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Monday, December 31, 2012

Announcing re-opening of paid subscriptions to my Monthly Investment Newsletter

I am pleased to announce the re-opening of paid subscriptions to my monthly investment newsletter for a 3 weeks period from Jan 1-21, 2013. Only a limited number of subscriptions will be on offer – strictly on a first-come first-served basis – to enable me to provide personalised attention and guidance to each subscriber.

If you are interested in subscribing, please send an email to: mobugobu@yahoo.com at the earliest for details.

The newsletter has completed 36 issues. 2012 was an interesting and humbling experience for me. Interesting because it is always a challenge to find fundamentally strong stocks with growth potential at reasonable prices. Humbling because a few stocks have not performed up to expectations yet, and still subscribers have kept faith in my stock picking abilities.

Those who have been following my blog posts regularly already know what kind of stocks I like, and what type of stocks I avoid. The guiding principle is to choose well-managed, financially sound companies that give steady (rather than spectacular) returns and have growth prospects.

Non-subscribers may be interested to know how recommended stocks have fared during the past year. Without revealing the names of the stocks (it won’t be fair to my subscribers to do so), here is a brief results table with prices on recommended dates, subsequent high and low prices, and gains as on Dec 31, ‘12:

Stock

Date

Price

High

Low

Close

Gain

A

Dec 29

279

537

267

519

86%

B

Jan 27

335

537

311

526

57%

C

Feb 28

321

452

284

407

27%

D

Mar 29

78

106

75

95

22%

E

Apr 27

407

529

388

488

20%

F

May 30

637

673

558

637

0%

G

Jun 29

223

472

223

424

90%

H

Jul 27

671

740

655

672

0%

I

Aug 30

205

293

198

268

31%

J

Sep 28

121

134

105

131

8%

K

Oct 30

71

77

65

72

1%

L

Nov 29

135

146

131

136

0%

All stocks (except one) are small caps picked for long-term investment of 2 to 3 years. The fact that some of them are showing excellent shorter-term gains – even after falling from their recent highs - is a testimony to their underlying strength. Note that none of the stocks are showing losses. Though three haven’t given any returns yet – all 12 stocks touched higher levels after my recommendation. It helped that the Sensex has been in an uptrend in 2012. In a 2-3 year time frame, I expect the laggards to more than make up the slack.

What is important to understand is that none of these stocks were ‘cheap’ – fundamentally strong stocks rarely are - and some had already run up quite a lot when they were recommended.

Why wait if you need help in selecting fundamentally strong stocks with growth potential? Just subscribe to my Monthly Investment newsletter. Send me an email (at mobugobu@yahoo.com) soon – subscriptions will close on Jan 21, 2013.

Sunday, December 30, 2012

Notes from the USA – a guest post

Women have been rising to positions of authority – not just in politics, but also in the corporate world. Indra Nooyi, Chanda Kochhar, Naina Lal Kidwai, Vineeta Bali are some of the names that come to mind. However, their numbers, while growing, are still too small to create a big impact on business strategy and decision making.

Likewise, the Asian emerging economies are growing, but have a long way to go before they can take over leadership positions over the western developed economies. In this month’s guest post, KKP presents facts and figures to establish the rising economic power of the Asian economies.

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Like Girl Power, it’s Asia Power in this Century

A lot of people are watching this world move forward, but let’s stop the rotation of the earth and analyze it for a bit. In Westernized nations, as well as in large corporations in the Developing and Emerging Markets, there is a trend of ‘girl power’. What I mean is that women are now being seen in CxO positions - varying from CEO, CFO, CIO, CSO, CMO. These are positions of authority that empower the individual to strategize and execute decisions that have impacts of millions and billions of dollars/rupees on a quarterly basis. It is easy to find who these women are, but I have a different point to make. In short, I am convinced that girls are growing up in this century with a lot of focus, strong will, great thinking power, meticulousness, diligence and business mindedness. They bring a sense of balance and organization skills that allows them to tilt the scale of success in their favour. You might not see it yet in Asia, but girl power is definitely vividly evident in everyday life in the USA. As a result, over the next few decades, we shall see ‘girl power’ in full force, and it will make this century one of ‘Girl Power’.

As an investor, I compare this phenomenon of ‘girl power’ with ‘Asia Power’ that is currently as strong, if not stronger than we are experiencing, and this story has a lot of unfolding to happen in the next few decades. Let’s look back first. The 20th century is widely called as the “American Century” in honour of the role the U.S. played in world politics. The Wikipedia definition of this term is:

“American Century is a characterization of the 20th century as being largely dominated by the US in political, economic and cultural terms. The United States’ influence grew throughout the 20th century (1900-1999), but became especially dominant after the end of World War II, when only two Super-Powers remained i.e the United States and the Soviet Union. After the dissolution of the Soviet Union in 1991, the United States remained the world’s only superpower, and became the hegemon, or what some have termed a hyperpower.

According to a white paper produced by the Australian Government (http://asiancentury.dpmc.gov.au/white-paper), the 21st century is the Asian Century or Asia Power as I termed it. From the report:

“Within only a few years, Asia will not only be the world’s largest producer of goods and services, it will also be the world’s largest consumer of them. It is already the most populous region in the world. In the future, it will also be home to the majority of the world’s middle class.

1) Asia’s Share of World Output

In the last 20 years, one-third of Asia’s population has re-engaged the world. Standard of living for billions of people has improved. According to one study, between 2000 and 2006, one million people were lifted out of poverty every week in East Asia alone. It took the UK over 50 years to double its income per person during the industrial revolution. In contrast, China and India recently doubled their income per person within a decade.

2) Growth of Manufacturing Industry in Asia

Asia is the manufacturing engine for the world. Initially Japan led Asia in manufacturing. Then low-cost manufacturing moved to Singapore, Taiwan, Hong Kong and South Korea and only highly skilled production remained in Japan. Later as production costs rose in those countries, businesses moved their production facilities to ASEAN countries and then to China. Today China has become the factory floor for the world not only in producing cheap low-cost goods but also high-cost electronic products. Other Asian countries such as India are also catching up with manufacturing but at a slower pace than China.

image

3) Asia’s GDP per capita Projection

The world total population is 7.0 billion and the U.S. population is 314.0 million. Asia has more than half of the world’s population at about 3.8 billion. As the income per person grows in Asian countries the middle class population is bound to expand further, and the spending power from these middle class population is what will propel GDP in these nations to sky-rocket, which is what makes ‘Asia Power’.

Investing in various economies of Asia, and ensuring that the percentage allocation in this region stays high through the ups and downs is going to be key to future portfolio success.

image

The key is to continue to take charge of this ‘macro trend’, and leverage it to the maximum. By 2025, four of the 10 largest economies will be in Asia – China, India, Indonesia and Japan. Asia is projected to account for half of the world’s output with China alone accounting for half of that.

Rising Asian income per person - Percentage of income per person in North America and Europe

image

Bottom line is that ‘Asia Power’, like ‘Girl Power’ is here now, and here to stay, no matter what happens with global politics, US debt, EU instability and also the unrest in many economies. We need to capitalize on this fact in our portfolios and ensure that our portfolio is tilted towards these forces, and patiently wait and watch the success. I am for sure tilting my portfolio towards the blue chips of Asia (not just India) and watching the money tree bear its fruits over the past decade, with more fruits to come as the tree gets taller.

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KKP (Kiran Patel) is a long time investor in the US, investing in US, Indian and Chinese markets for the last 25 years. Investing is a passion, and most recently he has ventured into real estate in the US and also a bit in India. Running user groups, teaching kids at local high school, moderating a group in the US and running Investment Clubs are his current hobbies. He also works full time for a Fortune 100 corporation.

Saturday, December 29, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 28, 2012

BSE Sensex index chart

Ho hum! Another trading week – this one shortened by the Christmas holiday – was spent inside the long-term resistance zone between 19000 and 19800 by the daily bar chart pattern of Sensex. Expectedly so, but unexciting nevertheless.

The good news is that the 20 day EMA provided good support on the downside. The bad news is likely overhead resistance from the 19800 level and the upper edge of the upward-sloping channel within which the index has been trading for the past year.

All three EMAs are rising and the index is trading above them – the technical sign of a bull market in progress. So, what is the index going to do next?

Sensex_Dec2812

Daily technical indicators are not giving a clear hint. MACD is in positive zone (bullish), but has slipped below its falling signal line and is showing negative divergence by touching a lower top (bearish). ROC has crossed above its 10 day MA into positive territory (bullish), but is also showing negative divergence by touching a slightly lower top (bearish). RSI is at its 50% level (neutral) and has touched a higher top with the index (bullish). Slow stochastic has crept up above its 50% level (mildly bullish), but is showing negative divergence by touching a slightly lower top (bearish).

Conflicting technical signals are typical during periods of consolidation. The index seems to be treading water – awaiting some trigger to move up or down. Not much has changed in the economy. May be Q3 results in Jan 2013 will provide the trigger. Till then, expect the consolidation to continue.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty 50 is stuck in a groove for the past 4 weeks – between 5750 and 5950. The 20 week and 50 week EMAs are moving up and the index is trading above them. The bulls (read FIIs) are gradually gaining ground. The bears (read DIIs) are putting up a good fight.

Last week’s volumes were a little muted – because of a holiday-shortened week, and also because trading activity tends to trail off during the holiday season.

Nifty_Dec2812

Weekly technical indicators are looking bullish. MACD is above its signal line, and both are moving up in positive territory. ROC is also positive, and about to cross above its 10 week MA. RSI is alternately moving in and out of its overbought zone. Slow stochastic has remained inside its overbought zone for the past 5 months.

Is it possible that Nifty will move up towards the top of the upward-sloping channel and then fall all the way down to the lower end of the channel – as it had done in Feb ‘12 and Jun ‘12? The possibility can’t be ruled out. If it does, it will be a great opportunity to buy large-cap shares.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are consolidating within long-term resistance zones – apparently waiting for some trigger to move up or down. The consolidations may continue for some more time. Keep accumulating fundamentally strong stocks trading at reasonable valuations. (If you don’t know how to pick such stocks from the thousands that trade every day, sign up for my paid Monthly Investment newsletter. New subscriptions will open from Jan 1, 2013.)

Monday, December 24, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 21, ‘12

S&P 500 Index Chart




The bulls are on the verge of regaining control of the 6 months daily bar chart pattern of the S&P 500 index. In a post two weeks back, the concluding comments were: "The index is likely to make another attempt to cross the resistance zone between 1420 and 1440.... Bears may not give up ground easily." 

The index managed to cross above the 1440 level, but heavy selling by bears pushed the index down inside the resistance zone between 1420 and 1440. The 20 day EMA has crossed above the 50 day EMA, and the index has found good support from the 20 day EMA. The bears are grudgingly giving up ground, and hoping that the US economy will fall off the 'fiscal cliff'.

Daily technical indicators are bullish, but showing signs of weakening. MACD is sliding down towards its signal line in positive territory. RSI is falling towards its 50% level. Slow stochastic has dropped down from its overbought zone.

The index may consolidate a bit before attempting to test its Sep '12 top.

FTSE 100 Index Chart




After facing some resistance from the 5950 level and dropping to its rising 20 day EMA, the 6 months daily bar chart pattern of FTSE 100 index climbed into the resistance zone between 5950 and 6000 - only to beat a hasty retreat in the face of heavy bear selling.

Daily technical indicators are bullish, but showing weak upward momentum. MACD is positive, but moving sideways. RSI has turned down from just below the edge of its overbought zone. Slow stochastic is about to drop down from its overbought zone.

Expect some consolidation before the index can cross the resistance zone.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices have corrected after entering resistance zones. Some consolidation can be expected before resistance zones can be overcome. Both indices are in bull markets. Hold, or use dips to add.

(Wishing all readers, followers and visitors a very Merry Christmas and a Happy New Year.)



Saturday, December 22, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 21, 2012

BSE Sensex index chart

Last Friday's (Dec 21 '12) 200 points drop on the Sensex chart was interesting because both FIIs and DIIs were net buyers on the day. They have been working at cross purposes since Jun '12 - with FIIs doing most of the buying and DIIs turning out to be net sellers. So, if both were buyers, why did the Sensex fall?

Since retail participation has been negligible during the rally, the logical answer is that both sold stocks that comprise the Sensex and bought non-Sensex stocks. This is another example of why too much dependence on Sensex movements can be detrimental to wealth building. Small investors would be better off concentrating on individual stocks and their price movements.

The index has been consolidating within the long-term resistance zone between 19000 and 19800 for the past three weeks. The bull market remains intact - as can be seen from the three rising EMAs and the pattern of higher tops and higher bottoms.   





The 6 months daily closing chart pattern of Sensex is seeking support from its rising 20 day EMA. Even if the support gets breached, there should be stronger support from the 19000 level, which is the lower edge of the resistance zone and also the previous top in Oct '12.

Daily technical indicators are looking a little weak, but haven't turned bearish yet. MACD is hanging on to its signal line in positive territory. ROC has just slipped into negative territory. RSI has dropped to its 50% level. Slow stochastic has fallen sharply from the edge of its overbought zone but is above its 50% level.

Expect the consolidation within the resistance zone to continue a bit longer.

NSE Nifty 50 index chart

Despite some moderation in inflation and improvement in industrial production, RBI kept the interest rates unchanged. That means economic growth will remain low key for a while. Though metal stocks have shown some movement of late, infrastructure stocks are still struggling to regain their past glory. Consumer-oriented companies may remain investor favourites for some more time.

Gujarat election results turned out as expected with the BJP winning by a wide margin. Congress managed to turn the tables in Himachal - but the stock market seemed to have discounted both results in advance. 




The 6 months daily closing chart pattern of Nifty 50 index is behaving similar to the Sensex chart. The index is consolidating within a long-term resistance zone between 5750 and 5950, and currently seeking support from its 20 day EMA.

Daily technical indicators are looking weak, but are not bearish. MACD is touching its signal line in positive territory. ROC has slipped into negative territory. RSI is resting on its 50% level. Slow stochastic is falling towards its 50% level.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are continuing their consolidations within long-term resistance zones. The consolidations are likely to continue for some more time before likely upward break outs. This is a good time to accumulate fundamentally strong stocks that are still trading at reasonable valuations (like some of the stocks recommended in my paid Monthly Investment newsletter).  


Wednesday, December 19, 2012

WTI and Brent Crude Oil charts: an update

WTI Crude chart



The 6 months daily bar chart pattern of WTI Crude oil shows an expected break below a 'rising wedge' pattern, followed by a pullback above both 20 day and 50 day EMAs. Since oil's price is trading below its falling 200 day EMA in a bear market, such a pullback can be used as an opportunity to sell.

The initial pullback started with a volume spurt, but volumes trailed off as the pullback rally continued past the two EMAs. That is a sign of a rally losing momentum.

Daily technical indicators are beginning to turn bullish. MACD has crossed above its signal line, but both are still negative. RSI has moved above its 50% level. Slow stochastic has climbed up from its oversold zone to the 50% level. Without volume support, the rally is unlikely to sustain. 

On longer-term weekly chart (not shown), WTI Crude oil price is struggling to remain in a bull market as it closed below its 200 week EMA two weeks in a row.

Brent Crude chart



The following comments were made in the previous post analysing the 6 months daily bar chart pattern of Brent Crude oil: "All three EMAs have merged together. Usually a sharp price move follows, which is likely to be downwards."

The down move happened to be a break down from a bearish 'rising wedge' pattern. The subsequent pullback rally has been weak, and accompanied by a fall in volumes.

Daily technical indicators are bearish. MACD is touching its signal line in negative territory. RSI has moved up to its 50% level. Slow stochastic has emerged from its oversold zone. 

On longer-term weekly chart (not shown), Brent Crude oil price is trading below its 20 week and 50 week EMAs but well above its rising 200 week EMA. The long-term bull market is intact, despite being in a bear market in the short-term. 

Saturday, December 15, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 14, 2012

BSE Sensex index chart

The highlight of last week’s trading was a new 52 week high of 19612 touched by the BSE Sensex index chart on Dec 11 ‘12. But it turned out to be a ‘reversal day’ (higher high, lower close) that led to a minor correction.

Note that the index has spent the past two weeks inside the long-term resistance zone between 19000 and 19800. That hasn’t prevented the continuation of a bullish pattern of higher tops and higher bottoms.

The index has been trading within an upward-sloping channel for the past 12 months and has gained 25% from its Dec ‘11 low. While the Sensex is still struggling to cross its long-term resistance zone, several individual stocks have reached all-time highs and outperformed the Sensex.

Sensex_Dec1412

The FIIs remain in ‘buy mode’ while DIIs remain net sellers. Why are the DIIs selling? One reason could be to prepare for buying shares of companies being divested by the government. With the ‘success’ of the NMDC divestment, more PSU share divestments are being lined up to meet the UPA government’s huge fiscal deficit.

Daily technical indicators are bullish, but correcting from overbought conditions. MACD has dropped to touch its rising signal line in positive territory. ROC has crossed below its 10 day MA and resting on the ‘0’ line. RSI is showing signs of falling from its overbought zone. Slow stochastic has slipped down from its overbought zone.

On the downside, Sensex should receive good support from its 20 day EMA and the 19000 level. On the upside, expect resistance from the 19800 level and the top edge of the upward-sloping channel. Some more consolidation/correction is the likely outcome before the Sensex can breach the resistance zone.

NSE Nifty 50 index chart

There are definite signs of recovery in the economy. The IIP number was better than expectations. Inflation showed a downward move but remains above the 5% threshold level of the RBI. Any cut in interest rate may have to wait till Jan 2013.

After getting the FDI in multi-brand retail proposal passed by both houses of parliament, the Finance Minister is getting ready to announce a new set of economic reforms. That should see the UPA government through till the next general election in 2014, and provide a further boost to the bulls.

Nifty_Dec1412

The weekly bar chart pattern of the NSE Nifty 50 index has corrected after briefly breaching the 5950 level. A convincing breach of 5950 should take the index to the upper edge of the upward-sloping channel at 6150, before a meaningful correction takes place.

Weekly technical indicators are bullish, but showing signs of slowing upward momentum. MACD has bounced off its signal line, and both are rising in positive zone. ROC is still positive, but below its falling 10 week MA. RSI and slow stochastic are both inside their overbought zones, but sliding down. Downside support is expected from the 5750 level in case Nifty corrects a bit more.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are still trading within long-term resistance zones. They are likely to spend a little more time within the resistance zones before breaching them. This is a good time to practice your stock picking skills instead of worrying about what is going to happen to the indices. (Many subscribers to my paid monthly investment newsletter have already acquired such skills.)

Friday, December 14, 2012

Four India-focussed equity ETFs

In a recent article at the morningstar.com site, India’s stock market was mentioned as ‘notoriously volatile’ and meant for investors with ‘very high risk tolerance’.

However, approval of FDI in multi-brand retail by both houses of parliament and steps towards other important financial reforms appear to have changed some of the negative perceptions.

The following comments reflect the change in mood: “Despite being up 20%-plus on a year-to-date basis, the MSCI India Index is currently trading slightly below its average five-year trailing 12-month P/E ratio. Looking forward, we think there are a number of catalysts that may drive the market higher in the short and medium term.”

The article recommends four India-focussed equity ETFs for investors seeking an exposure to Indian equities. Here are the 6 months closing charts of the four funds:

WisdomTree India Earnings (EPI)

EPI

EPI is struggling to remain in a bull market, following the ‘golden cross’ of the 50 day EMA above the 200 day EMA in Oct ‘12.

Expense ratio: 0.83%; TTM P/E: 11.

PowerShares India (PIN)

PIN

PIN’s ‘golden cross’ has not been a convincing one. The bear phase isn’t quite over yet.

Expense ratio: 0.78%; TTM P/E: 14.

iShares S&P India Nifty 50 Index (INDY)

INDY

INDY is back in a bull market.

Expense ratio: 0.89%; TTM P/E: 16.

iShares MSCI India Index (INDA)

INDA

MSCI is back in a bull market.

Expense ratio: 0.65%; TTM P/E: 15.

Other investment options suggested in the article are: an open-end fund - Mathews India (MINDX) and two closed-end funds – India Fund (IFN) and Morgan Stanley India (IIF).

Thursday, December 13, 2012

Stock Chart Pattern - Tata Chemicals Ltd (An Update)

The following were the concluding comments in the previous technical update to the stock chart pattern of Tata Chemicals (posted on Aug 25 ‘11 – marked by grey vertical line on chart below): “If you are still holding, keep a strict stop loss at 330. Use the subsequent dip to accumulate.” Was it a crystal ball that enabled a look into the future? Hardly. Just an educated guess based on technical analysis.

After touching a peak of 442 in Oct ‘10, from where it fell to a low of 302 in Feb ‘11, the stock price was consolidating within a rectangular band between 345 and 390 for 5 months. Technical indicators were looking bearish, the 50 day EMA was about to cross below the 200 day EMA, and the stock price was struggling to cling on to the lower edge of the rectangular pattern.

The bearish indications taken together pointed to a down move – which was sharp and swift – that dropped the stock to an intra-day low of 288 in Oct ‘11 and provided a good opportunity to buy. Though the stock has not given much returns by spending most of the past year in a sideways move, of late there are clear signs of buyer interest.

Tata Chem_Dec1312

From the low of 288 in Oct ‘11, the stock price of Tata Chemicals rose above all three EMAs to touch a high of 360 on Dec 7 ‘11 – but started correcting along with the Sensex as it dropped below all three EMAs to touch a higher bottom of 303 on Dec 28 ‘11. Again, it rallied with the broader market as it rose above all three EMAs to touch a higher top of 374.50 on Feb 17 ‘12.

The subsequent correction lasted 4 months, and dropped the stock to a low of 299.50 on Jun 5 ‘12. For the next 6 months, the stock price consolidated sideways within a rectangular band between 300 and 330. The eventual break out earlier this month was accompanied by a significant spurt in volumes, which validated the break out technically.

As often happens after a consolidation followed by a strong break out, the stock price has pulled back towards the 330 level. For those who missed buying on the break out, such pullbacks provide good entry opportunities.

Technical indicators have corrected from overbought conditions, but haven’t turned bearish yet. MACD is falling towards its signal line in positive territory. ROC has fallen sharply below its 10 day MA, but is still positive. RSI has slipped down from its overbought zone. Slow stochastic has dropped to its 50% level.

Bottomline? The stock chart pattern of Tata Chemicals is emerging from a prolonged bear phase that has tested investor patience. Thanks to timely capacity expansions and acquisitions, the stock is poised to reclaim its temporarily lost glory. This is an excellent stock for the portfolios of long-term investors.

Wednesday, December 12, 2012

Is this a good time to invest in gold? – a guest post

After a decent rally from the low touched in Jun ‘12, Sensex seems to be stuck in a range – neither moving up much, nor falling down. Retail participation has been low. Those who missed the rally may be waiting for a deep correction to get in. Others are probably waiting to jump in once the index hits 20000.

In this month’s guest post, Nishit argues in favour of gold as an investment avenue because the domestic and global economy is in doldrums.

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Gold in Rupee terms has given just about 5-6% return in the past year. Now is a good time to look at the future prospects of Gold as an investment.

The Gold we buy in India is dependent mainly on two factors: the price of Gold in US Dollars, and the exchange rate of Indian Rupee vs. US Dollar. It is a big myth that price of Gold goes up during the Indian wedding season. Even though India is a large consumer of gold, there are other global factors driving the price of Gold.

What has been happening in 2012 is that the price of Gold in US$ and Indian Rupee have been going in opposite directions. When Rupee weakened to the 56-58 range, the price of Gold fell in Dollar terms. Also, when price of Gold rose in US$, the Rupee also strengthened.

Fundamentally, Gold is treated as a safe haven. Whenever there is a global crisis or if economies go bankrupt, the attraction of Gold goes up. 2012 was a relatively stable year and hence the price of Gold is stuck in a range between US$ 1550-1800 per ounce.

The US fiscal cliff and Eurozone sovereign defaults - if and when they happen – will cause the price of Gold to rise. Another benchmark for gold is how many barrels of oil can be purchased by 1 ounce of Gold. Currently it is about 16 barrels, which is the long-term average. If oil’s price begins to rise, gold’s price will also rise.

The exchange rate of Indian Rupee is dependent on foreign inflows. Once the inflow dries up, the price of gold will start going up in Rupee terms.

So, the price of Gold for Indians is dependent on:

  1. Rupee (watch the FII inflows)
  2. Price in US$ (watch related commodities like crude oil, and foreign economies)
  3. Performance of Dow Jones and other foreign indices

Also, just to slip in a bit of technicals, US$ 1800 has been a resistance level for more than a year and hence, expect a rally when gold’s price closes above 1800 for 3-4 days.

For the price of Gold to rise in the current scenario, the global economy has to either weaken or boom dramatically for speculation to take place. A boom seems unlikely and hence the most likely scenario is the Western economies slipping down into recession again.

One should be invested in Gold to the extent of 10-15% of one’s portfolio. It acts as a hedge against inflation simply because it guards against Rupee weakening. Once upon a time, when Rupee was strengthening and the exchange rate was heading towards Rs.40 to US$ 1, it did not make sense to add Gold.

If the Indian economy does as badly as in late 2011, it may be sensible to add Gold. In a nutshell, whenever any economy is doing badly, either domestic or global, it is a good time to invest in Gold. Even in 2008, Gold’s price shot up after the equity markets tanked.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money Manthan).

Tuesday, December 11, 2012

Gold and Silver charts: bullish cup-and-handle patterns

Gold Chart Pattern

Gold_Dec1012

The 1 year weekly bar chart pattern of gold shows the formation of a bullish cup-and-handle pattern. The ‘cup’ portion has been completed. The ‘handle’ formation is ongoing. In a post 2 weeks ago, investors were advised to hold with a stop-loss at the level of the 20 week EMA.

Note that last week’s price bar had dropped below the 20 week EMA on intra-week basis, but closed exactly on the 20 week EMA by the end of the week. Technically, the stop-loss didn’t get triggered. The bullish bias in the chart continues.

Weekly technical indicators are beginning to look a bit bearish. MACD has crossed below its signal line in positive territory. RSI is barely above its 50% level. Slow stochastic has dropped below its 50% level. If gold’s price falls below 1660 - which will negate the cup-and-handle pattern - bears will get the upper hand.

However, all three indicators are showing positive divergences by touching higher tops in Sep/Oct ‘12 while gold’s price tested its Feb ‘12 top of 1800 in Oct ‘12. That keeps the door open for a move above the 1800 level (‘rim’ of the cup).

Silver Chart Pattern

Silver_Dec1012

Like gold’s chart, silver’s 1 year weekly bar chart pattern has also been forming a bullish cup-and-handle pattern. The ‘handle’ portion is being formed. A move above 36 will be quite bullish. A drop below 31 will negate the cup-and-handle pattern.

Weekly technical indicators are bullish, but showing some signs of weakness. MACD is above its signal line, but moving sideways in positive territory. RSI is also moving sideways above its 50% level. Slow stochastic is above its 50% level, but sliding down.

All three indicators touched higher tops in Sep/Oct ‘12 while silver’s price touched a top lower than its Feb ‘12 top. The combined positive divergences means a likely up move above the 36 level.

Monday, December 10, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 07, ‘12

S&P 500 Index Chart

S&P 500_Dec0712

Not much has changed from a week ago on the 6 months bar chart pattern of S&P 500 index. On Mon. Dec 3 ‘12, the index briefly entered the resistance zone between 1420 and 1440, but retreated to close lower. After dropping below the 50 day and 20 day EMAs during the next 2 days, the index recovered to close above all three EMAs and marginally higher for the week.

The 20 day EMA is moving up towards the flat 50 day EMA. The 200 day EMA has resumed its up move. The long-term bull market is intact – despite the correction from a triple-top.

Daily technical indicators are bullish. MACD is rising above its signal line and entered positive territory. RSI bounced up again from its 50% level. Slow stochastic bounced up from the edge of its overbought zone.

The index is likely to make another attempt to cross the resistance zone between 1420 and 1440. The drop in unemployment percentage may enthuse the bulls. Bears may not give up ground easily.

FTSE 100 Index Chart

FTSE_Dec0712

The 6 months bar chart pattern of FTSE 100 index closed above the 5900 level for the first time since Oct ‘12, and moved higher than its Nov ‘12 top. The 20 day EMA has crossed above the 50 day EMA, and all three EMAs are moving up with the index above them. The bull market correction from a triple-top pattern is over.

Daily technical indicators are bullish, but looking overbought. MACD is rising above its signal line in positive territory. RSI is inside its overbought zone, where it doesn’t like to remain for long. Slow stochastic is well inside its overbought zone.

The index is just below a long-term resistance zone between 5950 and 6000. Expect a bit of correction or consolidation before the resistance zone can be overcome.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are consolidating below resistance zones. Both indices have recovered after undergoing bull market corrections from triple-top reversal patterns. Hold on to current positions. Add more after the indices cross their resistance zones.

Sunday, December 9, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 07, 2012

BSE Sensex index chart

FIIs continued their buying spree as DIIs played counterpoint by selling. Net result was a slightly higher weekly close inside the long-term resistance zone between 19000 and 19800 on the weekly bar chart pattern of Sensex.

Note that the index has been trading within an upward-sloping channel since touching a low of 15136 in the week ending on Dec 23 ‘11. The top end of the channel is currently at 19800, which coincides with the top end of the resistance zone. That means 19800 may be a tough hurdle for the bulls in the near term.

The UPA government managed excellent floor coordination – particularly in the Rajya Sabha where they were in a minority – to sail through the vote on FDI in multi-brand retail in both houses of parliament. The news had already been ‘discounted’ by the market – as indicated by the lack of any buying euphoria.

SENSEX_Dec0712

Both the 20 week and 50 week EMAs are rising and the index is trading above them – which is the sign of a bull market in progress. That doesn’t mean the index will gain immediate upward momentum. Why? Because of two reasons – one fundamental and the other technical.

Fundamentally, nothing has changed on the ground. Winning the vote on FDI in multi-brand retail was an enabling step. Only 11 states/union territories have agreed to allow overseas chains like Walmart and Tesco to open stores. That doesn’t mean that stores will open anytime soon. It may take a year or two before government red-tape is successfully negotiated (read ‘bribes paid’) and actual investments are made.

Technically, weekly indicators are bullish but looking overbought. All four are also showing negative divergences by failing to touch new highs with the index. It is that time of year when FIIs may start taking some profits home before proceeding for their Christmas holidays. Expect the index to correct or consolidate before attempting to cross 19800.

NSE Nifty 50 index chart

The RBI governor has made it quite clear that till inflation gets controlled, there will be no further cuts in interest rates. However, a further reduction in CRR is likely. There seems to be ample liquidity in the financial system, and there are some signs of an increase in credit off-take.

Capital goods sector and infrastructure projects may take a while longer to get out of the doldrums. But the economic cycle seems to be bottoming out. Despite the slowdown, the Indian economy is still growing at rates that are much higher than those in Europe and USA. That is the real reason for buying by FIIs.

Nifty_Dec0712

The daily bar chart pattern of Nifty has reached levels last seen in Apr ‘11. That is the good news. The bad news is that 5950 is a long-term resistance level. Also, not only are daily technical indicators looking overbought, but three of the four (marked by blue arrows) are showing negative divergences by failing to touch new highs.

There is a good possibility of some correction or consolidation before the 5950 level can be crossed. The upper end of the parallel channel within which Nifty has been trading for the past year is currently at about 6150. That will be the next level of resistance beyond 5950. On the downside, good combined support from the rising 20 day EMA and the 5750 level (at the lower end of the resistance zone) is likely.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are trading within long-term resistance zones. Some correction/consolidation can be expected before the resistance zones are overcome. This may be a good chance to enter some good stocks still available at reasonable valuations (just the kind of stocks recommended in my paid monthly investment newsletter).

Saturday, December 8, 2012

BRIC is old news; CAASH is the new King

An interesting email received a few days ago - from James Anderson, an astute international investor - mentioned that for global fund managers, BRIC (Brazil, Russia, China, India) has become yesterday’s news.

The new block on their investment radar is CAASH (Canada, Argentina, Australia, Singapore, Hong Kong). How does the one year closing chart of the Sensex (in green) compare with charts of the CAASH indices (in blue)? Have a look.

Canada (TSX Composite) vs. Sensex

Canada TSX

In the past 12 month, Canada’s TSX Composite index barely managed to eke out positive returns. After lagging behind in Dec ‘11 and Jan ‘12, Sensex has handily outperformed TSX Composite by 15%.

Argentina (MERVAL) vs. Sensex

Argentina MERVAL

Argentina’s MERVAL index outperformed Sensex during Jan ‘12, but drifted down to provide negative returns during the past year. Sensex outperformed MERVAL by 20%.

Australia (All Ordinaries) vs. Sensex

Australia All Ord

Australia’s All Ordinaries index managed 5% returns during the past 12 months. Except during Dec ‘11, Jan ‘12 and May ‘12, Sensex outperformed All Ordinaries.

Singapore (Straits Times) vs. Sensex

Singapore STI

After underperforming Singapore’s Straits Times index for most of the year, Sensex managed to edge ahead since Nov ‘12.

Hong Kong (Hang Seng) vs. Sensex

HongKong Hang Seng

Hong Kong’s Hang Seng index is the only one among the CAASH block that has outperformed Sensex during the past 12 months – except for brief spells in Jul ‘12, Sep ‘12 and Oct ‘12.

Friday, December 7, 2012

About taxation of Capital Gain/loss on equity shares, MFs and F&O transactions – a guest post

Many small investors enter the stock market without adequate preparation. Some resort to F&O trading in the hope of making quick gains. The consequences are often disastrous. Not only should one learn about how the stock market works and how to choose stocks/funds for trading or investment, one needs to know about the tax implications of various transactions.

In a guest post, Aashish explains the tax implications of profits and losses made in the stock market. If you find the post useful and/or have any questions, please leave a comment using the ‘comments’ link below the post. 

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Profits earned on sale of equity shares and equity-oriented MFs (65% or more of portfolio consisting of equity shares) are taxable as capital gains. Capital gains can be ‘long-term’ or ‘short-term’ depending on the period for which the equity shares/MFs are held.

Equity shares/MFs held for one year or longer are treated as ‘long-term’ for capital gains purposes. Any profit on sale of such shares/MFs is completely exempt from capital gains tax u/s 10(38) of the IT act - provided the transaction is processed through a stock exchange and Securities Transaction tax (STT) is paid. Any long-term capital loss has to be absorbed by the tax payer as such a loss cannot be set-off against a long-term capital gain, which is tax free.

If equity shares/MFs are held for less than one year, they are treated as ‘short-term’ for capital gains purposes. Any profit on sale of such shares/MFs is subject to capital gains tax @15% (+3% cess) u/s 111A of the IT act – provided STT is paid for the transaction. Any short-term capital losses can be set-off against short-term capital gains before calculating short-term capital gains tax.

In case STT is not paid – such as for a private transaction between two parties, or a share buyback by a company directly from its shareholders, or in the case of unlisted privately-held shares and non-equity oriented MFs (less than 65% of portfolio consisting of equity shares), capital gains tax on profit is computed differently.

Any profit earned on sale of such shares/MFs is taxed at normal capital gains tax rates. For short-term capital gains, the tax rate is as per tax payer’s individual tax slab (+3% cess). For long-term capital gains, 2 options for taxation u/s 112 of the IT act (whichever is lower) are available to the tax payer:

Either, the cost of acquisition of shares can be indexed according to the Cost Inflation Index published each year by the tax authorities; tax is assessed @20% (+3% cess) after taking into account the profit based on the indexed cost of acquisition; Or, tax is assessed @10% (+3% cess) without taking into account any cost indexation of such shares.

Futures & Options transactions are not delivery-based. There is no physical delivery of any capital asset. There is no question of any short-term or long-term capital gain or loss as F&O contracts are not treated as capital assets. Any gain or loss on such transactions is considered as regular business gain and loss.

Therefore, F&O profits are taxed as business profits as per tax payer’s individual tax slab (+3% cess). Any F&O losses are treated as business losses and can be set off against any other source of income (other than salary).

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(Aashish Ramchand is passionate about Indian taxation advisory and loves to write about the Indian tax system and its various nuances. A Chartered Accountant by profession, he is the Co-founder of Make My Returns.)

Thursday, December 6, 2012

Stock Chart Pattern - 3i Infotech Ltd (An Update)

The following comment was made in the previous technical update to the stock chart pattern of 3i Infotech: “There is every possibility of the stock price falling below 25 and turning into a penny stock.” Was it clairvoyance? Hardly. The extremely bearish technical indicators and a price chart that was falling like a stone gave ample indications.

The significance of the 25 level – which was the previous bear market low touched in Mar ‘09 - can be seen in the chart below. Shortly after the previous post in Aug ‘11 (date marked by grey vertical line in chart), the stock price dropped to 25 only to bounce up above the falling 20 day EMA on Sep 9 ‘11. The stock price managed to remain above the 25 level for the next 2 months before finally falling below on Nov 11 ‘11.

After falling to 12 in Dec ‘11, the stock started a 2 months long rally that coincided with the rally in the broader market. Consolidating within a bearish ‘flag’ pattern, the stock price reached an intra-day high of 22 on Feb 17 ‘12. But it turned out to be a high-volume ‘reversal day’, which ended the rally. That was the closest the stock price came to the 25 level.

3i Infotech_Dec0612

The daily bar chart pattern of 3i Infotech is an example of the unfolding of a bear market with occasional counter-trend rallies that provide exit opportunities. The falling 200 day EMA has not been tested even once since the previous post.

In Jun ‘12, the stock price dropped below 10 and became a ‘penny stock’. A brief rally on fairly strong volumes took the stock price above its 20 day and 50 day EMAs as well as the 12 level for a few days. But the force of gravity towards ‘penny stock’ status proved too strong.

For nearly 4 months, the stock price has been trading within a rectangle pattern from which it is showing signs of emerging. Volumes have shot up and the stock price has been hitting the 5% upper circuit for 5 days. This is a stock held mostly by small investors, many of whom entered at higher levels.

Is the worst over? Is this a good opportunity to buy? Not really. Three of the four technical indicators (ROC, RSI, slow stochastic) are looking overbought. Even if the price breaks out above the rectangle, strong resistance is expected from the falling 200 day EMA and the 12 level.

Fundamentally, the company has managed to stave off bankruptcy by arranging a corporate debt restructuring (CDR) – by keeping the bankers at bay through an allotment of equity shares at a premium to current price. Outstanding FCCBs have also been converted into equity shares at a premium. While equity capital has become bloated, interest costs will be lower. That may be the reason for recent market euphoria.

Bottomline? The stock chart pattern of 3i Infotech is mired deep inside a bear market. Top line is sliding and bottom line is red. Over-leveraging in a bid to grow fast has ruined the balance sheet. Stay away. If you are stuck from higher levels, use any rally to exit.

Wednesday, December 5, 2012

Nifty and Defty charts: a mid-week technical update

Nifty chart

Nifty_Dec0512

The daily bar chart pattern of Nifty is trading inside the long-term resistance zone between 5750 and 5950, and seems to be hesitating just below the upper edge of the resistance zone.

The index has also been trading inside an upward-sloping channel (marked by blue parallel lines) for a year. It is in the early stages of a new bull market. All three EMAs are rising and the index is trading above them.

Daily technical indicators are bullish, but looking a bit overbought. MACD is rising sharply above its signal line in positive territory, but hasn’t reached its overbought zone yet. ROC has climbed above its 10 day MA in positive territory, and is just below its overbought zone. Both RSI and slow stochastic have entered their respective overbought zones.

Note that Nifty touched a new 52 week high today, but none of the indicators touched new highs. The combined negative divergences could lead to some profit booking that may push the index down towards the lower edge of the resistance zone at 5750.

Can the index fall below 5750? Not impossible, but unlikely. Why? Because the break out above the 5750 level last week was accompanied by a spurt in volumes. That is usually an indication that the 5750 level may turn into a strong support.

The Lok Sabha voted today in favour of FDI in multi-brand retail after an acrimonious debate for the last 2 days. That could be a positive trigger for the index to breach the 5950 level and move towards the upper edge of the upward-sloping channel.

Defty chart

S&P CNX Defty_Dec0512

What was a sideways consolidation in the Nifty chart above (after the ‘flash crash’ of Oct 5 ‘12), became a correction on the CNX Defty chart (Nifty calculated in US Dollars).

The index found good support from its 200 day EMA, and partly filled the ‘gap’ formed above the 200 day EMA in Sep ‘12. (The one-day ‘flash crash’, which only occurred on the Nifty and Defty charts but not on the Sensex chart, will be ignored for technical analysis purposes.)

Daily technical indicators are bullish. MACD has risen above its signal line into positive territory. ROC is also positive, and above its 10 day MA, but its upward momentum is slowing. RSI has reached the edge of its overbought zone. Slow stochastic has entered its overbought zone.

There is a notable difference between the Defty and Nifty charts. The Defty has not touched a new high, so there is no negative divergences visible in the technical indicators. The index may move up to test its Oct ‘12 top of 3917.

(Note: The Nifty has gained more than 30% since its Dec ‘12 low of 4531. Has your portfolio matched Nifty’s gains? No? Write to me for a FREE preliminary review of your portfolio.)

Tuesday, December 4, 2012

WTI and Brent Crude Oil charts: consolidating within ‘rising wedge’ patterns

WTI Crude chart

WTI Crude_Dec0312

The 6 months daily bar chart pattern of WTI Crude oil hasn’t made much progress – closing almost at the same level it did two weeks back. However, the pattern it has formed during Nov ‘12 is a bearish ‘rising wedge’.

Note that on Nov 28 ‘12, oil’s price broke down below the ‘rising wedge’ on intra-day basis, but recovered to close within the wedge. Was it an advance warning of an eventual downward break out? Yesterday’s price bar, with an open and close near the day’s low seems to indicate that the rally may be running out of steam.

Daily technical indicators are looking bullish. MACD is rising above its signal line, and about to enter positive territory. RSI is above its 50% level. Slow stochastic is moving up towards its overbought zone. Oil’s price may consolidate a bit longer, but should eventually break down from the wedge.

Brent Crude chart

Brent Crude_Dec0312

The 6 months daily bar chart pattern of Brent Crude oil has managed to move up above all three EMAs. Unfortunately, that isn’t a bullish sign because of the formation of a bearish ‘rising wedge’ pattern during Nov ‘12.

All three EMAs have merged together. Usually a sharp price move follows, which is likely to be downwards.

Daily technical indicators are bullish but showing signs of weakness. MACD is above its signal line, but barely positive and moving sideways. RSI is above its 50% level but sliding down. Slow stochastic is about to re-enter its overbought zone, but showing negative divergence by touching a lower top.

Monday, December 3, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 30, ‘12

S&P 500 Index Chart

S&P 500_Nov3012

Falling volumes in last week’s analysis of the 6 months daily bar chart pattern of S&P 500 index had raised questions about the sustainability of the rally, unless the bulls were able to generate enough follow-up buying.

The Thanksgiving break seems to have re-energised the bulls. After struggling to cross the 50 day EMA for the first three days of trading last week, the index broke out above on good volumes. However, the zone between 1420 and 1440 is a resistance zone where the bears may put up a fight.

Technical indicators are looking bullish. MACD is rising swiftly above its signal line, but remains negative. RSI has bounced up from its 50% level, and moving sideways. Slow stochastic has risen sharply to enter its overbought zone.

The 20 day EMA is moving up towards the 50 day EMA. Bulls will regain control if the index crosses above 1440.

FTSE 100 Index Chart

FTSE_Nov3012

The 6 months daily bar chart pattern of FTSE 100 index struggled to cross the 5800 level during the first three days of the week. But the bears were overwhelmed as the index rose to touch the 5900 level by the end of last week – regaining almost all its losses during the month.

Daily technical indicators are suggesting the rally isn’t over. MACD has entered positive territory above its rising signal line. RSI has crossed above its 50% level. Slow stochastic is about to enter its overbought zone.

The 20 day EMA has moved up to touch the 50 day EMA. The zone between 5950 and 6000 is a long-term resistance zone where the bears are expected to put up a fight. Bulls will regain complete control on a cross above 6000.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices have rallied smartly after correcting from triple-top reversal patterns. Bulls need to cross strong resistance zones before they can regain control. No fresh buying is advised, but hold on to current positions.

Saturday, December 1, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 30, 2012

BSE Sensex index chart

In last week’s post on the daily bar chart pattern of the Sensex, it was explained that the part-filling of the ‘gap’ on the chart, and the week’s close above the 50 day EMA had slightly tilted the balance in favour of the bulls.

Neither a holiday-shortened week, which was also F&O expiry week, nor the worse-than-expected GDP number of 5.3% could stop the charging bulls (viz. FIIs). Sensex broke out of its 10 weeks long trading range above the ‘gap’ to enter a long-term resistance zone between 19000 and 19800.

Many were taken aback by the force of the up move. Umpteen reasons were put forth to explain the sudden break out. Fundamentally, nothing has changed on the ground. It was simply a break in the supply-demand equilibrium as FII buying eventually overwhelmed DII selling.

Sensex_Nov2912_ST

Is this a good time to start buying? For the past 3 months, readers have been exhorted in this blog to do just that. In a post on Sep 1, the suggestion was: “This is a good time to start buying into fundamentally strong, low debt stocks with earnings visibility and proven management.” On Sep 30, the advice was: “Use dips to enter, but be very selective about the stocks and funds you choose.” On Nov 4, it was suggested that: “Continue to add/accumulate good quality stocks, but maintain suitable stop-losses.”

If you haven’t started buying yet, when will you buy? Technically, it is a good time to sell. Why? Because for nearly a year, Sensex has been trading within an upward-sloping channel (in blue), and the upper edge of the channel (not visible) is close to the 19800 level – which is the top edge of the long-term resistance zone. There is a good possibility of the Sensex facing resistance from the 19800 level and correcting down.

Daily technical indicators are looking bullish, but a bit overbought. MACD is rising above its signal line in positive territory. ROC has climbed sharply above its 10 day MA towards its overbought zone. RSI is about to enter its overbought zone. Slow stochastic is already inside its overbought zone.

NSE Nifty 50 index chart

The UPA government appears to have cobbled together the requisite numbers, and have agreed to a debate and vote on the FDI in retail issue. Other contentious issues like FDI in aviation and insurance may also get through the parliament logjam.

The poor GDP number may force the RBI governor’s hand in reducing interest rates. The stock market is rejoicing in anticipation. Successful negotiation of the US ‘fiscal cliff’ will be another booster for the market.

Nifty_Nov2912_LT

The weekly bar chart pattern of Nifty broke out of its 10 weeks long trading range on a huge volume surge to rise well inside its resistance zone. Will it cross above the 5950 level?

All indications point to a resounding ‘Yes’. However, 5950 is a long-term resistance level and bears may put up a fight to defend it.

Weekly technical indicators are bullish. MACD has bounced off its rising signal line in positive territory. ROC has bounced up from the ‘0’ line, but is below its 10 week MA. RSI is about to re-enter its overbought zone. Slow stochastic has remained inside its overbought zone for the past 4 months.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices have broken out of trading ranges to enter long-term resistance zones. Bears may put up a last-ditch stand to halt the bull rally. Buy the likely dip, or add on a break out above the resistance zones.