences triggered a pullback towards the top of the 'triangle'.
After touching an intra-day low of 56.75 on Nov 29, oil's price recovered to touch a slightly lower top of 58.90 on Dec 1. The entire trading from Nov 21 onwards appears to be forming another 'symmetrical triangle' pattern.
All three EMAs are rising, and oil's price is trading above them in a bull market. Daily technical indicators are in bullish zones after correcting overbought conditions, but are not showing any upward momentum.
Expect some more consolidation before another breakout can occur. Logically, the breakout should be upwards because oil's price is in a bull market. However, it is better to wait for the breakout because a 'triangle' pattern is unreliable.
On longer term weekly chart (not shown), oil's price made a brief foray above its sliding 200 week EMA, but has slipped down to close just below it. The 20 week and 50 week EMAs are rising towards the 200 week EMA. Weekly MACD and Slow stochastic are in their overbought zones. RSI has started correcting down from its overbought zone.
Brent Crude Oil chart
The daily bar chart pattern of Brent Crude Oil has been consolidating sideways within a 'symmetrical triangle' pattern since the beginning of Nov '17. The rising 20 day EMA has provided good downside support.
On Dec 1, oil's price had an intra-day breakout above the 'triangle' - touching a high of 64.30 - but faced profit booking and closed at the upper edge of the 'triangle'. It has since corrected to the lower edge of the 'triangle'.
On Nov 30, OPEC, and some non-OPEC, oil producers agreed to extend their production cuts till the end of 2018. Bull enthusiasm was short-lived because drillers in USA added two oil rigs - bringing the total count to 749 (highest since September).
Daily technical indicators are in bullish zones, but showing downward momentum and hinting at a possible downward breakout from the 'triangle'. Wait for the breakout before deciding to buy or sell because a 'triangle' pattern is unreliable.
On longer term weekly chart (not shown), oil's price is consolidating sideways just above its 200 week EMA in long-term bull territory. Weekly MACD and Slow stochastic are inside their overbought zones. RSI formed a small 'double top' reversal pattern inside its overbought zone, and has started to correct.
S&P 500 index chart pattern
The daily bar chart pattern of S&P 500 defied gravity by rising almost vertically to touch a new high of 2658 on Thu. Nov 30. Profit booking on Fri. Dec 1 dropped the stock to a test of support from its Tue. Nov 28 low of 2605.
Bulls bought the dip - a strategy they have been successfully following for the past 5 months. The index closed above the 2640 level, with a 1.5% gain on a weekly closing basis.
Daily technical indicators are showing signs of correcting overbought conditions. (The On-Balance Volume indicator - not shown - has been touching lower tops as the index moved higher. The negative divergence is a red flag for bulls.)
On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are overbought. Slow stochastic touched a lower top and can trigger a correction to the rising 20 week EMA.
FTSE 100 index chart pattern
The (purple) down trend line continues to dominate the daily bar chart pattern of FTSE 100. The index made another futile attempt to break off the bear shackles by moving above the down trend line to touch an intra-day high of 7470 on Tue. Nov 28.
Bears struck immediately. Over the next three trading sessions, the index plunged below its rising 200 day EMA into bear territory - closing at 7300 and losing 1.5% on a weekly closing basis.
On Sep 15 '17, the index had similarly plummeted below its 200 day EMA - only to pullback sharply. Will the pattern repeat this time around?
Daily technical indicators are looking oversold, and showing downward momentum. However, Slow stochastic is showing positive divergence by not falling below its Nov '17 low.
For the past month, the index has formed a bearish pattern of 'lower tops, lower bottoms'. A possible technical pullback towards the 200 day EMA is likely to face bear selling.
On longer term weekly chart (not shown), the index dropped to seek support from its 50 week EMA, and closed above its 200 week EMA in a long-term bull market. Weekly MACD is sliding below its signal line in bullish zone. RSI and Slow stochastic have slipped below their respective 50% levels.
During the month of Nov '17, FIIs were net sellers of equity worth Rs 135.1 Billion. It was their fourth straight month of net selling. DIIs were net buyers of equity worth Rs 92.4 Billion, as per provisional figures.
On a monthly closing basis, Sensex lost 64 points (0.2%) and Nifty lost 108 points (1%). On Fri. Dec 1, when both indices fell sharply, FIIs were net buyers of equity worth Rs 3.1 Billion. DIIs were also net buyers of equity worth Rs 1.8 Billion.
There was some good news on the macroeconomic front. India's Q2 (Jul-Sep '17) GDP grew 6.3%, against 5.7% in Q1 (Apr-Jun '17) but much lower than 7.5% in Q2 (Jul-Sep '16).
Nikkei India's Manufacturing PMI was 52.6 in Nov '17, against 50.3 in Oct '17 and 52.3 in Nov '16. (A number >50 indicates growth). Auto sales of top 7 manufacturers grew 16% in Nov '17 .
BSE Sensex index chart pattern
The following comments in last week's post on the daily bar chart pattern of Sensex should have sounded a warning bell to those holding long positions: "Expect bears to make a last-ditch stand to prevent bulls from regaining complete control...Index valuation is increasingly looking stretched."
Formation of a small 'reversal day' bar (higher high, lower close) on Tue. Nov 28 triggered profit booking that dropped the index to a close below its 50 day EMA for the first time after 8 weeks.
Daily technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in bullish zone. ROC has fallen sharply below its 10 day MA into bearish zone. RSI and Slow stochastic have dropped below their 50% levels inside bearish zones.
Some more correction is possible. But bears should not get too enthusiastic. The index is close to the upper edge of the downward-sloping channel, which had provided good support on Nov 15 - and may do so again.
The fact that FIIs and DIIs were both net buyers on Fri. Dec 1 is another sign that the correction may be coming to an end.
FIIs may resume selling on any technical bounce due to calendar year-end considerations. Sensex may consolidate - till Gujarat state election results are announced on Dec 18th - before resuming its rally.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty plummeted to seek support from the 10100 level on profit booking caused by concerns about India's widening trade deficit. The 20 week EMA is just below the 10100 level, and should provide additional support.
Weekly technical indicators have corrected overbought conditions, and are showing downward momentum in bullish zones.
Some more correction can't be ruled out. But proximity to the 'support/resistance zone' between 10100 and 9700 should stall a deeper correction.
Nifty's TTM P/E has slipped to 25.90, but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) has risen rapidly towards its oversold zone and can limit index downside.
Bottomline? Sensex and Nifty charts have corrected down to test important support levels that were successfully tested two weeks back. Some more correction is possible. But don't expect a deep correction.
