Sensex, Nifty charts (Aug 02, 2019): bears have bulls on the ropes

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FIIs continued their heavy net selling of equity during the week. Their total net selling was worth Rs 67.9 Billion. DIIs more than matched FII selling, but couldn’t prevent sharp falls in Sensex and Nifty. Their total net buying was worth Rs 82.8 Billion, as per provisional figures.

The automobile sector remained in slide mode during Jul ’19. Sales tumbled across categories due to weak consumer sentiment. Passenger vehicle sales fell over 30% – worse than the 24.6% fall back in Nov ’08.

Gross GST collections during Jul ’19 was Rs 1.02 Trillion – marginally up from Jun ’19, and 5.8% higher than Jul ’18 collection. 

Nikkei India’s Manufacturing PMI rose to 52.5% in Jul ’19 from 52.1% in Jun ’19. A figure above 50% indicates expansion. Growth was driven by domestic demand, while growth in export orders slowed to its lowest level in 15 months.

BSE Sensex index chart pattern

The following comment appeared in last week’s post on the daily bar chart pattern of Sensex: A breach of the 200 day EMA will be quite bearish, and can drop the index to the support zone between 35900 and 37100.”

On Mon. Jul 29, the index breached its 200 day EMA intra-day, but bounced up to close above it. The next day, the index fell and closed below its 200 day EMA in bear territory.

On Wed. Jul 31, the index dropped to test support from the 37100 level and bounced up to test resistance from its 200 day EMA. The next day, Sensex fell and closed inside the support zone between 35900 and 37100.

On Fri. Aug 2, the index formed a ‘reversal day’ bar (lower low, higher close) and bounced up to close just above 37100 – giving some respite to bulls.

Note that Sensex appears to be in the midst of a ‘broadening top’ pattern, which has bearish implications. If the pattern plays out, there could be a rally that propels the index to a new high. But the subsequent correction can be devastating. So, trade at your own peril.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line towards its oversold zone. ROC is facing resistance from its 10 day MA after emerging from its oversold zone. RSI has re-entered its oversold zone after briefly emerging from it. Slow stochastic is trying to emerge from its oversold zone. A technical bounce is a possibility.

There were rumours in the market on Friday about the government considering some tax relief for FIIs, which set off short-covering in an oversold market. Remember the market adage: Buy the rumour; sell the news.

NSE Nifty index chart pattern

The following comment appeared in last week’s post on the daily bar chart pattern of Nifty: A breach of the 50 week EMA will be quite bearish, and can drop Nifty to the support zone between 10700 and 11100.”

As expected, the breach of its 50 day EMA by the index dropped it further to close inside the support zone between 10700 and 11100.

During the past four months. Nifty appears to have formed a bearish ‘broadening top’ pattern. If the pattern plays out, a rally to a new high followed by a deeper correction may occur. 

Weekly technical indicators are looking bearish and oversold. MACD has crossed below its signal line, and is falling rapidly in bullish zone. ROC faced resistance from its falling 10 week MA and has dropped inside its oversold zone. RSI and Slow stochastic have dropped to the edges of their respective oversold zones

Nifty’s TTM P/E has moved down to 27.09 – but remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen well inside its oversold zone, and can trigger a near-term index bounce.

Bottomline? Sensex and Nifty charts are testing long-term (3.5 yr) up trend lines (not shown). Breach of the trend lines can trigger bear phases and lower levels on both indices. Small investors should remain cautious and concentrate on wealth protection.

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