Sensex, Nifty charts (Dec 14, 2018): bulls refusing to accept bear dominance

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FIIs were net buyers of equity on Mon., Thu. & Fri. (Dec 10, 13 & 14), but net sellers on the other two days of the week. Their total net selling was worth Rs 20.7 Billion. DIIs were net buyers of equity on Tue. & Wed. (Dec 11 & 12), but net sellers on the other three days. Their total net buying was worth Rs 28.8 Billion, as per provisional figures.

India’s WPI-based inflation fell to a three months low of 4.64% in Nov ’18 from 5.28% in Oct ’18 – mainly due to a decline in food and fuel prices. WPI was 4.02% in Nov ’17.

Exports grew only 0.8% to US $26.5 Billion in Nov ’18, while imports grew 4.31% to US $43.17 Billion. Trade deficit widened to US $16.67 Billion. During Apr-Nov ’18, trade deficit was US $128.13 Billion against US $106.37 Billion during Apr-Nov ’17.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex faced sharp sell-offs on Mon. Dec 10 and the early part of Tue. Dec 11, as state election results indicated victory of Opposition parties in all five states.

The index closed below its three EMAs in bear territory on Mon., and touched an intra-day low of 34426 on Tue. before pulling back towards its 200 day EMA. The formation of a ‘reversal day’ bar (lower low, higher close) encouraged bulls to go on the offensive.

On Wed. Dec 12, the index vaulted above its three EMAs into bull territory but faced resistance from the downward ‘gap’ formed on Oct 4. It turned out to be a temporary halt. On Thu. Dec 13, the index hopped across the ‘gap’, but pulled back towards it by close – after facing strong resistance from the (blue) up trend line.

Sensex failed to make further progress on Fri., but closed above the ‘gap’ and the three EMAs in bull territory with a weekly gain of 289 points (0.8%). Bulls won the week’s battle, but have still not been able to extricate themselves from the medium-term down trend that started on Aug 29.

Daily technical indicators are looking bullish to neutral. MACD is facing resistance from its signal line in bullish zone. ROC is below its falling 10 day MA in neutral zone. RSI is falling towards its 50% level. Slow stochastic is rising towards its overbought zone.

After losing face in state elections, BJP stalwarts came out in force to tom-tom the supposed ‘clean chit’ given by the Supreme Court to the Rafale aircraft deal. Turns out the ‘clean chit’ was based on disguised information provided to the court by the Govt., which is tying itself in knots in trying to prevent deal details from becoming public before the general elections next year.

How the stock market reacts to the disclosures will be revealed next week. Don’t expect bears to be in wait-and-watch mode. Anyone holding long positions should think of taking some profits home.

NSE Nifty index chart pattern

The following comment was made in last week’s post on the weekly bar chart pattern of Nifty: A likely fall below the 50 week EMA will bring the support zone between 10283 and 9827 back into the picture.” 

The index dropped well below its 50 week EMA and touched an intra-week low of 10333 – which was just 50 points above the support zone. However, Nifty recovered to close above its 20 week and 50 week EMAs in bull territory – gaining 111 points (1%) on a weekly closing basis.

Three of the weekly technical indicators are in bearish zones – MACD is moving sideways with slight upward bias below its falling signal line; RSI is moving sideways above its oversold zone; Slow stochastic is moving up towards its 50% level. ROC is rising sharply towards its overbought zone after crossing above its 10 week MA. 

Nifty’s TTM P/E has moved up to 26.14, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling in neutral zone. Some near-term index upside is possible.

Bottomline? Sensex and Nifty charts seem to be transitioning to bear markets. Increased volatility during intra-day trading is a sign of the balance tilting in favour of bears. Ignore the bullish targets being given by a few analysts. Both indices are likely to go lower before they go much higher. 

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