Sensex, Nifty charts (Dec 21, 2018): bears stamp their authority once again

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FIIs were net sellers of equity on Mon. & Thu. (Dec 17 & 20), but net buyers on the other three days of the week. Their total net buying was worth Rs 10.4 Billion. DIIs were net buyers of equity on Thu. (Dec 20), but net sellers on the other four days. Their total net selling was worth Rs 11.4 Billion, as per provisional figures.

Equity mutual fund schemes registered a lower net inflow of Rs 84.14 Billion in Nov ’18, compared to Rs 126.22 Billion in Oct ’18 and Rs 111.72 Billion in Sep ’18, mainly due to a volatile market. During the Apr-Nov ’18 period, total inflow into equities have exceeded Rs 822 Billion. 

S. Naren, who manages Rs 3.1 Trillion as CIO of ICICI Pru AMC, says investors need to brace for a run of constrained returns that will last until the US Fed makes a policy U-turn. For 2019, Naren doesn’t see investments in Indian equities fetching more than ‘mid-teen’ percentage gains. 

BSE Sensex index chart pattern

Note the following cautionary comments from last week’s post on the daily bar chart pattern of Sensex: “… (bulls) have still not been able to extricate themselves from the medium-term down trend that started on Aug 29… Anyone holding long positions should think of taking some profits home.”

The index rose to touch an intra-day high of 36555 on Wed. Dec 19 – its highest level since Oct 3 (the day before it had formed a downward ‘gap’ and dropped into bear territory). However, it continued to face resistance from the (blue) up trend line  that was breached on Dec 6.

Even as Sensex touched its highest level in more than 10 weeks, MACD and RSI showed negative divergences by failing to rise higher with the index. ROC reached the edge of its overbought zone. Slow stochastic re-entered its overbought zone. Bears took advantage of technical weakness visible on the chart.

The index closed around 50 points lower on Thu. Dec 20, and then plunged head-first below its 20 day EMA and the downward ‘gap’ (formed on Oct 4) on Fri. Dec 21 – perhaps a belated reaction to US Fed’s 25 bps (0.25%) interest rate increase, but in tandem with the sharp fall in US markets.

Sensex closed above its 50 day and 200 day EMAs in bull territory, but lost about 220 points (0.6%) on a weekly closing basis. A single day’s trading on Fri. Dec 21 wiped out all gains made during the previous 6 trading sessions. 

Daily technical indicators are looking bearish and showing downward momentum. MACD is poised to cross below its signal line in bullish zone. ROC has dropped to seek support from its sliding 10 day MA in neutral zone. RSI has fallen below its 50% level. Slow stochastic is ready to fall from its overbought zone.

A curtailed trading week due to X’mas holiday plus F&O expiry should keep trading activity muted. Expect bears to try and press home their advantage.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched an intra-week high of 10985 – its highest level in 11 weeks – but formed a ‘reversal’ bar (higher high, lower close) and closed just below its 20 week EMA.

The index closed above its 50 week EMA and well above its 200 week EMA in a long-term bull market, but lost about 50 points (0.5%) on a weekly closing basis – thanks to the sharp correction on Fri. Dec 21. 

The index appears to be trading within a bearish ‘falling wedge’ pattern for the past 10 weeks. (The pattern is more clearly visible on the daily and weekly closing/line charts.) The likely breakout from the ‘wedge’ is downwards.

Three of the weekly technical indicators remain in bearish zones – MACD is moving sideways with slight upward bias below its signal line; RSI is moving sideways above its oversold zone; Slow stochastic is moving sideways just below its 50% level. ROC is above its 10 week MA in bullish zone, but has turned down. 

Nifty’s TTM P/E has slipped to 26.02 (after touching a mid-week high of 26.53), which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has dropped to the edge of its overbought zone, hinting at near-term index downside.

Bottomline? Despite valiant effort by bulls, Sensex and Nifty charts appear to be transitioning to bear markets. Increased volatility during intra-day trading is a sign of the balance shifting towards bears. Both indices are likely to fall lower before they can rise to touch new highs in 2019. 

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