Wednesday, June 28, 2017

Nifty chart: a midweek technical update (Jun 28 ‘17)

After Monday's Eid holiday, FIIs were net buyers of equity on Tuesday but net sellers today. DIIs were net sellers of equity on Tuesday but net buyers today.

As per provisional figures, FII were net sellers of equity worth Rs 1.77 Billion and DIIs were net buyers of equity worth Rs 0.2 Billion during the two days of trading this week.

According to a Nomura report, India's GDP growth is expected to improve gradually from Q1 (Jun '17) onwards as consumption has recovered from the demonetisation shock.


The daily bar chart pattern of Nifty, which had been consolidating sideways within a 'rectangle' pattern (shaded in grey) for 4 weeks, broke out below the 'rectangle' on Tue. Jun 27.

The possibility of such a downward breakout, with a target of 9390, was mentioned in last week's updateThe index is seeking support from its 50 day EMA, but the support may not hold. 

Daily technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in bullish zone. RSI has fallen below its 50% level. Slow stochastic has entered its oversold zone and can trigger a pullback towards the 'rectangle'. 

All three indicators are showing negative divergences by falling below their respective Apr '17 lows. 

Nifty's TTM P/E has slipped a bit to 24.15, which is still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is deep inside its overbought zone - hinting at some more correction.

Concerns about GST implementation from July 1, plus F&O expiry on Jun 29 has turned market participants cautious.

Mid-cap and small-cap stocks are facing strong selling pressure. Those with clean balance sheets and earnings visibility should be added to one's 'buy list' for acquisition after the correction plays out. 

Tuesday, June 27, 2017

WTI and Brent Crude Oil charts: bears continue to rule

WTI Crude Oil chart


The following comment had appeared in the previous post on the daily bar chart pattern of WTI Crude Oil: "Strong volumes on recent down days show that bears are in no mood to relinquish control."

Since the beginning of the month, resistance from the falling 20 day EMA has proven to be insurmountable for bulls. 

Oil's price dropped below the May 5 low of 43.75 and touched a low of 42 on Jun 21 with a strong surge in volumes. The bearish pattern of 'lower tops, lower bottoms' remains intact.

Daily technical indicators are looking oversold, and triggered a technical bounce. Oil's price is trading below its three falling EMAs in a bear market. Expect bears to resume selling if bulls try to engineer a rally.

A fuel glut in China, a hangover from demonetisation in India, and an ageing, declining population in Japan are holding back crude oil demand growth in three of the world's top four oil buyers.

On longer term weekly chart (not shown), oil's price closed below its three weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil shows total bear domination. The 'death cross' of the 50 day EMA below the 200 day EMA has technically confirmed a return to a bear market.

Oil's price fell below its May 5 low - keeping the bearish pattern of 'lower tops, lower bottoms' intact. 

After touching a low of 44.35 on Jun 21, a short-covering rally was triggered by oversold technical indicators.

Despite production cuts by OPEC members, a supply glut in the oil market has kept a lid on prices. Expect bears to sell again if the rally continues a little longer.

On longer term weekly chart (not shown), oil's price remains well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are bearish.

Monday, June 26, 2017

S&P 500 and FTSE 100 charts (Jun 23 '17): bears refusing to yield ground

S&P 500 index chart pattern


The closing chart pattern of S&P 500 has been consolidating within a narrow 'rectangle' pattern between 2429 and 2440 (marked in grey) during June '17.

On Mon. Jun 19, the index broke out sharply from the 'rectangle' to close at a new high of 2453. However, it turned out to be a 'false' breakout.

There was no surge in volumes that would have technically validated the breakout. (The two volume surges visible on the chart occurred on two Fridays - Jun 16 & 23).

All three technical indicators showed negative divergences by failing to touch new highs with the index. Bears took the opportunity to sell.

The index dropped back inside the 'rectangle' on Tue. Jun 20 and remained there - closing with just a 5 point gain for the week.

Technical indicators are in bullish zones, but not showing any upward momentum. Some more consolidation within the 'rectangle' is likely before another attempt at an upward breakout occurs.

All three EMAs are rising, and the index is trading above them in a bull market. But bears are selling on every rise - so caution should be the watchword.

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 are overbought, but not showing any upward momentum.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 closed above its three EMAs in bull territory on Mon. Jun 19. The next day, it formed a 'reversal day' bar (higher high, lower close) that triggered selling by bears. 

The index received support from the 7400 level, and just about managed to close at its 50 day EMA - with a 0.5% weekly loss.

Bulls may try to defend the previous week's low of 7375. Daily technical indicators are looking bearish and showing downward momentum.

The index is trading well above its rising 200 day EMA - which means there is no immediate threat to the bull market. (On the daily closing chart - not shown - the index is receiving strong support from its 50 day EMA and the 7425 level.)

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing downward momentum.

Sunday, June 25, 2017

Sensex, Nifty charts (Jun 23, 2017): consolidating before GST implementation

After the previous week's heavy selling, FIIs were net sellers of equity worth only Rs 2.5 Billion - thanks to their net buying on the last two days of the week. DIIs were net buyers of equity worth Rs 13.7 Billion, as per provisional figures.

The battle between bulls and bears remained unresolved. Sensex closed marginally higher (by 0.2%) while Nifty closed marginally lower (by 0.1%) for the week.

Trading activity may remain muted next week. Monday's Eid holiday will be followed by F&O expiry on Thursday. Market participants appear somewhat jittery about GST implementation from July 1.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex has been consolidating sideways within a 'rectangle' pattern for the past four weeks. Such a pattern is unreliable, because a breakout can occur in either direction.

The index received good support from 'fan line 3' during the first four days of the week, and rose to touch a new high of 31523 on Thu. Jun 22. However, all four technical indicators touched lower tops.

The combined negative divergences led to a sharp drop below 'fan line 3' towards the lower edge of the 'rectangle' on Fri. Jun 23. Like in the previous week, the 20 day EMA provided support to the index.

In case supports from the 20 day EMA and the lower edge of the 'rectangle' get breached, the index can drop to test support from its rising 50 day EMA.

Daily technical indicators are looking bearish. MACD is sliding down below its signal line in bullish zone. ROC, RSI and Slow stochastic are re-entering their respective bearish zones.

Some more consolidation is likely. The index may try to pullback towards 'fan line 3'. But only a convincing breakout above the 'rectangle' will restore control to bulls.

Stay invested, but maintain a stop-loss.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty closed lower for the second week in a row, but stayed well above its two rising weekly EMAs in a bull market. 

For the past four weeks, the index has been consolidating sideways within a 'rectangle' pattern - from which a breakout can occur in either direction. An upward breakout is more logical in a bull market. But markets often defy logic.

Weekly technical indicators are inside their respective overbought zones, but MACD, RSI and Slow stochastic are showing downward momentum.

Nifty's TTM P/E is at 24.37 - much above its long-term average. The breadth indicator NSE TRIN (not shown) has fallen deep inside its overbought zone.

Some more consolidation within the 'rectangle' is likely before a breakout occurs. Bulls may feel encouraged that FIIs were net buyers of equity on Thu. & Fri. (Jun 22 & 23).

Bottomline? Sensex and Nifty charts are consolidating after touching new highs. Some more consolidation or correction will improve valuations and enable the indices to climb higher. Stay invested. Avoid impulsive buying or selling.

Friday, June 23, 2017

Behavioural biases that affect investment success

An interesting topic came up for discussion during a recent family lunch. Electric vehicles - and how they were going to bring a paradigm shift not only for passenger and goods transportation but also for the oil industry.

The logic went like this: Global warming is being caused by auto emissions. Oil resources are getting depleted. Alternative bio-fuel experiments haven't worked. Electric vehicles are the obvious viable and environment-friendly solution.

Prices of electric cars are high because of lack of volumes. Batteries need to be recharged after travelling fairly short distances. But battery technology is improving. Vehicle prices will fall as demand increases.

A few years back, wind turbine maker Suzlon came out with its IPO. Wind power was touted as the future of energy. Investors piled into the stock and lost their shirts. Why? 

Oil prices came down from well above the $100 mark to $40. Wind power was no longer the talk of the town. It didn't help that Suzlon's technology was faulty.

Aren't these classic cases of judgement influenced by what happened or was heard in the recent past?

Investing success requires a planned and dispassionate approach. Emotions like greed, fear, euphoria, despondency lead to poor decisions. Buying or shorting a huge quantity of stock on 'gut-feel' can lead to disastrous consequences.  

The study of behavioural finance enables us to be aware of some of the common emotional and cognitive biases that affect decision making, like:

1. Anchoring
2. Confirmation
3. Loss aversion
4. Disposition effect
5. Hindsight
6. Familiarity
7. Self attribution
8. Trend chasing

Learn more about these behavioural biases from the following article:
8 Common Biases that impact Investment Decisions

Wednesday, June 21, 2017

Nifty chart: a midweek technical update (Jun 21 ‘17)

FIIs continued to sell equity shares. Their net selling during the first three days of the week was worth Rs 7.2 Billion.

DIIs were net buyers of equity worth Rs 9.6 Billion, as per provisional figures. Nifty consolidated sideways within a trading range.

SEBI has announced tightened regulations on P-notes and offshore derivatives while easing registration rules for foreign investors. Hedge funds will now be able to participate in commodity derivatives


The daily bar chart pattern of Nifty has been consolidating sideways within a 'rectangle' (shaded in grey) for nearly 4 weeks.

A 'rectangle' is usually a continuation pattern. Since the index entered the 'rectangle' from below during an up trend, the eventual breakout should be upwards.

However, sometimes a 'rectangle' can act as a 'reversal' pattern. So, a downward breakout is also a possibility.

In either case, the upward or downward target following the eventual breakout should equal the height of the 'rectangle' (about 160 points). That gives an upward target of 9870 and a downward target of 9390.

Technical targets are rarely exact. Let us work with an upward target of 9900 and a downward target of 9400 - provided the 'rectangle' pattern plays out as expected.

Nifty has received good support from its rising 20 day EMA while consolidating within the 'rectangle' and is trading above its three EMAs in a bull market.

Daily technical indicators are in bullish zones, but giving conflicting signals. MACD and RSI are showing downward momentum. Slow stochastic is showing upward momentum. MACD and Slow stochastic are showing negative divergences by touching lower bottoms.

Nifty's TTM P/E is at 24.31 - much above its long-term average. Chances of earnings catching up with index valuation appears slim in the near term. Rollout of GST from July 1 will bring its own set of challenges and teething problems.

The breadth indicator NSE TRIN (not shown) is falling inside its overbought zone, limiting index upside. FII selling will also keep Nifty's rally in check.

It is better to look at individual stocks than worrying about index movements. Several stocks have touched new highs in June while the index has gone nowhere.

Tuesday, June 20, 2017

Gold and Silver charts: bears pour cold water on month-long bull party

Gold chart pattern


The following comments appeared in the previous post on the daily bar chart pattern of Gold: "A convincing move above 1296 is required for the bullish pattern of 'higher tops, higher bottoms' to continue. Bears will try to prevent such a move."

Gold's price rallied to a slightly higher top of 1299 on Jun 6, but MACD and RSI touched slightly lower tops. The negative divergences was just the trigger the bears needed to pounce.

A sharp correction dropped gold's price below its 20 day and 50 day EMAs. (At the time of writing this post, gold's price is testing support from its 200 day EMA.)

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. RSI has slipped below its 50% level. Slow stochastic has dropped like a stone into its oversold zone. 

A technical bounce from the 200 day EMA is a possibility. Bears may use the opportunity to sell again.

On longer term weekly chart (not shown), gold’s price formed a 'reversal' bar (higher high, lower close) and corrected below its 200 week EMA in long-term bear territory. Weekly technical indicators are in bullish zones, but showing downward momentum.

Silver chart pattern


The following comments appeared in the previous post on the daily bar chart pattern of Silver: "Silver's rally may continue a bit longer, but expect bears to pounce at any time."

Silver's price touched an intra-day high of 17.75 on Jun 6 and closed at 17.71. Bears attacked the very next day. A sharp correction dropped silver's price below its three EMAs into bear territory.

(At the time of writing this post, silver's price has bounced up a bit after finding some support at 16.45.)

Daily technical indicators are in bearish zones, and showing downward momentum. Slow stochastic is well inside its oversold zone, and can trigger a technical bounce.

A test of the May 9 low may be on the cards.

On longer term weekly chart (not shown), silver’s price closed below its three weekly EMAs in a long-term bear marketWeekly technical indicators are in bearish zones, and showing downward momentum.