Sensex, Nifty charts (Jul 26, 2019): bears trying to take control

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FIIs were heavy net sellers of equity during the week. Their total net selling was worth Rs 75.5 Billion. DIIs more than matched FII selling. Their total net buying was worth Rs 89.1 Billion, as per provisional figures.

India’s rice exports are likely to fall to the lowest level in 7 years due to weak demand from African countries and absence of government incentives.

Despite the continuing slowdown in the real estate sector – thanks to various regulatory changes – the industry attracted investments of US $2.7 Billion during the first half of 2019.

BSE Sensex index chart pattern

The following comment appeared in last week’s post on the daily bar chart pattern of Sensex: A confluence of supports – from the lower edge of GAP2, the blue up trend line and the 200 day EMA – should protect Sensex downside in the near term.” 

The confluence of supports is marked by purple oval on the chart. Sensex breached the lower edge of GAP2 and the blue uptrend line, but found support from its 200 day EMA. The support may not last long.

A breach of the 200 day EMA will be quite bearish, and can drop the index to the support zone between 35900 and 37100.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bearish zone. ROC is clinging on to its 10 day MA in bearish zone. RSI has emerged from its oversold zone. Slow stochastic is inside its oversold zone. Any technical bounce may face bear selling.

Bellwether large-cap stocks, like HDFC, HDFC Bank, Bajaj Finance, Kotak Bank, Maruti, M&M are tumbling under bear selling pressure. If FIIs keep selling, DIIs may not be able to prevent a deeper index fall.  

Small investors should stay away from bottom fishing. The index has formed three bearish patterns near a market top, and breached an uptrend line. Those are clear warnings that a strong correction can follow.

NSE Nifty index chart pattern

The following comment appeared in last week’s post on the daily bar chart pattern of Nifty: Twin downside support can be expected from the blue up trend line and the 50 week EMA.”

The index corrected below the uptrend line, bounced up after receiving support from its 50 week EMA, but closed below the trend line. A breach of a trend line – though not a convincing one on the chart – should be treated with caution.

A breach of the 50 week EMA will be quite bearish, and can drop Nifty to the support zone between 10700 and 11100. Any pullback towards the ‘gap’ is likely to face bear selling.

Weekly technical indicators are looking bearish. MACD has crossed below its signal line, and is falling in bullish zone. ROC faced resistance from its falling 10 week MA in neutral zone. RSI and Slow stochastic are falling below their respective 50% levels

Nifty’s TTM P/E has moved down to 27.73 – but remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has entered its oversold zone. Near-term index downside may be limited.

Bottomline? Sensex and Nifty charts are tantalisingly poised at important supports. Tax proposals in the budget and a visibly slowing economy have combined to dampen bullish sentiments. Q1 (Jun ’19) results declared so far have failed to ignite ‘animal spirits’. Bears are on the verge of taking control.

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