Sensex, Nifty charts (Nov 22, 2018): bears show who’s boss

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In a holiday-shortened trading week, FIIs were net sellers of equity on Tue. & Wed. (Nov 20 & 21), but net buyers on Mon. & Thu. (Nov 19 & 22). Their total net selling was worth Rs 8.6 Billion. DIIs were net buyers of equity on Wed. & Thu., but net sellers on Mon. & Tue. Their total net buying was worth Rs 3.0 Billion, as per provisional figures.

OECD and Moody’s have projected India’s GDP growth to moderate to 7.3% in 2019, whereas RBI expects FY 2018-19 GDP growth at 7.4%. The recent decline in oil prices may reduce the Current Account Deficit (CAD) to 2.6% of GDP against the earlier expectation of 2.8%.

With China’s Belt and Road initiative facing a pushback, the UAE, Japan, France, Germany, Italy and UK are in talks with India to launch joint projects in Africa. Morocco has also expressed interest for joint projects in West Africa.

BSE Sensex index chart pattern

Note the following comments from last week’s post on the daily bar chart pattern of Sensex: “…the index appears to be forming a ‘rising wedge’ pattern from which the likely breakout is downwards…the index needs to cross above the 91 points downward ‘gap’ formed on Oct 4, and the 36000 level – both of which can act as resistances.”

What had looked like a bearish ‘rising wedge’ evolved into an equally bearish ‘flag’ pattern – from which the expected downward breakout occurred on Thu. Nov 22.

Before that, the index rose to touch an intra-day high of 35819 on Mon. Nov 19 – only to close 44 points lower after facing strong resistance from the lower edge of the 91 points downward ‘gap’ formed on Oct 4.

That was the trigger bears were waiting for. Three straight days of lower closes dropped the index below its three EMAs back into bear territory. The close below the ‘flag’ hasn’t been a convincing one – leaving the door open for a pullback. Bears may use it to sell again.

Daily technical indicators are turning bearish. MACD has formed a small ’rounding top’ pattern above its signal line, and is poised to re-enter bearish zone. RSI and Slow stochastic have dropped down from their respective overbought zones. ROC has entered bearish zone. 

Upcoming state elections and possible setback for the ruling BJP in one or two states is keeping the stock market on tenterhooks. Election results have little long-term effect on the market. Expect the fear-factor to recede following results announcement on Dec 11.

NSE Nifty index chart pattern

After three straight weeks of gains, the weekly bar chart pattern of Nifty attempted to cross above its 20 week EMA but failed. The index formed a weekly ‘reversal’ bar (higher high, lower close) and dropped below its 50 week EMA.

By touching a high of 10775 during the week, the index retraced about 44% of its 1755 points correction from its Aug ’18 top (11760) to its Oct ’18 low (10005) – which fell 105 points short of the Fibonacci 50% retracement level of 10880.

Nifty closed well above its 200 week EMA in a long-term bull market. However, the corrective move from its Aug ’18 top does not appear to be over. Another leg of the down move can take the index towards 9800.

Weekly technical indicators are in bearish zones, and showing slight downward momentum. MACD is sliding down below its falling signal line in bearish zone. ROC is below its falling 10 week MA inside oversold zone. RSI is moving down towards its oversold zone. Slow stochastic has started to move down after emerging from its oversold zone.

After touching a high of 25.88 on Mon. Nov 19, Nifty’s TTM P/E has drifted down to 25.43, which remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone, and can limit near-term index downside. 

Bottomline? FII buying had triggered counter-trend rallies on Sensex and Nifty charts from their Oct ’18 lows. Earnings growth of India Inc. belied expectations – capping near-term index upside. Now state elections are causing some jitters. Better to stay on the sidelines, unless you can unearth a really compelling reason to participate.

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