Sensex, Nifty charts (Jun 14, 2019): profit booking emerges near lifetime highs

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FIIs were net buyers of equity on Mon., Tue. and Thu. (Jun 10, 11 and 13), but net sellers on Wed. and Fri. (Jun 12 and 14). Their total net selling exceeded Rs 8.0 Billion. DIIs were net buyers of equity on Mon., Wed. and Fri., but net sellers on the other two days. Their total net buying was worth Rs 2.2 Billion, as per provisional figures.

India’s CPI based retail inflation rose to a 7 months high of 3.05% in May ’19 from a revised 2.99% in Apr ’19. However, WPI based wholesale inflation fell to a 22 months low of 2.45% in May ’19 from 3.07% in Apr ’19. 

The Index of Industrial Production (IIP) grew to a six months high of 3.4% in Apr ’19 against 0.4% in Mar ’19, but was lower than 4.5% in Apr ’18. Some experts have questioned the veracity and sustainability of the improved Apr ’19 data.

India’s trade deficit widened to US $15.4 Billion in May ’19 against $14.6 Billion in May ’18. While exports grew 4% to $30 Billion, imports grew 4.3% to 45.4 Billion.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex touched a lower top of 40066 on Tue. Jun 11 and corrected down to seek support from its 20 day EMA. The index is trading well above its rising 200 day EMA in a bull market.

Some consolidation or correction near a lifetime index high is only to be expected. It is always a good idea to take some profit off the table and lock it in fixed income instruments (but don’t touch debt funds with a barge-pole).

Daily technical indicators are turning bearish after correcting overbought conditions. MACD has crossed below its signal line in bullish zone. ROC is falling below its 10 day MA and dropped into bearish zone. RSI and Slow stochastic have fallen to their respective neutral zones. 

All four technical indicators had showed negative divergences by failing to touch new highs with the index on Jun 4. Some more correction, and a part or complete filling of ‘Gap 2’ (formed on May 20) will improve the technical ‘health’ of the chart – enabling Sensex to move higher.

Expect the index to meander without a clear direction till the budget on July 5. There may even be a ‘managed’ pre-budget rally. Use it to book profits.  

The state of the financial system – banks, NBFCs, HFCs (barring a few exceptions) – doesn’t look encouraging at all. Frauds and defaults are being discovered on a daily basis. No one is sure how deep the rot is. The government seems to be in denial – trying to put positive spins on negative data.

Small investors should be extra careful about where they invest their money. Choose quality stocks, or the best equity funds – even if they appear expensive. Companies like Asian Paints, HUL, HDFC Bank, TCS have management quality and cash to survive downturns. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a lower top and closed 47 points (0.4%) lower for the week. However, the index is trading well above its rising weekly EMAs in a long-term bull market.

The index has spent four weeks above the upward ‘gap’ formed on the week beginning May 20, but has failed to move higher. It may test support from the ‘gap’ and fill it partly or completely. The 20 week EMA has entered the ‘gap’ zone, and should provide additional support to the index. 

Weekly technical indicators are showing bearish signs. MACD is moving sideways inside its overbought zone. ROC is falling below its 10 week MA towards neutral zone. RSI and Slow stochastic are poised to fall from their respective overbought zones

All four indicators had showed negative divergences by failing to touch new highs with the index in the previous week. Some more consolidation or correction is possible. But don’t expect a deep correction – unless the budget on July 5 badly disappoints the market.

After touching a high of 29.90 on Mon. Jun 3, Nifty’s TTM P/E has moved down to 29.24, which is still well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has re-entered its oversold zone after briefly falling from it. Some near-term index upside is likely.

Bottomline? Sensex and Nifty charts continue to consolidate after touching lifetime highs. A stalling economy, debt crisis of NBFCs/HFCs and weak earnings growth of India Inc. have been ‘discounted’ by the market. A disappointing budget may derail bullish hopes. Stay invested with trailing stop-losses. Ignore optimistic ‘buy’ calls from brokerages.

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