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Tuesday, December 31, 2013

WTI and Brent Crude Oil charts: an update

WTI Crude chart

WTI Crude_Dec3013

In a post 3 weeks back, the daily bar chart pattern of WTI Crude oil had rallied sharply from its Nov ‘13 low of 92 but was facing resistance from its 200 day EMA. That led to the conclusion that the rally was over and any further attempt to move up would attract bear selling.

Oil’s price rose briefly above its 200 day EMA, but faced resistance from the 99 level and dropped below its 200 day and 50 day EMAs to 96. So far, chart movements were as per expectations. But bulls had other plans.

The rising 20 day EMA provided good support. Oil’s price bounced up once more and continued to rally past its 200 day EMA and the 100 level before correcting a bit. Is this a pullback to the 200 day EMA that provides a buying opportunity?

It may appear so. The 20 day EMA has crossed above the 50 day EMA, and both EMAs are moving up towards the 200 day EMA. Daily technical indicators are in bullish zones, though their upward movements have stalled. Oil’s price is trading above all three EMAs.

However, there are a couple of bearish signs. Volumes have receded significantly as oil’s price continued its rally above its 200 day EMA. More importantly, the entire trade during Dec ‘13 appears to be within a ‘rising wedge’ pattern, from which a downward break down may have started already.

Technical analysis is not a science. Price patterns don’t always play out as expected. But a bearish ‘rising wedge’ is almost invariably followed by a correction. Oil’s price may return to bear territory below its 200 day EMA once again.

Brent Crude chart

Brent Crude_Dec3013

The 6 months daily bar chart pattern of Brent Crude oil expectedly dropped below its 200 day EMA – as mentioned in the previous post. However, before oil’s price could fall further, bulls regrouped and charged back into bull territory.

The 113 level has provided strong resistance since Sep ‘13. Oil’s price retreated after testing but failing to overcome the 113 level. The rally was not supported by good volumes. Oil’s price has been trading in a sideways band between 103 and 113 for the past 6 months – except for a brief upward breach in late Aug-early Sep ‘13.

Daily technical indicators are in bullish zones. MACD is positive and above its signal line. RSI is above its 50% level. Slow stochastic is inside its overbought zone. However, all three indicators have started to fall.

Another fall below the 200 day EMA is likely.

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Saturday, December 28, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 27, 2013

A Christmas holiday shortened trading week also happened to be F&O settlement week. Activity was at a low key. Both Sensex and Nifty indices consolidated within narrow ranges, and closed slightly higher for the week.

RBI Governor’s gamble of maintaining status quo on interest rates despite high food inflation seems to be paying off. Prices of vegetables have come down considerably due to fresh seasonal supplies. Inflation numbers should cool off a little bit.

With no immediate triggers for the stock market, both indices should continue to move higher. If Q3 results of India Inc. show improvement over Q2, more retail investors will jump into the fray and propel the indices to new highs. 

BSE Sensex index chart

SENSEX_Dec2713

The 6 months daily bar chart pattern of Sensex consolidated sideways within a narrow range of 225 points. After the previous week’s sharp gyrations, the consolidation should enable the index to gather its energy for the next up move.

Daily technical indicators are in bullish zones. MACD is moving above its signal line in positive territory. RSI is moving sideways above its 50% level. Slow stochastic is rising above its 50% level. All three EMAs are rising and the index is trading above them.

In a bull market, the strategy should be to hold existing positions with a trailing stop-loss, or add to existing positions on dips. If you are still waiting for a crash to enter, you may have to wait much longer. Ignore doomsayers and index fluctuations. Pick fundamentally strong stocks – some are still available at reasonable valuations – and accumulate them gradually.

NSE Nifty 50 index chart

Nifty_Dec2713

The 2 years weekly bar chart pattern of Nifty fluctuated within a narrow range of 65 points, but closed higher for the second week in a row. Of late, the index has been correcting after 2 or 3 weeks of up moves. Such corrections should be taken in stride and used as adding opportunities.

Weekly technical indicators are looking bullish. MACD is rising above its signal line in positive territory. RSI is moving sideways above its 50% level. Slow stochastic has slipped below its overbought zone after briefly re-entering it.

All three weekly EMAs are rising and the index is trading above them. That is a clear picture of a long-term bull market.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are in long-term bull markets and ready to conquer new heights. Periodic corrections have improved technical ‘healths’ of both indices and provided opportunities to add fundamentally strong mid-cap and small-cap stocks.

(Note: Still concerned about buying stocks? It is a bull market! Learn how to choose fundamentally strong mid-cap and small-cap stocks. Become a paid subscriber to my Monthly Investment Newsletter. A limited number of new subscriptions will be offered during Jan. 2014. Pre-registration has started. Contact me for details:mobugobu@yahoo.com)

Thursday, December 26, 2013

Has gold lost its lustre? – a guest post

We Indians tend to be conservative as far as investments are concerned. Why is that? Perhaps because several generations of Indians have faced hardship and deprivation due to exploitation by our ‘rulers’ – both overseas and Indian. Lack of education and infrastructure have contributed to the tendency to ‘hoard’ rather than ‘invest’.

For generations, two of the avenues for investing our little savings have been in land and gold ornaments. This is true even today in the hinterland – where infrastructure and banking services remain primitive or non-existent.

In larger towns and cities, infrastructure and services have improved to the extent that other avenues of investment – like post office and bank fixed deposits, mutual funds and equity are readily available. But our fascination for investing in real estate and gold has not dimmed.

In this month’s guest post, Nishit suggests that it may be time to reduce investment in gold. Debt and equity investments are likely to provide better returns in the foreseeable future.

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Indians are obsessed with Gold. The most common question which I am always asked is: “Should we buy Gold now or should we wait?” The Government has increased the price of Gold in India by increasing import duty - thereby reducing Gold imports and positively impacting the Current Account Deficit.

Gold by itself has no value in terms of utility and returns. Its status as a safe haven in times of uncertainty lends value to it. Gold’s price rises when uncertainty increases in the world. Earlier, the US dollar was linked to Gold’s price, but after it was delinked and the printing presses took over, the US dollar weakened. More dollars were required to buy the same amount of Gold.

Gold’s price had seen a parabolic rise in the past few years on the basis of fears of a worldwide economic collapse led by the US. Quantitative easing, the flooding of the markets with additionally printed dollars led to Gold’s price spurting up. It finally touched a peak of US $1920 in September 2011.

Gold’s price has been on a steady decline since then and has corrected to about US $1200 from $1920 - a decline of about 37.5% from its peak value. It had risen from a low of US $264 hit in 2001-2002 to $1920. The great Gold bull run may be over for now.

clip_image002

There are various reasons for this prognosis and they are:

  1. The World economy seems to be recovering and the immediate crisis seems to over
  2. US is reducing Quantitative easing; the easy money was one of the main reasons for Gold’s price to sky rocket

When Gold’s price hit a peak of $1920, the Rupee was at 46. Now, when Gold’s price has corrected 37.5% in Dollar terms, the Rupee has depreciated about 35%. Hence, in Rupee terms - thanks also to Government duties – Gold’s price has remained almost stagnant. The future movement in Gold’s price can come due to the Rupee weakening further, leading to appreciation in Gold’s price. The Rupee has been stable for the past few months.

Conclusion:

The value of Gold investing as a portfolio choice is no longer as significant as it was say about a couple of years back. Gold should still occupy maybe 5% of your portfolio instead of the earlier 10-20%. Thanks to the weakening rupee, there is still a chance to exit Gold at a very small loss or profit. Better options can be seen in debt or equity currently.

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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.)

Related Post

Gold and Silver charts: an update

Sunday, December 22, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 20, ‘13

S&P 500 Index Chart

S&P 500_Dec2013

The 6 months daily bar chart pattern of S&P 500 shows that bulls are back in control. The index had dropped to its 50 day EMA - where it received good support and bounced up strongly. Better than expected Q3 GDP number helped bullish sentiments.

Announcement of tapering of QE3 bond buying from Jan ‘14 was taken in stride by the bulls, as the Fed kept interest rates low. The index jumped to a new lifetime high on huge volumes by the end of the week.

Daily technical indicators have turned bullish. MACD has just crossed above its falling signal line in positive territory. RSI is moving up towards its overbought zone. Slow stochastic has risen sharply to enter its overbought zone. Looks like bears are out for the count – or, are they?

There are a few worrying signs for bulls. The index is trading almost 150 points above its 200 day EMA. Such a condition is often followed by a correction. The index formed two back-to-back bearish patterns (mentioned here), which led to two minor corrections. Now it has formed another bearish pattern called a ‘broadening top’ (higher tops, lower bottoms).

Not to forget the negative divergences visible in all three technical indicators, which failed to touch new highs with the index. When it comes to invested capital, it is better to be safe than sorry. The time may be ripe for partial profit booking.

FTSE 100 Index Chart

$FTSE-001-001

Ever since touching its Oct 30 ‘13 top of 6820, the 6 months daily bar chart pattern of FTSE 100 has been in a down trend (marked by blue down trend line). However, after testing and briefly dropping below its 200 day EMA, the index has made a strong come-back.

Note that the index made a small bullish inverse head-and-shoulders pattern and not only moved above all three EMAs on Fri. Dec 20 ‘13, but also above the down trend line. Friday’s volumes (not shown on chart) were significantly higher, and the highest in 3 months. That provides technical validity to the break out above the down trend line.

Daily technical indicators have turned bullish. MACD is negative, but has crossed above its signal line after forming a small ‘rounding bottom’ bullish pattern. RSI and Slow stochastic have climbed above their respective 50% levels after both formed ‘double-bottom’ reversal patterns.

If you didn’t get the opportunity to enter earlier, you can do so now. Or, wait for a likely pullback towards the down trend line to enter.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are in long-term bull markets. S&P 500 is facing some technical headwinds. Part profit booking may be a prudent step. FTSE 100 has broken out of a 2 months long down trend. The correction provided good opportunities to enter.

Saturday, December 21, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 20, 2013

The trading week was marked by some good news and some not so good news. Every one expected the RBI Governor to raise interest rates after the woeful CPI and WPI inflation numbers. The market was surprised when interest rates were kept unchanged.

Announcement by the US Fed that QE3 bond buying program will be reduced by $10 Bn per month from Jan ‘14 (from the current $85 Bn per month) was not so good news. An earlier announcement of a possible tapering back in Jul ‘13 had led to a global sell-off in stocks.

This time around, markets seemed better prepared to absorb the tapering news. The US economy is on the road to recovery – which means exports are likely to pick up. Bulls dominated proceedings after a day’s sell-off.

Looks like the bull market is ready to climb higher.

BSE Sensex index chart

SENSEX_Dec2013

The following comments were made in last week’s analysis of the 6 months daily bar chart pattern of Sensex: “Sensex is near a support/resistance zone between 20000 and 20500. The 50 day EMA is just above this zone. The index can be expected to bounce up from the zone, but probably after correcting a bit more.”

Some times chart patterns play out just as expected. The index did correct a bit more, but received good support from its 50 day EMA. The unexpected interest rate status quo helped Sensex to bounce up, followed by selling the next day on news of the US QE3 tapering from Jan ‘14.

By the end of the week, bulls shrugged off another correction and the Sensex up move resumed. Daily technical indicators are turning bullish. MACD is about to cross above its falling signal line in positive territory. RSI has moved above its 50% level, after a brief drop below it. Slow stochastic has bounced up from the edge of its oversold zone.

The correction provided another adding opportunity. The index should move up to touch a new high.

NSE Nifty 50 index chart

Nifty_Dec2013 

Bulls seem to be in full control of the 2 years weekly bar chart pattern of Nifty. The previous week’s ‘reversal week’ pattern was negated by another ‘reversal week’ (lower low, higher close) pattern. The possibility of such a behaviour was mentioned in last week’s analysis:

“A reversal pattern usually marks the end of an intermediate trend, but there are a couple of technical reasons why the index may bounce up from here: (1) the index is within a support/resistance zone; (2) the index has pulled back towards the ‘falling wedge’ pattern from which it broke out in the previous week. Such pullbacks provide buying opportunities.”

Weekly technical indicators are in bullish zones. MACD is rising above its signal line in positive territory. RSI is above its 50% level. Slow stochastic has just slipped below its overbought zone. All three weekly EMAs are moving up and Nifty is trading above them.

The 2 years old bull market is alive and kicking, and has gained more than 40% from its Dec ‘11 low.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are recovering from bull market corrections after touching new lifetime highs. The corrections provided more opportunities to add fundamentally strong mid-cap and small-cap stocks. Both indices should move up to touch new highs soon.

(Note: Still afraid to buy stocks? It is a bull market! Learn how to pick fundamentally strong mid-cap and small-cap stocks. Become a paid subscriber to my Monthly Investment Newsletter. A limited number of new subscriptions will be offered during Jan. 2014. Pre-registration has started. Contact me for details:mobugobu@yahoo.com)

Wednesday, December 18, 2013

Nifty chart: a mid-week update (Dec 18, ‘13)

RBI governor surprised the market positively by maintaining the status quo on interest rates. He probably banked on the ‘December effect’ of lower food prices to cool inflation. Despite a couple of interest rate hikes earlier in the year, inflation has shown no signs of abating.

The consensus estimate of economic experts was a 25 bps rate hike in Dec ‘13. As often happens, the consensus estimate proved incorrect. Bulls broke off the previous 6 days’ bear shackles. Nifty jumped up and stayed above the 6200 level – forming a higher bottom in the process.

The bullish pattern of higher tops and higher bottoms from the Aug ‘13 low continues. The 50 day EMA provided support to the index. In last week’s update, the zone between 6100 and 6200 was indicated as a good support zone.

Is Nifty going to touch a new high soon? Let us see what the chart below is telling us.

Nifty_Dec1813

Technically, there is no reason why the Nifty should not move higher. The 200 day EMA is rising, and Nifty is trading above all three EMAs. The correction has improved the technical ‘health’ of the index. Bulls are regaining control.

Daily technical indicators are beginning to turn bullish. MACD crossed below its signal in positive territory, but has stopped falling. RSI has just moved above its 50% level. Slow stochastic is about to climb out of its oversold zone.

Fundamentally, things are looking less bullish. A silver lining is the long-awaited entry of a multi-brand retailer like TESCO of UK, which has joined hands with the Tata group. Carrefour of France is apparently waiting in the wings. May be the retail revolution will take place after all. The potential for job prospects among the less educated youth is high.

Tuesday, December 17, 2013

Gold and Silver charts: an update

Gold Chart Pattern

Gold_Dec1713

The following comments were made in the previous post on the 6 months daily bar chart pattern of gold: “A silver lining for bulls is the negative divergences visible on RSI and Slow stochastic, which failed to touch lower lows. However, any upward bounce is likely to attract more selling.”

Gold’s price did bounce past its 20 day EMA and touched 1270. But bears used the opportunity to sell, and pushed the price below its 20 day EMA on strong volumes. Is it game over for bulls?

Daily technical indicators are looking bearish, though they have corrected from oversold conditions. Note that the MACD signal line (in red) is forming a ‘rounding bottom’ pattern. Also, RSI and Slow stochastic have formed ‘cup-and-handle’ like patterns. These are bullish patterns that could lead to a rally.

On longer term weekly chart (not shown), the 50 week EMA has crossed below the 200 week EMA – the ‘death cross’ confirming a long-term bear market. Expect bears to sell on every rise.

Silver Chart Pattern

Silver_Dec1713

The 6 months daily bar chart pattern of silver is in the midst of a bear market rally that is struggling to stay above its 20 day EMA. The good news for bulls is that silver’s price touched a higher bottom. The bad news is that bears are using the rally to sell.

Daily technical indicators are forming bullish patterns after correcting overbought conditions. MACD is above its signal line in negative territory, with the signal line forming a ‘rounding bottom’ pattern. RSI is below its 50% level and Slow stochastic is about to drop below its 50% level; but both have formed cup-and-handle like patterns.

A continuation of the rally can be expected for a few more days – but bears are likely to sell on every rise. On longer-term weekly chart (not shown), silver’s price is trading below all three weekly EMAs. Volumes on down-weeks remain strong. Bears are in no mood to relinquish control.

Monday, December 16, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 13, ‘13

S&P 500 Index Chart

S&P 500_Dec1313

In last week’s analysis of the 6 months daily bar chart pattern of S&P 500 index, the following concluding remark is worth repeating: “The index may move up to touch a new lifetime high; but one should respect a break down below a bearish pattern.”

The index moved up on Dec 9 ‘13 to test its lifetime Nov 29 ‘13 high of 1813 – fell short by just a point, and dropped below its 20 day EMA again – forming a small ‘double-top’ reversal pattern in the process. Has the index topped out finally?

Two back-to-back bearish patterns – first, a break down below a ‘rising wedge’ followed by a pullback; and then a breakdown from a ‘double top’ – have given ample warning to bulls to book profits.

However, volume confirmation for the ‘double-top’ is absent. Volumes during formation of both tops are about the same, instead of being lower for the second top. The small size of the ‘double-top’ may give bulls some hope of a shallow correction.

Daily technical indicators are looking bearish. MACD is still positive, but falling rapidly below its signal line. RSI has fallen below its 50% level. Slow stochastic has dropped sharply into its oversold zone.

Strong volumes on down-days suggest some more correction, and a drop below the 50 day EMA. A deeper correction may get support from the zone between 1710 and 1730. A convincing move above 1813 will restore bullish sentiments.

FTSE 100 Index Chart

FTSE_Dec1313

In last week’s analysis of the 6 months daily bar chart pattern of FTSE 100 index, the following were the concluding remarks: “The intrepid may add with a strict stop-loss at 6400. The prudent should wait for the down trend to end.”

Note that the index dropped and closed below its 200 day EMA, but managed to stay above the 6400 level. At the time of writing this post, the index has risen smartly above its 200 day EMA and the 6500 level.

Daily technical indicators are looking bearish, and oversold. So, today’s upward bounce is not a surprise. MACD is falling below its signal line and about to enter its oversold zone. Both RSI and Slow stochastic are inside their respective oversold zones.

Enter with a stop-loss at 6400 – if you haven’t done so already.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are trying to thwart bear attacks. S&P 500 has corrected after forming an intermediate top. FTSE 100 is in the process of recovering from a 2 months long down trend. Both indices are in long-term bull markets. The corrections are providing opportunities to enter.

Saturday, December 14, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 13, 2013

Before the green shoots of economic recovery could grow into healthy growing plants, some one seems to have trampled all over them. The IIP number was a disappointing negative 1.8% – though the pundits put a positive spin on it by pointing to a high base effect.

The CPI inflation number was equally disappointing – climbing more than a percentage point to 11.24%, thanks to rising food prices. The RBI governor may have no alternative but to raise the repo and reverse repo rates by at least 25 bps, may be even 50 bps.

DIIs continued to be net sellers and overwhelmed FII buying. After touching new lifetime highs on the first day of the week, both Sensex and Nifty corrected sharply – much like they had done after touching their respective Nov ‘13 tops.

What is going on? Why is there so much fear among investors? Are they suffering from ‘recency bias’ – remembering what happened after indices touched their tops in Jan ‘08 and Nov ‘10? Is history going to repeat itself, or will this time be different? Let us look at the charts below to find answers.

BSE Sensex index chart

$BSE-001-001

The 6 months daily bar chart pattern of Sensex touched a new lifetime high on Mon. Dec 9 ‘13, but all three daily technical indicators failed to do so. Slow stochastic formed a double-top reversal pattern inside its overbought zone. These bearish signs warned of a likely correction, which came swiftly.

It is obvious that domestic investors are selling at every rise – not convinced about the 2 years long bull market that started from the Dec ‘11 bottom. But ‘sell on rise’ is a strategy to be followed during bear markets. When a bull market is clearly climbing a ‘wall of worries’ – buy the dips.

Sensex is near a support/resistance zone between 20000 and 20500 (marked by blue horizontal lines). The 50 day EMA is just above this zone. The index can be expected to bounce up from the zone, but probably after correcting a bit more. Why?

Daily indicators are looking bearish, but remain in bullish zones. That means the correction isn’t over yet. MACD has dropped down to touch its signal line in positive territory. RSI has just slipped below its 50% level. Slow stochastic is falling towards its 50% level.

The correction is providing another adding opportunity.

NSE Nifty 50 index chart

$CNXN-001-001

The 2 years weekly bar chart pattern of Nifty touched a new lifetime high, but formed a ‘reversal week’ pattern (higher high, lower close) to drop inside the support/resistance zone between 6100 and 6200 (mentioned in this update).

A reversal pattern usually marks the end of an intermediate trend, but there are a couple of technical reasons why the index may bounce up from here: (1) the index is within a support/resistance zone; (2) the index has pulled back towards the ‘falling wedge’ pattern from which it broke out in the previous week. Such pullbacks provide buying opportunities.

Weekly technical indicators are bullish, but showing signs of weakness. MACD is above its signal line in positive territory, but its upward momentum has slowed down. RSI is above its 50% level, but forming a head-and-shoulders reversal pattern. Slow stochastic is about to drop below its overbought zone.

Note that RSI and Slow stochastic are showing negative divergences by failing to touch new highs with the index. Expect the correction to continue for a few more days.

Still not convinced about the 2 years long bull market? Just take a look at the 200 week EMA (in green) on the Nifty chart. It has been rising continuously since Jan ‘12 – despite Nifty dropping below it briefly in May ‘12 and Aug ‘13.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are undergoing bull market corrections after touching new lifetime highs. The corrections are providing opportunities to add fundamentally strong mid-cap and small-cap stocks that are still available at reasonable valuations. Both indices should resume their up moves soon.

(Note: Still undecided about buying stocks? It is a bull market! Learn how to choose fundamentally strong mid-cap and small-cap stocks. Register for a paid subscription to my Monthly Investment Newsletter. A limited number of new subscriptions will be offered during Jan. 2014. Contact me for details:mobugobu@yahoo.com)

Wednesday, December 11, 2013

Nifty chart: a mid-week update (Dec 11, ‘13)

The euphoria among investors following announcement of election results in four states and one union territory last Sunday led to Nifty opening with an upward gap and touching lifetime intra-day and closing highs on Mon. Dec 9 ‘13.

But the bullish cheer appears to be fading already. Today’s trade has closed Monday’s upward gap. Even the ‘good news’ of a narrowing trade deficit was ignored by the market. DII sales overwhelmed FII buying.

So, what should investors do now? Take profits home and park the cash in safe tax-free bonds that are on sale now? Or, use the dip to add to existing holdings?

Nifty_Dec1113

The answer to the question will depend on your risk tolerance and asset allocation plan. Still don’t have an asset allocation plan? Then you will be forever at the mercy of stock market gyrations – not knowing when and how much to buy or sell.

For those who have been following my posts regularly and/or have adequate knowledge of technical analysis, there should be no doubt at all that Nifty is in a bull market – and has been in one for almost 2 years. So, the strategy should be to either buy on dips or hold.

What about filling of Monday’s upward gap? Note the two upward gaps that formed back in Sep ‘13 during the rally from the Aug ‘13 bottom. Both got filled during the subsequent correction – but Nifty resumed its up move and touched a higher top in Nov ‘13.

That is typical chart behaviour in bull markets. Most upward gaps tend to get filled (or part-filled) reasonably quickly – charts don’t particularly like gaps – but up moves resume thereafter. (The reverse happens in bear markets – downward gaps get filled by rallies and the down move resumes thereafter.)

Daily technical indicators are in bullish zones but showing some bearish signs. MACD is above its signal line in positive territory, but its upward momentum has slowed down. RSI is above its 50% level, but turning down. Slow stochastic has dropped from its overbought zone, but is above its 50% level.

Note that all three indicators are showing negative divergences by failing to touch new highs with the index. However, all three EMAs are rising and Nifty is trading above them. So, Nifty is in the midst of another bull market correction/consolidation.

How low can the nifty fall? 6100 - 6200 looks like a good support zone.

Tuesday, December 10, 2013

WTI and Brent Crude Oil charts: bull rallies end

WTI Crude chart

WTI Crude_Dec0913

The 6 months daily bar chart pattern of WTI Crude oil fell briefly below the 92 level intra-day in end Nov ‘13. Just when it looked like the bears were in total control, oil’s price staged a smart rally on strong volumes to climb above its 20 day and 50 day EMAs. But the falling 200 day EMA provided strong resistance. By the end of trade on Dec 9 ‘13, oil’s price closed below its 50 day EMA.

What caused the sharp rally? Technically, all three indicators showed positive divergences by touching higher bottoms, while oil’s price dropped below 92 to touch a 6 months low. Also, the MACD signal line was forming a bullish saucer-like rounding bottom pattern – mentioned in the previous update.

Fundamentally, the improving US economic data may have encouraged the bulls to fight back. Whatever the reasons, it was a typical bear market rally – sharp and swift – that took every one by surprise. Unless oil’s price moves convincingly above its 200 day EMA and the 99 level, bears will have little to worry about.

Daily technical indicators are looking bullish, but showing diminishing upward momentum. MACD has just managed to enter positive zone. RSI is above its 50% level, but turning down. Slow stochastic is beginning to correct overbought condition.

The rally is likely to be a selling opportunity for bears.

Brent Crude chart

BrentCrude_Dec091213

The 6 months daily bar chart pattern of Brent Crude oil continued its rally past the 112 level. The possibility was mentioned in the previous update. But after reaching 113, oil’s price formed a ‘reversal day’ pattern that ended the month-long rally. After dropping to 109, oil’s price is seeking support from its 50 day EMA.

Unlike WTI Crude oil, Brent Crude oil is technically in a bull market as it is trading above its 200 day EMA. But it has been struggling to stay above its long-term moving average for the past 3 months. High volumes on down days is another concern for bulls. Don’t count the bears out just yet.

Daily technical indicators are still in bullish zones, but looking bearish. MACD is positive, but is about to cross below its signal line. RSI has slipped below its 50% level. Slow stochastic formed a small head-and-shoulders reversal pattern before dropping from its overbought zone.

Oil’s price is likely to drop below its 200 day EMA once again.

Monday, December 9, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 06, ‘13

S&P 500 Index Chart

$SPX - StockCharts-001-001

The following comments were made in last week’s analysis of the 6 months daily bar chart pattern of S&P 500: “The index continues to trade within the ‘wedge’ and looks ready for a steep correction. Volumes are sliding. Daily technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index.”

A downward break from the bearish ‘falling wedge’ pattern occurred on the first day of the week. The index quickly dropped below its 20 day EMA, accompanied by strong volumes. By the end of the week however, better than expected economic news enthused bulls. The index pulled back to the lower edge of the wedge.

Such a pullback is quite common, and provides an opportunity to sell to those who may have missed out on selling during the downward break below the wedge. Note that the bounce on Fri. Dec 6 ‘13 regained the entire loss during the week, but volumes were lower than the previous three down days.

Daily technical indicators have corrected overbought conditions, but remain bullish. MACD is below its signal line in positive territory, but has stopped falling. RSI has bounced up from its 50% level. Slow stochastic has moved above its 50% level after a brief drop below it.

The index may move up to touch a new lifetime high; but one should respect a break down below a bearish pattern. Taking some profit off the table would be a smart move. Reassess the situation if the index continues to move up on good volumes. Excess liquidity can overwhelm technical signals in the short-term.

FTSE 100 Index 

FTSE_Dec0613

Last week, technical indicators of the 6 months daily bar chart pattern of FTSE 100 were looking bearish. A drop below the 50 day EMA was on the cards. The index fell quickly below the 6500 level on strong volumes. The rising 200 day EMA provided good support, and the index closed well above the 6500 level by the end of the week.

Is the correction over? The index needs to climb above its 20 day and 50 day EMAs and the 6700 level with good volume support for bulls to assert full control. Till then, the down trend will remain in force. As long as the index continues to trade above its rising 200 day EMA, the long-term bull market will be intact.

Daily technical indicators are bearish, but showing some early signs of recovery. MACD is falling below its signal line in negative territory. RSI has bounced up a bit from the edge of its oversold zone. Slow stochastic is trying to emerge from its oversold zone.

The intrepid may add with a strict stop-loss at 6400. The prudent should wait for the down trend to end.

Sunday, December 8, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 06, 2013

FIIs were net buyers and DIIs were net sellers during the week – so, what else is new? All kinds of speculations about state election results and their likely effect on stock index movements.

The only results the market isn’t expecting are the BJP-led NDA losing in all four states and one union territory, or in four out of the five. If either happens – and the probability appears negligible - only then will Sensex and Nifty face big selling. The other options have already been ‘discounted’, so any index gyrations will be temporary.

The economy is still underperforming, and may continue to do so for another couple of quarters – regardless of whether the NDA sweeps the state elections or not. But the market tends to look ahead. Increasing exports and decreasing imports leading to a more manageable current account deficit, plus rising forex reserves are positive signs.

No wonder both indices have broken out of consolidations/down trends.

BSE Sensex index chart

SENSEX_Dec0613

In the previous week, the daily bar chart pattern of Sensex had broken out above the down trend line (in blue). As often happens after such bullish break outs, the index pulled back towards the trend line – giving another opportunity to enter to those who may have missed buying on the break out.

Sensex bounced up after receiving good support from the down trend line and the rising 20 day EMA, and looks all set to cross above its life-time high of 21294 (touched on Nov 1 ‘13). All three EMAs are rising and the index is trading above them. The bulls are back in control.

Daily technical indicators are looking bullish. MACD is rising above its signal line in positive territory, but its upward momentum is weak. ROC is also rising – above its 10 day MA in positive territory. RSI has turned down towards its 50% level. Slow stochastic has slipped down from its overbought zone.

There can be a brief correction or consolidation – but nothing to cause real worry for bulls.

NSE Nifty 50 index chart

Nifty_Dec0613 

The expected upward break out from the ‘falling wedge’ pattern, mentioned in last week’s analysis of the weekly bar chart pattern of Nifty, was accompanied by an increase in volumes. The index closed higher for the second week in a row, and is likely to move above its Nov 1 ‘13 top soon.

Weekly technical indicators are bullish. MACD is climbing towards its overbought zone. ROC is about to cross above its 10 week MA. RSI is at the edge of its overbought zone. Slow stochastic has re-entered its overbought zone.

Remember that the index can remain overbought for long periods. That doesn’t mean there will be a one-way rally. Corrections/consolidations are essential for a bull market to sustain.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have broken out above technical resistances following bull market corrections. The corrections gave opportunities to accumulate fundamentally strong mid-cap and small-cap stocks that are available at reasonable valuations. Both indices look ready to touch new life-time highs.

(Note: Still wary of entering the stock market? Learn how to choose fundamentally strong mid-cap and small-cap stocks. Register for a paid subscription to my Monthly Investment Newsletter. A limited number of new subscriptions will be offered during Jan. 2014. Contact me for details:mobugobu@yahoo.com)

Friday, December 6, 2013

7 reasons why investors should not worry about state election results

Q2 ‘13 results are out of the way. Current account deficit is moderating – thanks to much lower import of gold and higher exports due to the devalued Rupee. Inflation is still stubbornly high, which means there is little likelihood of a reduction in interest rates. Oil’s price has stabilised somewhat.

FIIs remain net buyers in the stock market. DIIs have consistently been net sellers. The market seems to have discounted tapering of QE3 bond buying by the US Fed. Belated effort by the Finance Minister to clear FDI projects is a case of too little too late.

Investors appear to be waiting for a new trigger that will propel Sensex and Nifty to new highs. Recent elections in four states and one union territory may provide that trigger – if newspapers and TV channels are to be believed.

Here are 7 reasons why investors need not bother about the election results:

1. Various exit polls conducted by different agencies commissioned by newspapers and TV channels haven’t been able to reach a consensus about the results. Exit polls often turn out to be incorrect.

2. The polls are conducted over a small ‘representative’ sample of the overall electorate. The samples used by different agencies are not the same; so they produce different results.

3. Past experience shows that state elections are fought on local issues, which may or may not have any relevance to national issues and concerns. There is very little link between the results in the state elections and results of the general election.

4. Every one seems to be expecting a sweep by the BJP-led NDA – if you believe the chatter in internet forums and the noise in TV channels. The market may have already discounted such an outcome. So, don’t expect the indices to jump up if the NDA does make a clean sweep.

5. Even if there is a NDA clean sweep and indices do jump up on Monday morning, profit booking is likely to set in. Any gains will be short-lived.

6. If the NDA fails to make a clean sweep, there may be a correction at best – but no sell-off. Investors should use the dip to add to their holdings.

7. Regardless of the impact of the election results on the stock market – and such an impact is going to be short-term at best – what really matters is the state of your own portfolio.

If you own fundamentally strong companies that have performed well through the years, your portfolio will continue to perform well. If you own ‘cheap’ stocks of companies with questionable managements, election results would be irrelevant. If you are confused by the volatility and shenanigans in the stock market, invest in tax-free PSU bonds.

Tuesday, December 3, 2013

Gold and Silver charts: bears tighten their grips

Gold Chart Pattern

Gold_Dec0313

The 6 months daily bar chart pattern of gold is looking rather ominous for bulls. After consolidating within a small rectangular band between 1235 and 1255 for a few trading sessions, gold’s price broke sharply downwards.

The downward break out was on expected lines, as rectangle patterns tend to be continuation patterns. A test, and possible breach, of the Jun ‘13 low of 1180 is on the cards. If the breach of 1180 does happen, gold’s price can fall to 1000.

Daily technical indicators are bearish and looking oversold. That doesn’t mean gold’s price won’t drop lower. A silver lining for bulls is the negative divergences visible on RSI and Slow stochastic, which failed to touch lower lows. However, any upward bounce is likely to attract more selling.

On longer-term weekly chart (not shown), the 50 week EMA has crossed below the 200 week EMA. The ‘death cross’ has technically confirmed a long-term bear market.

Silver Chart Pattern

Silver_Dec0313

The 6 months daily bar chart pattern of silver shows a futile attempt at bottom formation. After consolidating for a few sessions between 19.5 and 20.5, silver’s price broke downwards on a volume spurt after the Thanksgiving weekend.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line. RSI is resting at the edge of its oversold zone after twice failing to move up. Slow stochastic is ensconced inside its oversold zone, and not showing any desire to come out.

A test and breach of the Jun ‘13 low is likely. On longer-term weekly chart (not shown), all three EMAs are falling and silver’s price is trading below them – similar to the daily chart above. That means the bears are in complete control.

Monday, December 2, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 29, ‘13

S&P 500 Index Chart

$SPX - StockCharts-001-001

In a curtailed trading week due to the Thanksgiving holiday, the 6 months daily bar chart pattern of S&P 500 inched up to new lifetime intra-day and closing highs (of 1813 and 1806) on Nov 29 ‘13. The index is trading more than 150 points above its 200 day EMA, and seems to be defying gravity.

In last week’s analysis, the formation of a bearish ‘rising wedge’ pattern was mentioned. The index continues to trade within the ‘wedge’ and looks ready for a steep correction. Volumes are sliding. Daily technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index.

The economy continues to show improvement, but in fits and starts. Housing market is showing signs of life. Initial claims of unemployment are falling. But durable goods orders slipped after 2 months of increases.

An index can remain overbought for long periods. But prudence demands that some profits should be taken off the table. Alternatively, maintain a trailing stop-loss and enjoy the ride while it lasts.

FTSE 100 Index Chart

FTSE_Nov2913 

The 6 months daily bar chart pattern of FTSE 100 is still correcting in a bull market by touching lower tops. So far, the 50 day EMA has provided very good support. But that could not prevent the index from its 4th straight lower weekly close.

There was a sharp increase in volumes on Tuesday’s down-day. Daily technical indicators are looking bearish. MACD is falling below its signal line, and about to enter negative territory. Both RSI and Slow stochastic are below their respective 50% levels. A drop below the 50 day EMA is likely.

Bottomline? 6 months daily bar chart patterns of S&P 500 closed at a new life-time high. But a bearish ‘rising wedge’ pattern and negative divergences in technical indicators are concerns for bulls. FTSE 100 is still undergoing a bull market correction. Stay invested but maintain suitable stop-losses.

Sunday, December 1, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 29, 2013

First, the good news. GDP growth for Q2 ‘13 quarter was 4.8%, which was higher than 4.4% in Q1 ‘13, and better than the consensus estimate of 4.6%. The economy is gradually bottoming out. The bad news is that the GDP number was below 5% for the 4th straight quarter.

The other bit of good news is the increase in forex reserves. However, the fiscal deficit is surging. With inflation remaining stubbornly high, RBI may increase the repo and reverse repo rates by 25 bps in Dec ‘13. That will stifle the already dismal manufacturing growth.

Bulls felt encouraged by the signs of a turnaround in GDP – particularly in the rural sector. FIIs resumed their buying. DIIs covered their shorts. Both Sensex and Nifty indices bounced up from support zones, and are getting ready to touch new highs.

BSE Sensex index chart

Sensex_Nov2913

The daily bar chart pattern of Sensex received good support from its 50 day EMA during the week. On Fri. Nov 29 ‘13, it broke out and closed above the downward-sloping channel within which it was trading for the past 5 weeks.

All four daily technical indicators are turning bullish. The MACD bounced up from its ‘0’ line, and is about to cross above its signal line. ROC has crossed above its 10 day MA into positive territory. RSI and Slow stochastic have risen above their respective 50% levels.

The bull market correction appears to be over. The dip gave an opportunity to enter. The index should touch a new life-time high soon.

NSE Nifty 50 index chart

Nifty_Nov2913

The weekly bar chart pattern of Nifty has been consolidating within a ‘falling wedge’ pattern for the past 7 weeks. The index received good support from its 20 week EMA and the lower edge of the ‘wedge’. The expected break out from the ‘wedge’ is upwards.

Weekly technical indicators corrected overbought conditions, but remain bullish. MACD has started rising above its signal line in positive territory. ROC is below its 10 week MA, but has stopped falling. RSI and Slow stochastic are at the edge of their respective overbought zones.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are emerging from bull market corrections. The corrections provided opportunities to accumulate fundamentally strong mid-cap and small-cap stocks that are still available at reasonable valuations. The next leg of the up move should resume.

(Note: Still afraid to enter the stock market? Learn how to pick fundamentally strong mid-cap and small-cap stocks. Become a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions will be offered during Jan. 2014. Contact me for details: mobugobu@yahoo.com)

Tuesday, November 26, 2013

WTI and Brent Crude Oil charts: an update

WTI Crude chart

WTI Crude_Nov2513

The 6 months daily bar chart pattern of WTI Crude oil is down in a bear market, and there are signs that oil’s price may fall lower. The 50 day EMA formed a bearish ‘rounding top’ pattern since Jul ‘13, and its ‘death cross’ below the 200 day EMA has technically confirmed a bear market.

Oil’s price has been consolidating sideways between 92 and 96 for the past 3 weeks. The falling 20 day EMA has thwarted attempts at up moves. Strong volumes on down days show that bears continue to be active. A drop to 85 is a possibility.

Daily technical indicators are giving mixed signals, which is often the case during periods of consolidation. MACD is rising above its signal line, but remains negative. Note that the signal line appears to be forming a saucer-like pattern, which has bullish implications.

RSI has turned down after failing to reach its 50% level. Slow stochastic moved up sharply above its 50% level, but its upward momentum is slowing. Attempts at an up move may attract more bear selling.

Brent Crude chart

Brent Crude_Nov2513

The 6 months daily bar chart pattern of Brent Crude oil started a spirited rally just when it looked like bears were getting the upper hand. However, the rally seems to have stalled near the 112 level (the previous top touched in Oct ‘13).

Part resolution of nuclear talks with Iran, followed by lifting of some of the economic sanctions including oil sales, spooked the bulls. Oil’s price dropped to 108 before recovering to close at 111 – in bull territory. The ‘death cross’ has been avoided – at least for now.

Daily technical indicators are looking bullish, and showing positive divergences by touching slightly higher tops than the ones touched in Oct ‘13. Oil’s price may try to cross above 112. However, once Iranian oil reaches full production and starts flowing into world markets, Brent Crude prices should start sliding.

Monday, November 25, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 22, ‘13

S&P 500 Index Chart

S&P 500_Nov2213

The 6 months daily bar chart pattern of S&P 500 index is showing good news and some bad news. First, the obvious good news. The index had a brief correction during the first three days of the week and then zoomed up to close above the 1800 level at a new lifetime high.

Now, the bad news. Volumes are gradually falling as the index is moving higher. All three daily technical indicators are looking overbought and showing negative divergences by failing to touch new highs. Most worrisome is the bearish ‘rising wedge’ pattern which the index is forming since the last week of Oct ‘13.

The index is showing signs of overheating. Before it lets off some serious steam, it may be a good idea to book partial profits.

Economic news continues to be encouraging, with retail sales growing, initial claims of unemployment falling and manufacturing index rising. But the housing market remains a concern.

FTSE 100 Index Chart

FTSE_Nov2213

The 6 months daily bar chart pattern of FTSE 100 index consolidated sideways during the week and closed below the 6700 level. Though the index is in a bull market, the down trend that started from the Oct ‘13 top of 6820 is still ongoing.

The good news is that the index has not dropped below its 50 day EMA during Nov ‘13. The bad news is that the three daily technical indicators are turning bearish. The bulls may not be able to prevent a breach of the 50 day EMA.

MACD is falling below its signal line, and may soon enter negative territory. Both RSI and Slow stochastic are below their 50% levels and look ready to fall further. At the time of writing this post, the index is trying hard to move above the 6700 level.

Bottomline? 6 months daily bar chart patterns of S&P 500 closed at a new life-time high. Some partial profit booking may not be a bad idea. FTSE 100 is trying to recover from a bull market correction. Stay invested but maintain a stop-loss.

Sunday, November 24, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 22, 2013

Bears continued their domination (i.e. DIIs continued to sell). Even FIIs turned net sellers during the last two days of the week. Both Sensex and Nifty indices had lower weekly closes despite some early flourish.

The spectre of US Fed tapering its QE3 bond buying apparently spooked the market. There is also some concern that NaMo has overplayed his hand and his constant personal attacks on Congress leaders is starting to create a negative impression among older voters.

‘Third front’ leaders are trying to band together with the misplaced hope that they may be in a position to form a government if the general elections produce a hung parliament. The more likely outcome is that NDA or UPA may require the third front’s support to form a government. Neither of the two options will enthuse the market.

Hopefully, the economy will start to turn around by Q4 ‘13 and company performances will improve. That will let the stock market take election results in its stride.

BSE Sensex index chart

SENSEX_Nov2213

The daily bar chart pattern of Sensex closed below its 50 day EMA for the first time in more than 2 months. A test of support from its rising 200 day EMA seems likely. Can the index drop below its 200 day EMA – like it did back in Aug ‘13.

Daily technical indicators don’t seem to suggest so. MACD is about to drop into negative territory. But the other three – ROC, RSI, Slow stochastic - are not only in bearish zones but are looking oversold. Buying interest may emerge as the index drops near its 200 day EMA.

At times like these, small investors are consumed by fear and stay out. To make money, one needs to be a contrarian. That means welcoming such opportunities to buy. The index is correcting after touching an all-time high. The next rally is likely to go higher.

NSE Nifty 50 index chart

Nifty_Nov2213

The weekly bar chart pattern of Nifty closed lower for the third week in a row. Bulls may point out that the 20 week EMA is providing good support. But that support may get breached next week. Why?

The weekly technical indicators are beginning to turn bearish. MACD is positive, but moving down towards its signal line. ROC has crossed below its 10 week MA, and looks ready to drop into negative territory. RSI is just below its overbought zone, but its upward momentum has dissipated. Slow stochastic has slipped down from its overbought zone.

A drop to the 50 week EMA is a possibility. Note that as long as the long-term up trend line (in blue) is not breached on a closing basis, there is no need to worry for the bulls.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are in corrective modes for the third straight week after touching life-time highs. This is a good time to study fundamentally strong mid-cap and small-cap stocks that are available at reasonable valuations. The correction is providing an opportunity to accumulate them gradually.

(Note: If you wish to learn more about fundamentally strong mid-cap and small-cap stocks, become a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions will be offered during Jan. 2014. Contact me for details: mobugobu@yahoo.com)

Friday, November 22, 2013

Are sugar stocks turning bitter already?

Blog readers may be aware that my opinion of the sugar sector (expressed here and here) is not good. The reason is simple – too much government control over policy and price. So why am I writing about the sector? To sound a warning note.

For the past couple of months, there have been some indication that sugar stocks have bottomed out after a prolonged bear period. That has attracted many small investors who are forever looking at ‘cheap’ stocks on which they can turn a quick profit.

The recovery in sugar stocks was mainly on the hope of some price rationalisation by the government to help out the struggling(?) sugar companies. The government did announce revised prices of procuring sugar cane from farmers, but it was much higher than what the sugar companies are willing to pay and much lower than what farmers are demanding.

The farmers are unhappy. So are the sugar producers. If you entered at lower levels, take your profits and be happy. Things may get worse.

Bajaj Hindusthan

BajHind

The stock price recently spurted higher on strong volumes, but failed to reach its falling 200 day EMA. All four technical indicators indicated negative divergences by failing to move up higher. Bears are likely to resume their dominance.

Balrampur Chini

BalramChini

If you are interested in buying a sugar stock, Balrampur Chini may be your best bet. The stock is in an up trend since Aug ‘13, forming a bullish pattern of higher tops and higher bottoms. The stock price is pulling back towards its 200 day EMA, after crossing above it on strong volumes. Buy only if the stock bounces up from its 200 day EMA.

Dalmia Sugar

DalmiaSug

After a prolonged consolidation in a bullish ‘rounding bottom’ pattern, Dalmia Sugar traded above its 200 day EMA during Oct ‘13. It has since formed a bearish ‘rounding top’ pattern to drop below its long-term moving average. Technical indicators are recovering from oversold conditions. The stock may try to resume its up move.

Dhampur Sugar

Dhampur

The stock price of Dhampur Sugar formed a ‘double-bottom’ reversal pattern and jumped up to test its falling 200 day EMA on strong volumes; but dropped down after facing strong resistance. ROC and RSI are looking overbought. Bears may use the opportunity to sell.

Dwarikesh Sugar

Dwarikesh

Dwarikesh Sugar stock made a couple of efforts to cross above its 200 day EMA – but failed to close above its long-term moving average. Daily technical indicators are showing negative divergences by touching lower tops. However, the stock is in an up trend, and can be bought with a strict stop-loss at its 50 day EMA.

EID Parry

EID Parry

EID Parry stock is in an up trend, but struggling to cross its 200 day EMA. It is facing strong resistance at 155. Daily technical indicators are showing negative divergences by touching lower tops after reaching their Oct ‘13 highs. Buy only on a convincing move above 155.

Rajshree Sugar

RajshrSug

The stock price of Rajshree Sugar is trying to correct oversold conditions, but is trading below all three EMAs. Avoid.

Shree Renuka Sugar

Renuka

Once a darling of the stock market, Renuka Sugar is struggling to get out of a bear stranglehold. It is consolidating within a symmetrical triangle pattern, from which the likely break out is upwards. Since triangles are unreliable, wait for the break out.

Simbhaoli Sugar

Simbhaoli

Simbhaoli Sugar is sliding deeper into a bear market, with no sign of a bottom formation. Avoid.

Ugar Sugar

UgarSugar

The stock price of Ugar Sugar has attempted to cross above its falling 200 day EMA on five occasions in the past 12 months. Bears have stifled bullish hopes each time. The stock is trying to find a bottom at 10. Avoid.

(Note: I don’t track the sugar sector, and have very little idea of the fundamental strengths or weaknesses of any of the stocks mentioned above.)

Wednesday, November 20, 2013

About US Fed’s QE3 (non)tapering and its effect on our stock market – a guest post

In an effort to kick-start the growth engine of the struggling US economy following a recession, the US Fed (equivalent to India’s RBI) has unleashed a flood of cheap liquidity in a low interest rate regime through its Quantitative Easing programmes.

The hope was that ready availability of money at low interest rate would enable manufacturing and services sectors to expand and create jobs, which in turn would rejuvenate the housing market. Despite three rounds of Quantitative Easing – QE3 is still ongoing – US GDP growth remains in very low single digit.

So, where is all the cheap liquidity going? To global stock markets – boosting stock prices, even as unemployment remains high and the housing market is in doldrums. The patient is ailing but the doctor’s prescription isn’t working. In this months guest post, Nishit explains when to expect QE3 to be wound down and what investors can do to turn a profit in the interim period.

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The US Fed has continued with the third round of Quantitative Easing (QE3). This has led to equity markets continuing to rally – boosted by easy and cheap liquidity. Let us try and explore what this QE3 is about and whether it will continue.

The US Fed - to avoid the effects of an economic recession that started in 2008 - keeps buying US Bonds thereby pumping in large sums of money into the economy every month. With prevailing low interest rate, this leads to cheap and easy cash being available to be invested in markets across the world. Interest rates have been artificially kept suppressed near zero.

The Wikipedia definitions are available here:

http://en.wikipedia.org/wiki/Quantitative_easing

Last May, the Fed announced that they were going to go slow on Quantitative Easing. This rang alarm bells across world financial markets as the rally was based more on easy money rather than fundamentals.

The US Debt ceiling crisis due to which the US government locked down for a few days came about in October. Consequently, financial data did not get published for about a month. As the decision to reduce/stop the loose monetary policy was going to be based on financial indicators, it was clear that the decision to reduce/stop buying bonds was going to be pushed back by about 2-3 months.

Ben Bernanke, the US Fed Governor who had taken the call to taper down QE3, is due to retire in January 2014 after about 8 years in the chair. There was speculation about whether he would seek one more term or whether his replacement would be announced. There were multiple names being thrown around and finally Janet Yellen was short listed as the new US Fed Governor to take over from January.

Now, Janet Yellen is a ‘dove’ who is known for not taking aggressive steps. It was widely expected she would be more cautious in stopping the easy monetary policy. At her confirmation hearing, she reiterated that it was necessary to be completely sure that the economy was in very good shape before starting the QE3 taper.

The markets took it as a signal that the loose policy will continue. The emerging markets continued to rally. This sets the base for a November-February rally which will happen if the easing continues.

Of course, a BJP sweep in December State Assembly elections would give the markets a reason to rally. The real underlying reason would be easy money available from the US and elsewhere and reflected in the FII ‘buy’ figures.

So, we should keep an eye on the US Fed, keep booking profits and take the money home. Markets always give a second chance.

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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, November 19, 2013

Gold and Silver charts: an update

Gold Chart Pattern

Gold_Nov1813 

The long-term weekly closing chart pattern of gold (above) should clear any lingering doubts about which direction gold’s price is headed. After crossing the 1900 level to touch its life-time peak back in Sep ‘11, gold’s price consolidated in a rectangular band between 1800 and 1550 for the next 18 months.

Rectangular consolidation patterns tend to be continuation patterns, with measuring implications. Since gold’s price dropped into the pattern from above, the eventual break down below 1550 was no surprise. The long duration of consolidation ensured that the down move below the rectangle was fierce.

The minimum downward target of gold was 1300, calculated thus: Height of rectangle = 1800 – 1550 = 250; drop below rectangle = 1550 – 250 = 1300. Note that the Jun ‘13 closing low was almost 100 points lower.

All three weekly technical indicators reached oversold conditions together. The subsequent sharp upward bounce took gold’s price above its falling 20 week EMA, but failed to reach the 200 week EMA (which is the long-term trend decider).

All three weekly EMAs are falling and gold’s price is trading below them. The 50 week EMA, which is only 5 points above the 200 week EMA, will soon cross below it (‘death cross’) and technically confirm what is already apparent from gold’s price chart – a long-term bear market.

Technical indicators are bearish but not oversold – though Slow stochastic has just entered its oversold zone. The Jun ‘13 low is likely to be breached.

(Note: Indian investors who love to invest in gold may want to look at the chart below to find out what kind of a price premium they are paying.)

Silver Chart Pattern

Silver_Nov1813 

The long-term weekly closing chart pattern of silver followed gold’s price pattern, with one notable exception. The ‘death cross’ of the 50 week EMA below the 200 week EMA occurred 4 months ago. The 200 week EMA has been forming a bearish ‘inverted saucer’ pattern.

Weekly technical indicators corrected oversold conditions but are looking bearish again. The Jun ‘13 low may get breached soon. Silver finds industrial use – unlike gold. The US and Eurozone economies need to show some perceptible growth for silver’s price to regain some of its lost glory.

Monday, November 18, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 15, ‘13

S&P 500 Index Chart

S&P 500_Nov1513

The 6 months daily bar chart pattern of S&P 500 index received good support from its rising 20 day EMA and soared to a new life-time high. The small double-top reversal pattern at 1775 observed last week was negated. The index stopped just short of the 1800 level.

Volumes were strong as the index touched a new high, but the widening gap between the index and its 200 day EMA is a concern. The index is in uncharted territory, with no known resistance.

Daily technical indicators are bullish but looking overbought. MACD has crossed above its signal line just below its overbought zone. RSI has moved up to the door step of its overbought zone. Slow stochastic is deep inside its overbought zone.

All three indicators are showing negative divergences by failing to touch new highs. A correction or consolidation will be good for the sustenance of the rally.

Initial claims of unemployment rose more than expectation. Trade deficit widened on higher imports and lower exports. Looks like the index was celebrating a likely continuation of QE3.

FTSE 100 Index Chart

FTSE_Nov1513

The 6 months daily bar chart pattern of FTSE 100 dropped below the 6700 level once again, but received good support from its 50 day EMA and bounced up. At the time of writing this post, the index is trading above 6700. The dip provided an adding opportunity.

Daily technical indicators are bearish, but showing signs of turning around. MACD is below its signal line in positive territory, but has stopped falling. RSI has turned up after dropping below its 50% level. Slow stochastic also fell below its 50% level, but is trying to turn up. Volume support will be necessary for the index to climb past the 6800 level.

The UK economy is recovering ever so slowly, but there is hardly any growth in wages. Cost of living is outpacing wage growth.

Bottomline? 6 months daily bar chart patterns of S&P 500 has touched another new life-time high. Stay invested but maintain a trailing stop-loss. FTSE 100 is recovering from a bull market correction. The dip provided an adding opportunity. New highs are expected soon.