Sensex, Nifty charts (Nov 09, 2018): fail to overcome resistances from long-term moving averages

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Trading activity was muted in a holiday-curtailed trading week. FIIs were net sellers of equity on Tue. Nov 6, but net buyers on the other three days. Their total net buying was worth Rs 1.58 Billion. DIIs were net buyers of equity on Tue. & Wed., but net sellers on Mon. & Fri. Nov 9. Their total net selling was worth Rs 8.1 Billion, as per provisional figures.

Nikkei India’s Manufacturing PMI rose to 53.1 in Oct ’18 from 52.2 in Sep ’18. Nikkei India’s Services PMI rose to 52.2 in Oct ’18 from 50.9 in Sep ’18. The Composite (Manufacturing + Services) PMI rose to 53 in Oct ’18 from 51.6 in Sep ’18. (A number >50 indicates expansion.)

The combined profits of about 940 listed companies are up just about 3% YoY, against 12.5% YoY in the June ’18 quarterHigher raw material and borrowing costs are two factors responsible for slower overall earnings growth of India Inc. during the Sep ’18 quarter – despite a low base. 

BSE Sensex index chart pattern

The following comments from last week’s post on the daily bar chart pattern of Sensex may be worth noting:

The index corrected about 5700 points (14.6%) from its Aug 29 top of 38990 to its Oct 26 low of 33292. A 38.2% Fibonacci retracement of the fall will take the index to 35470 – which is in the zone between the current levels of the 200 day EMA and the 50 day EMA. Expect bears to start selling to protect this zone.”

The index rose above its 200 day EMA to touch an intra-day high of 35302 on Nov 7, which was quite near the 38.2% Fibonacci retracement level of 35470. On the next trading day (Nov 9), the index again crossed above its 200 day EMA to touch a slightly lower intra-day high of 35287.

On both days, the index failed to close above its 200 day EMA. Good news for bulls is that the ‘diwali’ rally prevented ‘death cross’ of the 50 day EMA below the 200 day EMA (which would have technically confirmed a bear market). The reprieve may be temporary.

Daily technical indicators are looking bullish, and showing upward momentum. MACD is rising above its signal line in bearish zone. RSI is rising above its 50% level in bullish zone.  ROC and Slow stochastic have entered their respective overbought zones, and can trigger a down move towards the Fibonacci support zone (between 33934 and 32372). 

Falling oil prices, a pause in FII selling in equities and consequent strengthening of the Rupee against the US Dollar created a conducive environment for the ‘diwali’ rally. 

However, Q2 (Sep ’18) results have been a damp squib. Without the expected boost in earnings, Sensex is unlikely to touch new highs any time soon. Incidentally, the Dollex 30 index (Sensex measured in US Dollars) is in a bear market. No wonder FIIs resorted to huge selling in Oct ’18.

NSE Nifty index chart pattern

For the second straight week, the bar chart pattern of Nifty faced strong resistance from its 50 week EMA. Despite a 32 points gain on a weekly closing basis, the index has closed below its 20 week and 50 week EMAs for six consecutive weeks.

Good news for bulls is that the index closed well above its 200 week EMA in a long-term bull market. Bad news is that bears are unlikely to weaken their stranglehold on the chart in the near term. That means, some more downside is possible.

Weekly technical indicators are in bearish zones, and not showing any upward momentum. MACD is still falling below its signal line in bearish zone, though its downward momentum has reduced. ROC remains inside its oversold zone. RSI has bounced up weakly from the edge of its oversold zone. Slow stochastic is trying to emerge from its oversold zone.

Nifty’s TTM P/E has inched up to 25.46, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has tumbled to the edge of its overbought zone, suggesting limited near-term index upside. Looks like the ‘diwali’ rally has run its course.

Bottomline? ‘Diwali’ rallies on Sensex and Nifty charts failed to overcome strong resistances from long-term moving averages. Earnings growth of India Inc. have belied expectations once again. Another leg downwards appear to be the most likely near-term directions for both indices.

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