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Monday, November 20, 2017

S&P 500 and FTSE 100 charts (Nov 17 '17): bears flexing their muscles again

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 made a couple of attempts on Mon. (Nov 13) and Thu. (Nov 16) to pullback to the lower edge of the 'rising wedge' (refer last week's post), but faced resistance from the 2590 level.

The index has been in a down trend (marked by purple down trend line) since touching a high of 2597 on Nov 7. The pullbacks were used by bears to sell. Strong volumes on recent down days mean that bears may not retreat in a hurry.

The index managed to close above its three EMAs in bull territory, with just a 3 points loss for the week. Bulls are fighting hard to maintain their dominance.

Daily technical indicators are looking bearish. MACD and RSI are showing downward momentum in bullish zones. Slow stochastic has slipped into bearish zone. All three indicators are showing negative divergences by touching lower bottoms on Wed. (Nov 15) while the index touched a higher bottom.

The index is trading well above its rising 50 day and 200 day EMAs in a bull market. However, this bull market is a little long in the tooth, and hasn't faced a decent 8-10% correction in quite a while. So, part profit booking and waiting for a convincing breakout above the (purple) down trend line may be good ideas.

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators have started correcting inside their respective overbought zones. 

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 had dropped and closed below its 20 day and 50 day EMAs and the (purple) down trend line in the previous week. Bearish technical indicators had hinted at some more correction (refer last week's post).

The index continued to fall towards its 200 day EMA, but appears to have found some support near the 7350 level. Daily technical indicators are in bearish zones, but RSI and Slow stochastic have stopped falling.

Negative divergence visible on the Slow stochastic, which touched a lower bottom inside its oversold zone while the index touched a much higher bottom, has left the door open for the index to test support from its 200 day EMA. 

However, an oversold Slow stochastic can also trigger a pullback towards the (purple) down trend line. (At the time of writing this post, the index is again testing support from the 7350 level.)

On longer term weekly chart (not shown), the index closed below its 20 week EMA but above its 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are looking bearish and showing downward momentum.

Sunday, November 19, 2017

Sensex, Nifty charts (Nov 17, 2017): bulls regaining control

FIIs were net buyers of equity on Tue. (Nov 14) & Fri. (Nov 17), but net sellers on the other three days. DIIs were net sellers of equity on Mon. (Nov 13) and Tue. but net buyers on the other three days.

For the week, FIIs were net buyers of equity worth Rs 27.9 Billion; DIIs were also net buyers of equity worth Rs 29.1 Billion, as per provisional figures. 

Sensex eked out a gain of 28 points while Nifty lost 38 points on a weekly closing basis. More importantly, both indices bounced up from important support levels - helping bulls to regain the initiative.

The initial euphoria of bulls on Fri. - due to the ratings upgrade of India's sovereign bonds by Moody's - appeared to diminish as trading drew to a close.

BSE Sensex index chart pattern

The following comments appeared in last week's post on the daily bar chart pattern of Sensex: "Some more correction towards the top of the downward-sloping channel is a possibility. Note that the 50 day EMA is just above the channel, and should provide additional support."

As expected, the index corrected below its 20 day EMA, but bounced up after finding twin supports from the 50 day EMA and the top of the downward-sloping channel.

By touching a low of 32684 on Wed. Nov 15, the index tested its Aug 2 top of 32686 and retraced 42.5% of its rally from the Sep 28 low of 31082 to the Nov 7 top of 33866. That is a little less than the 50% Fibonacci retracement level used by technical traders as a trend deciding level.

Daily ROC, RSI and Slow stochastic are in bearish zones, but showing signs of upward momentum. MACD is below its signal line in bullish zone, but has stopped falling.

The bull market correction - more of a time-wise correction than a price-wise correction - seems to be over. The index should rise to new highs soon, though India Inc.'s Q2 earnings growth is nothing to write home about.

If you hold fundamentally strong stocks in your portfolio, add to them instead of searching for new ideas near an index top. The 'easy money' in 'cheap' stocks has already been made. 

NSE Nifty index chart pattern

The following comments appeared in last week's post on the weekly bar chart pattern of Nifty: "The index may correct a bit more. Expect strong support from the 'support zone' between 10100 and 9700."

The index bounced up from the 'support zone' to close near its opening level for the week, forming a 'hammer' candlestick pattern with bullish implications

Note that the 10100 level, which had acted as a resistance level in Jul '17 and Sep '17 has now turned into a support level.

By touching an intra-week low of 10094, the index retraced 49.4% of its 802.9 points rally - from the low of 9687.55 (week ending Sep 29) to the high of 10490.45 (week ending Nov 10). That is almost equal to the 50% Fibonacci retracement level used by technical traders as a trend deciding level.

The index is trading above its three rising weekly EMAs in a bull market. Weekly technical indicators are looking bullish and overbought. Some consolidation is possible before the index rises to a new high.

Nifty's TTM P/E has slipped further to 26.14, but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling in neutral zone and hinting at some index upside.

Bottomline? Sensex and Nifty charts have bounced up from important support levels. The corrections provided adding opportunities. Bulls are regaining control. Stock picking skills will now be tested, so be very choosy about what you buy.

Saturday, November 18, 2017

Reality check about Moody's ratings upgrade and Why investors should avoid IPOs

Moody's Ratings Upgrade - a reality check

"Moody's Investors Service upgraded its ratings on India's sovereign bonds for the first time in nearly 14 years on Friday (Nov 17 '17), saying continued progress on economic and institutional reform will boost the country's growth potential.

The agency said it was lifting India's rating to Baa2 from Baa3 and changed its rating outlook to stable from positive as risks to India's credit profile were broadly balanced."

The Finance Minister and various government functionaries wasted no time in appearing on various TV channels to tom-tom the 'achievement' as an endorsement of the NDA government's financial reforms and fiscal prudence by an 'internationally reputed ratings organisation'.

Now, here is the reality check (from a Reuter's article):

"Moody's upgrade, its first since January 2004, moves India's rating to the second lowest level of investment grade. Standard & Poor's has kept India at the lowest investment grade just above junk status for a decade and Fitch Ratings for one year longer."

There is no guarantee that S&P or Fitch will follow Moody's in upgrading India's sovereign bonds ratings. In other words, as of now, two out of three 'internationally reputed ratings organisations' have kept India's sovereign bonds ratings just above junk status.

The ratings upgrade by Moody's is definitely a positive sign - but not a huge deal just yet. Expecting FDI to pour in may be a bit premature. However, FIIs did join DIIs as net buyers of equities on Friday (Nov 17). The rally in the stock market is likely to continue next week. 

Why investors should avoid IPOs

A recent article in mentioned that 32 companies have cumulatively raised Rs 50,000 Crores from IPOs so far this year - the highest on record. "Promoters and (existing) shareholders walked away with the bulk of the gains by offloading stakes."

"Shares of 23 of the 32 companies that have gone public this year either declined or gave low returns since the close on the first day of trading." 

20 companies have provided negative returns from the closing level on the first day of listing till Nov 15. 3 companies have gained less than 5%. 5 companies have gained between 10% & 49%. The balance 4 companies - Avenue Supermarts, PSP Projects, Apex Frozen Foods and Shankara Building Products - have gained between 72% & 132%.

If you have been thinking about jumping on to the IPO bandwagon in the hope of making gains on listing, think again. The odds are not in your favour.