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Saturday, November 29, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 28, 2014

Sensex and Nifty indices soared to new lifetime daily, weekly and monthly closing highs on strong buying interest from FIIs, who were net buyers of equity worth Rs 3100 Crores during the week. DIIs were net sellers of equity worth Rs 1300 Crores.

The Q2 GDP number (5.3%) was lower than the Q1 number (5.7%), but higher than the consensus market estimate. That should boost bullish sentiments even if the RBI Governor refrains from proposing any interest rate cut on Dec 2.

In spite of sluggish economic growth, India is in a ‘sweet spot’ among BRICS nations, as per this article. Slumping oil price has considerably reduced our import bill. An interest rate cut – expected some time in Feb-Mar ‘15 – will propel the Indian market even higher.

BSE Sensex index chart

Sensex_Nov2814

Sensex touched new intra-day (28822) and closing (28694) highs on Fri. Nov 28. The index is in ‘blue sky’ territory with no known resistances. In such a situation, resistance often comes from round index levels. So, the next likely resistance may be 29000.

Note that all four technical indicators are showing negative divergences (marked by blue arrows) by failing to touch new highs with the index. Some consolidation or correction can be expected at any time. There has been no meaningful correction since the index touched its Oct 17 ‘14 low of 25911.

All three EMAs are rising and Sensex is trading above them in a long-term bull market. However, be very selective in your stock picks near a lifetime high.

NSE Nifty 50 index chart

Nifty_Nov2814_LT

The weekly bar chart pattern of Nifty again touched new intra-week (8617) and closing (8588) highs, and closed higher for the sixth straight week. A pick-up in volumes augurs well for the bull rally.

All four technical indicators are inside their respective overbought zones. Remember that markets can remain overbought for long periods.

Though valuations look a bit stretched, the index is not wildly overvalued. That means a big correction is unlikely. It also means that one should not get needlessly greedy or fearful. Hold on to your good stocks, and start weeding out the non-performers.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices soared to touch new lifetime highs. Be patient. The bull market is far from over. There will be money-making opportunities along the way.

Wednesday, November 26, 2014

A re-look at Gilt funds – a guest post

Both WPI and CPI inflation rates have been moving down. However, there are questions whether inflation is low because of a higher base effect. As the base effect wears off from Jan ‘15 onwards, inflation may rise again.

Industrial growth continues to be tepid. India Inc. have been clamouring for an interest rate cut to spur growth. The RBI Governor has so far left rates unchanged till inflation gets firmly under control.

If inflation stays low during Jan-Feb ‘15, then a 25 or 50 bps rate cut in Feb ‘15 is a possibility. That should provide impetus to the stock market and gilt fund returns. In this month’s guest post, Nishit suggests a re-look at gilt funds as a safe diversification avenue for your investments.

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The 10 year Government Security yield has come down to 8.15% from a peak of about 9.10% in April. So, should one invest in Gilt funds now?

Gilt funds offer an interesting diversification from equity and Gold investments. They work best when interest rates are coming down and bond prices go up. For example, if a Rs 100 bond is yielding 9% interest and if the interest rate comes down to 8%, then the same Rs 100 bond will cost Rs 112.50 to yield 8% interest.

So, one stands to make a return of say about 12-13% if the interest rate comes down by 1% in about 6 months.

Inflation is going down and so are fuel prices. An interest rate cut by RBI is expected - if not in December ’14 then definitely in February ‘15.

The Government prefers low interest rates as industry can borrow at lower rates and make more investments leading to more employment and growth in the economy. The Finance Minister has already tried nudging the RBI Governor to reduce interest rates. The fear of inflation re-emerging is what is holding back the RBI from reducing interest rates in a hurry.

Interest rate is expected to come down to 7.75% in the next 4-6 months. Currently it is at 8%.

For those who have already invested in Gilt funds, now is the time to enjoy the profits. Those with a horizon of 6 months also can look at Gilt funds as a measure of diversification. Over the last 3 years, gilt funds have given an annual return of about 10%.

In a complete cycle of top to bottom when the interest rates start falling, they typically give about 25% returns out of which 10-12% have been realised already.

Interest rates usually bottom around 7%. Gilt funds can be used to optimise returns from fixed income instruments and one can invest about 5-10% of total allocated funds for investment.

The risk to Gilt funds arises from interest rates going up and at such times, the funds give very low returns.  For those who want to play the interest rate cycle, gilt funds offer the perfect medium.

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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. You can reach him at nish.stockid@gmail.com)

Tuesday, November 25, 2014

WTI and Brent Crude Oil charts: an update

WTI Crude chart

WTI Crude_Nov2414

Not much has changed in the technical set-up since the previous post on the daily bar chart pattern of WTI Crude oil. Oil’s price slipped down to touch a new intra-day low of 73 on Nov 14 – but formed a ‘reversal day’ pattern (lower low, higher close).

Daily technical indicators showed positive divergences by not touching new lows with oil’s price. A brief rally ensued, but the falling 20 day EMA provided strong resistance.

Oversold conditions have been corrected, but all three indicators are still in bearish zones, and their upward momentum is slowing down. Oil’s price continues to trade below all three falling EMAs in a long-term bear market.

On longer term weekly chart (not shown), oil’s price has closed below its 200 week EMA for 12 straight weeks. Weekly technical indicators are deep inside their respective oversold zones. The 50 week EMA is poised to cross below the 200 week EMA and technically confirm a long-term bear market. The next lower target is 70.

Brent Crude chart

BrentCrude_Nov2414

The daily bar chart pattern of Brent Crude oil dropped to a new intra-day low of 76.50 on Nov 14 – but formed a ‘reversal day’ pattern (lower low, higher close). All three daily indicators dropped inside their respective oversold zones, but two of them – MACD, RSI – showed positive divergences by touching higher bottoms.

Note that RSI and Slow stochastic formed bullish ‘inverse head and shoulders’ patterns. But bears are so dominant that the subsequent rally lasted all of 5 trading sessions, and could not overcome resistance from the falling 20 day EMA.

Though oversold conditions have been corrected, all three indicators are still in bearish zones, and their upward momentum is already slowing down. All three EMAs are falling, and oil’s price is trading below them in a long-term bear market.

On longer term weekly chart (not shown), oil’s price has closed below its 200 week EMA for 15 weeks in a row. Weekly technical indicators are deep inside their respective oversold zones. The ‘death cross’ of the 50 week EMA below the 200 week EMA has technically confirmed a long-term bear market. The next lower target is 75.

Monday, November 24, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 21, ‘14

S&P 500 Index Chart

SPX_Nov2114

The daily bar chart pattern of S&P 500 touched new intra-day (2071) and closing (2063) highs on Fri. Nov 21 ‘14, supported by a surge in volumes. The index crossed above the upper resistance line of the ‘broadening top’ pattern with a ‘gap’.

So, has the ‘broadening top’ pattern been negated? Visually, yes; but technically, not yet. Why? Any breach of a resistance (or support) line is guided by the 3% ‘whipsaw’ rule. In this case, the index needs to close above 2110 for technical validity of the breach.

All three daily technical indicators are inside their respective overbought zones, and two of them – MACD, Slow stochastic – are showing negative divergences by failing to touch new highs with the index.

There are a couple of other concerns for bulls. The index is trading well above its three rising EMAs. Also, volumes have been sliding during the sharp rally from the low of 1821, touched on Oct 15 ‘14. The index may be setting itself up for a sharp correction.

On longer term weekly chart (not shown), the index is trading well above its three weekly EMAs in a long-term bull market, and closed above the bearish ‘broadening top’ pattern. However, weekly volumes were not significantly higher to technically validate the negation of the pattern. Weekly technical indicators are in bullish zones, but showing negative divergences by failing to touch new highs with the index. Caution is advised.

FTSE 100 Index Chart

FTSE_Nov2114

The bulls are gradually regaining control over the daily bar chart pattern of FTSE 100. The index smartly crossed above its 200 day EMA and the 6700 level before pulling back to the 200 day EMA. On the last day of the week, the index bounced up on strong volumes to close above the 6750 level – its highest close in a month.

The 20 day EMA has crossed above the 50 day EMA. Both EMAs have formed bullish ‘rounding bottom’ patterns. However, both EMAs need to cross above the 200 day EMA to technically confirm a return to bull territory.

All three daily technical indicators are inside their respective overbought zones. Slow stochastic is forming a small, bearish ‘rounding top’ pattern. The index may go through a bit of correction or consolidation before resuming its up move.

On longer term weekly chart (not shown), the index has closed well above its three weekly EMAs. The 20 week EMA is about to cross above the 50 week EMA after forming a small, bullish ‘rounding bottom’ pattern. Weekly technical indicators are looking bullish. MACD is about to cross above its signal line in negative zone. RSI and Slow stochastic have crossed above their respective 50% levels. The index has overcome a strong bear attack and is returning to a long-term bull market.

Sunday, November 23, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 21, 2014

DIIs were net sellers of equity worth Rs 730 Crores during the week. FIIs were net buyers of equity worth only Rs 270 Crores. So, why did Sensex and Nifty touch new highs on Friday? Because both FIIs and DIIs were net buyers on the last day of the week.

Since the market is being controlled by the  big boys, what are small investors supposed to do? “When elephants fight, the grass gets hurt” (African proverb). Don’t be the grass. Be a bird. Sit on top of a tree (wait and watch) or fly away to a safer place (invest in debt funds or balanced funds).

A surprising interest rate cut by China – the first such action in 2 years - and ECB’s announcement of increasing economic stimulus caused a surge in global stock markets. Gold and oil prices rose too. However, any interest rate cut by RBI seems unlikely before Feb ‘15.

BSE Sensex index chart

Sensex_Nov2114

For the third straight week, the daily bar chart pattern of Sensex consolidated sideways with an upward bias, and touched new intra-day (28361) and closing (28335) highs on Fri. Nov 21. All three EMAs are rising, and the index is trading above them in a long-term bull market.

The index has so far gained 34% during this calendar year (since Jan ‘14) and 26% this financial year (since Apr ‘14). Those are substantial gains for a large-cap index. Periodic corrections have kept the Sensex chart technically ‘healthy’.

Daily technical indicators are in bullish zones, and looking overbought. MACD has bounced up from its rising signal line and looks poised to enter its overbought zone. ROC has formed a small ‘rounding bottom’ bullish pattern that prevented it from entering negative territory, and is getting ready to cross above its falling 10 day MA. RSI and Slow stochastic are inside their respective overbought zones.

All four indicators failed to touch new highs with the index. That may lead to a continuation of the sideways consolidation with an upward bias next week. Stay invested.

NSE Nifty 50 index chart

Nifty_Nov2114

The weekly bar chart pattern of Nifty again touched new intra-week (8490) and closing (8477) highs during the week, and gained about 90 points. The index continues to trade above its weekly EMAs and Up trend line 2 in a long-term bull market. Volumes slid a little, but remained above the long-term (14 week) moving average.

Weekly technical indicators are looking overbought. MACD is entangled with its signal line inside overbought zone. ROC is trying to re-enter its overbought zone, and has crossed above its 10 week MA. RSI and Slow stochastic are moving sideways inside their respective overbought zones.

The sideways consolidation with an upward bias is likely to continue next week, which is also F&O expiry week.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices touched new lifetime highs while consolidating in long-term bull markets. Try to control your impulses of greed or fear. The bull market is far from over. That doesn’t mean there won’t be corrections along the way.

Saturday, November 22, 2014

Technical updates – Canara Bank and Dhanalakshmi Bank

Narendra Modi’s charisma and promise of ‘acche din’ struck a chord with young voters that led to a landslide victory for the BJP in the general elections. That was 6 months ago.

A country paralysed by scams and corruption can not change overnight. Modi’s victory has improved market sentiments. The stock market is touching new highs. But GDP growth is still sluggish.

For growth to accelerate, companies must produce more. That means investing in capacity expansion and starting new projects. Which will require funds. That is where banks come in. For GDP to grow, business of banks must also grow.

Smart investors prefer private banks – which are better managed and have lower NPAs. PSU banks have bigger branch networks, but many branches in less profitable locations. That doesn’t mean all private banks are better investments than PSU banks.

Canara Bank (PSU) and Dhanalakshmi Bank (Private) have similar-looking price charts, but vastly different fundamentals. A closer look at the charts below will show the difference. However, both stocks are trading well below their 2 years highs touched back in Jan ‘13.

Canara Bank

CanaraBank_Nov2114

The stock price of Canara Bank touched a 2 years closing high of 526 in Jan ‘13 before dropping back into bear territory – technically confirmed by the ‘death cross’ of the 50 day EMA below the 200 day EMA (marked by light blue circle) in Mar ‘13.

A small ‘double bottom’ reversal pattern at 194 during Aug-Sep ‘13 led to the start of an up trend that is still in force. The stock failed to rise above its 200 day EMA and dropped to touch multiple higher bottoms at 212-214 during Feb ‘14.

The subsequent rally on rising volumes took the stock above its 200 day EMA and after a pullback, soared to touch a high of 493 in Jun ‘14. The ‘golden cross’ of the 50 day EMA above the 200 day EMA (marked by light blue circle) in May ‘14 technically confirmed a return to a bull market.

Note that the stock price fell short of its Jan ‘13 top of 526, formed a ‘head and shoulders’ reversal pattern, and briefly dropped below its rising 200 day EMA before bouncing back into bull territory. Technical indicators are suggesting that the up trend may resume after some more correction/consolidation.

Dhanalakshmi Bank

Dhanalakshmi_Nov2114

The stock price of Dhanalakshmi Bank touched a 2 years closing high of 71 in Jan ‘13 before dropping back into bear territory – technically confirmed by the ‘death cross’ of the 50 day EMA below the 200 day EMA (marked by light blue circle) in Mar ‘13.

A ‘V’ shaped reversal at 25 during Aug-Sep ‘13 led to the start of an up trend that is still in force. The stock briefly rose above its 200 day EMA but formed a small ‘double top’ and dropped to a higher bottom at 28 in Feb ‘14.

The subsequent rally on rising volumes took the stock above its 200 day EMA and touched a high of 60 in Jun ‘14. The ‘golden cross’ of the 50 day EMA above the 200 day EMA (marked by light blue circle) in May ‘14 technically confirmed a return to a bull market.

Note that the stock price fell short of its Jan ‘13 top of 71, formed a ‘double top’ reversal pattern, and dropped below its 200 day EMA. The stock is struggling to remain in bull territory. Technical indicators are in bearish zones but showing some signs of recovery. The up trend may resume after some correction/consolidation.

Thursday, November 20, 2014

Technical Analysis Strategies for Beginners

The Indian stock market has been rising to new highs on a regular basis. Sentiments turned bullish ever since BJP won the general elections. A further boost to market sentiments occurred when BJP recently won the Haryana state elections and emerged as the largest party in Maharashtra.

If you are thinking about jumping into the market in the hope of making some quick gains – think again. More money is lost because beginners enter the market without doing any homework. Buying stocks on the basis of tips from friends or brokerages is a ticket to financial disaster.

Spend some time in studying and understanding the stock market. A great place to start is by visiting the investopedia.com web site. It has a huge collection of articles on fundamental and technical analysis. Learn the basics before investing a single Rupee in the market. Don’t worry about missing the bus. The market will always be around – and it always provides money-making opportunities.

Here is an article that can get you started:

http://www.investopedia.com/articles/active-trading/102914/technical-analysis-strategies-beginners.asp

Wednesday, November 19, 2014

Nifty chart: a mid-week update (Nov 19 ‘14)

DIIs have been relentless sellers of equity this month. FII buying has ensured that Nifty’s sideways consolidation continues with an upward bias. Today’s slight correction followed the formation of a small ‘double top’ pattern (at a new lifetime high of 8455).

The government is trying to push through share divestments in Coal India and ONGC by the end of this calendar year to raise about Rs 40000 Crores. That may be the motivation for DIIs to sell.

Trade deficit during Oct ‘14 eased a little from the previous month, but remained high. Exports slid while imports rose – mainly due to a spike in gold imports. The Rupee slumped to its lowest level in more than 8 months against the US Dollar.

Credit off-take in banks remain sluggish, which is affecting their interest income. With liquidity at comfortable levels, some banks have been forced to lower interest rates on fixed deposits. This may be a good time to lock some market profits in bank FDs before rates fall further.

Nifty_Nov1914

Nifty is trading above its three rising EMAs – which is the sign of a bull market. However, all four technical indicators have started correcting overbought conditions, and are showing negative divergences by failing to touch new highs with the index.

MACD is moving down towards its rising signal line just below its overbought zone. ROC is falling below its 10 day MA, and looks poised to enter negative territory. RSI and Slow stochastic are inside their respective overbought zones, but have started to slide down.

Expect the sideways consolidation to continue a while longer. In case Nifty decides to correct a bit, down side support can be expected from the 8180 level (marked by blue dotted horizontal line).

Despite bullish sentiments and brokerage estimates of ever higher Nifty levels, real money will be made by being circumspect and waiting for good opportunities to enter. That means buying on dips (or through a SIP - for those not adept at market timing).

The best thing to do near a market top is to get rid of non-performers in one’s portfolio when there are buyers aplenty.

Tuesday, November 18, 2014

Gold and Silver charts: an update

Gold Chart Pattern

GOLD_Nov1714

In the previous post on the daily bar chart pattern of gold, the long-term support level of 1180 had been breached on high volume support. Oversold technical indicators had raised the possibility of a rally – which bears were expected to sell into.

On Nov 7 ‘14, gold’s price dropped to a new low of 1130 but formed a ‘reversal day’ pattern (lower low, higher close) backed by strong volumes that pulled back to the 1180 level. Bear selling failed to push gold’s price to a new low.

After touching a higher bottom of 1145, gold’s price crossed – and closed – above the 1180 level and its 20 day EMA on Nov 14 ‘14 on strong volume support. On the next trading day (Nov 17), gold’s price pulled back to test the 1180 level but closed above it. That is an indication that the rally from the low of 1130 may continue a little longer.

Daily technical indicators have corrected oversold conditions, and are turning bullish. But all three are still in bearish zones. The support/resistance zone between 1240-1260 may come into play once again if the rally continues.

On longer term weekly chart (not shown), gold’s price is trading below its three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones. The next long-term support is at 1000; that is where gold’s price may find a bottom.

Silver Chart Pattern

SILVER_Nov1714

The daily bar chart pattern of silver dropped to a new intra-day low of 15 on Nov 7 ‘14, but formed a ‘reversal day’ pattern (lower low, higher close) backed by strong volumes. Oversold daily technical indicators led to a rally that crossed and closed above the 16 level and the 20 day EMA.

On Nov 17 ‘14, silver’s price pulled back to the 16 level but managed to close above it. Technical indicators have corrected oversold conditions, but remain in bearish zones. MACD has emerged from its oversold zone. RSI and Slow stochastic are climbing towards their respective 50% levels.

Bears can be expected to step in at any time if the rally continues.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMAs in a long-term bear market. Technical indicators are trying to correct oversold conditions, but remain in bearish zones. The next long-term support is at 14.

Monday, November 17, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 14, ‘14

S&P 500 Index Chart

SPX_Nov1414

The daily bar chart pattern of S&P 500 touched a new intra-day high of 2046 on Nov 13 ‘14 that tested the upper resistance line of the ‘broadening top’ pattern before retreating a bit to close at a new high just below the 2040 level.

The index gained just 8 points during a week of sideways consolidation. However, failure to cross above the upper resistance line keeps the ‘broadening top’ reversal pattern alive. The following warning was issued last week: “Caution is advised. One needs to respect a reversal pattern till it gets negated.”

Daily technical indicators are showing some signs of correcting down. MACD is well inside its overbought zone, but forming a small ‘rounding top’ reversal pattern. RSI is just below the edge of its overbought zone. Slow stochastic is well inside its overbought zone, but turning down. RSI and Slow stochastic are showing negative divergences by failing to touch new highs with the index.

Though all three EMAs are rising and the index is trading above them in a long-term bull market, a clearly visible reversal pattern at a market top should not be ignored. Booking part profits seems like a very good idea.

On longer term weekly chart (not shown), the index is trading above all three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but showing negative divergences by failing to touch new highs with the index. The bearish ‘broadening top’ pattern continues to cast a dark shadow over the bull market.

FTSE 100 Index Chart

FTSE_Nov1414

The daily bar chart pattern of FTSE 100 hesitated near its 200 day EMA for a couple of days before bear resistance was overcome. The index closed above its 200 day EMA and the 6650 level to re-enter bull territory after almost 8 weeks.

But falling volumes have put a question mark on the sustainability of the current rally. The 20 day and 50 day EMAs are rising, but remain below the 200 day EMA. Both need to convincingly cross above the 200 day EMA to technically confirm a return to a bull market.

Daily technical indicators are bullish but looking overbought. MACD is rising above its signal line, and is poised to enter its overbought zone. RSI has reached the edge of its overbought zone. Slow stochastic is well inside its overbought zone. Expect the index to consolidate or even correct a bit before continuing its up move.

On longer term weekly chart (not shown), the index has closed above its 20 week and 50 week EMAs, and more than 400 points above its 200 week EMA. Weekly technical indicators are looking bullish. MACD is about to emerge from its oversold zone. RSI and Slow stochastic have crossed above their respective 50% levels. A strong bear attack that threatened the long-term bull market has been repulsed.

Sunday, November 16, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 14, 2014

In a full week of trading, FIIs were net buyers of equity while DIIs were net sellers. FIIs have so far bought equity worth Rs 7600 Crores in Nov ‘14. DIIs have sold worth Rs 5200 Crores. That may explain why both Sensex and Nifty have traded within narrow bands, but with upward biases – touching new highs in the process.

Reportedly, PSU insurance companies have been selling. But why? A probable answer is that they are moving to cash to enable them to subscribe to upcoming PSU divestments/FPOs in the pipeline.

Falling inflation and a better-than-expected IIP number is increasing the pressure on the RBI governor to cut interest rates. But there is a possibility that inflation may rise from Jan ‘15 as the effect of a higher base starts wearing off. So, a rate cut is unlikely before Feb ‘15 – provided inflation remains benign.

BSE Sensex index chart

SENSEX_Nov1414

The daily bar chart pattern of Sensex traded within a 360 points range with an upward bias – touching new intra-day (28126 on Nov 12) and closing (28047 on Nov 14) highs during the week. All three EMAs are rising, and the index is trading above them in a long-term bull market.

The ‘gap’ formed on the chart 6 months ago has remained unfilled, and is becoming increasingly irrelevant for technical analysis purposes with each passing day. So why is it still being drawn on the chart? As a reminder of where the floor of the current rally is, in case there is a stronger correction at some point. (Near-term support at 27350 has been marked with blue dotted horizontal line.)

Technical indicators are in bullish zones, but giving mixed signals. MACD is rising above its signal line, but its upward momentum is waning. ROC is showing negative divergence by correcting overbought conditions and crossing below its rising 10 day MA. RSI and Slow stochastic are well inside their respective overbought zones, but showing some signs of slipping down.

There is no need to jump in when the index has closed at a lifetime high. Stay invested, and use dips to add to existing holdings.

NSE Nifty 50 index chart

Nifty_Nov1414

The weekly bar chart pattern of Nifty touched new intra-week (8415) and closing (8390) highs during the week, gaining about 50 odd points. The index is trading above its weekly EMAs and Up trend line 2 in a long-term bull market. Volumes have started picking up, which is a sign that the rally may sustain.

Weekly technical indicators are looking overbought again. MACD has just crossed above its falling signal line inside overbought zone. ROC has slipped down from its overbought zone, and crossed below its 10 week MA. RSI and Slow stochastic have re-entered their respective overbought zones.

Note that all four indicators are showing negative divergences by failing to touch new highs with the index. Some more consolidation is possible before the up move resumes in earnest. Near-term support at 8180 has been marked with blue dotted horizontal line.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices touched new highs while consolidating sideways in long-term bull markets. Stay invested. Buy only if you find compelling value. Ignore SMS tips about unknown stocks and sure-shot multibaggers. If those ideas are so great, they would not be given away for free!

Saturday, November 15, 2014

Technical updates – Tata Chemicals and Tata Steel

Many companies in the Tata group have been undergoing restructuring and consolidation after the change of guard. Cyrus Mistry has focussed on cutting flab and exploiting synergies within group companies. Results are beginning to show. Return of bullish sentiment in the stock market following BJP’s majority in the general election has helped.

Inflation has been moderating. Low oil prices contributed to lowering inflation and the current account deficit. Recent raising of excise duty on petrol and diesel will reduce the fiscal deficit. Labour reforms announced in Rajasthan may gradually be introduced across the country. FIIs are encouraged by the calculated and deliberate way in which the government is introducing reform measures – but a lot still needs to be done.

After hitting 2 year lows during Aug-Sep ‘13, the stock prices of Tata Chemicals and Tata Steel are back in bull markets. That makes them good candidates for adding on dips.

Tata Chemicals

Tata Chem_Nov1414

The stock price of Tata Chemicals formed a small ‘double bottom’ reversal pattern in Sep ‘13 that ended a 9 months long bear phase. In a classic ‘trend change’ move, the stock quickly rose on surging volumes but faced resistance from its 200 day EMA in Nov ‘13; the subsequent correction dropped the stock to a higher bottom in Jan ‘14 – providing an opportunity to enter for those who may have missed out earlier.

The stock price climbed sharply above its 200 day EMA on a volume spurt, pulled back to provide another buying opportunity, and then soared away past its Jan ‘13 top. The stock closed at a 2 yr high of 424.70, but all four technical indicators are looking overbought and are showing negative divergences by failing to touch new highs.

Expect some consolidation or correction before the next leg of the up move. The stock has gained 77% from its Sep ‘13 low (66% on an annualised basis) – not bad for a large-cap stock.

Tata Steel

Tata Steel_Nov1414

Tata Steel’s stock ended a 7 months long bear phase by closing below the 200 level in early Aug ‘13. A ‘V’ shaped recovery, backed by high volumes, gained 50% within a month, but faced resistance from its 200 day EMA. After a brief correction down to its rising 50 day EMA, the stock crossed above its 200 day EMA into bull territory on a volume surge.

A pull back to the 200 day EMA gave another entry opportunity. The stock rose to form a small ‘double top’ reversal pattern in Dec ‘13 that initiated a 10 weeks long correction that dropped briefly below the 200 day EMA. The next rally rose to touch a 2 yr high of 560.25 in early Jun ‘14 – gaining a huge 182% in 10 months (almost 220% annualised). Cyclical large-cap metal stocks some times provide such spectacular gains – but one has to be nimble-footed to benefit from them.

The stock has been in a corrective phase for more than 5 months, but appears to have found support, and is looking poised to move up again. (Note how the 440 level has acted as a long-term support/resistance level.) Technical indicators have corrected overbought conditions. Some more correction or consolidation can’t be ruled out.

Wednesday, November 12, 2014

Nifty chart: a mid-week update (Nov 12 ‘14)

Nifty touched a new high of 8415 intra-day, but closed below 8400. The bullish sentiment in the stock market does not quite match the reality on the ground.

Commercial vehicle sales have started picking up, but capital goods sales – particularly heavy earth moving equipment sales that indicate a growth of the construction industry – are still stuck in a rut, thanks to high interest rates.

The Sep ‘14 IIP number was an encouraging 2.5%. In Aug ‘14, IIP was a paltry 0.4%. CPI inflation decreased for the third straight month to 5.52% for Oct ‘14 – thanks to a higher base effect. That may increase the clamour for an interest rate cut.

Nifty_Nov1214

After touching an intra-day high of 8180 on Sep 8 ‘14, Nifty underwent a moderate 450 points (5.5%) correction that lasted almost 6 weeks. FII selling was the main trigger. The index dropped below its 20 day and 50 day EMAs for the first time in almost 10 months.

Election victory for the BJP in Haryana and Maharashtra encouraged FIIs to turn buyers again. A rally from the Oct 17 ‘14 intra-day low of 7724 hesitated only briefly near its Sep ‘14 top before climbing higher.

A number of holidays during Oct ‘14 and the first week of Nov ‘14 kept trading volumes relatively low. Of late, Nifty has been consolidating sideways with a slight upward bias.

Daily technical indicators are looking overbought. MACD is just below its overbought zone, but its upward momentum has slowed down. ROC has dropped to touch its rising 10 day MA inside its overbought zone, and showing negative divergence by failing to touch a new high with the index. RSI and Slow stochastic are moving sideways well inside their respective overbought zones.

Nifty is trading above all three EMAs in a long-term bull market that is now almost three years old. Periodic corrections have kept the index technically ‘healthy’. At some point, a bigger correction of 15-20% or even higher may occur. Be prepared for it. The index does not move in one direction.

If you are sitting on good profits on mid-cap and small-cap stocks, take some of that profit home. No need to jump on to the next stock idea. Keep the booked profits in a liquid fund. If and when a bigger correction happens, use the opportunity to add to existing holdings.

Tuesday, November 11, 2014

WTI and Brent Crude Oil charts: bears continue to rule

WTI Crude chart

WTI Crude_Nov1014

In the previous post on the daily bar chart pattern of WTI Crude oil, bearish technical indicators were suggesting further downside. A test of the Jun ‘12 low of 77.50 had seemed likely.

Oil’s price consolidated sideways – touching lower tops, but receiving good support from the 80 level. However, on the first two trading days in Nov ‘14, oil’s price dropped on heavy volumes to breach the 77.50 level and touch an intra-day low of 76.

Positive divergences visible on technical indicators – which touched slightly higher bottoms while oil’s price dropped lower – led to a brief rally that stalled at the 80 level. It was a proof of the ‘rule’ that a support level breached on high volumes usually turns into a resistance level.

All three EMAs are falling and oil’s price is trading below them in a clear example of a long-term bear market. Technical indicators have corrected oversold conditions, but remain in bearish zones.

On longer term weekly chart (not shown), oil’s price has closed below its 200 week EMA for ten straight weeks. Weekly technical indicators have fallen deeper in their respective oversold zones. The 50 week EMA is about to cross below the 200 week EMA and technically confirm a long-term bear market. The next lower target is 70.

Brent Crude chart

Brent Crude_Nov1014

The daily bar chart pattern of Brent Crude oil consolidated sideways after touching an intra-day low of 83, and managed to touch an intra-day high of 88 for the second time in two weeks.

Bears reasserted their dominance. Oil’s price dropped to a new intra-day low of 81 on strong volumes. Positive divergences visible on all three indicators – which touched higher bottoms while oil’s price dropped lower – led to a brief rally that stalled at the 85 level.

MACD, RSI and Slow stochastic are in their respective oversold zones – where they can remain for long periods during a bear phase. All three EMAs are falling and oil’s price is trading below them in a bear market.

On longer term weekly chart (not shown), oil’s price has closed below its 200 week EMA for thirteen weeks in a row. Weekly technical indicators remain oversold. The ‘death cross’ of the 50 week EMA below the 200 week EMA has technically confirmed a long-term bear market. The next lower target is 75.

Monday, November 10, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 07, ‘14

S&P 500 Index Chart

SPX_Nov0714

The following comments appeared in last week’s analysis of the daily bar chart pattern of S&P 500: “More worrisome is the large ‘broadening top’ reversal pattern that appears to be forming since the index touched its Jul 24 top of 1991.”

The index touched new intra-day (2034) and closing (2032) highs, and gained 14 odd points for the week – but remains within the ‘broadening top’ pattern (marked by blue lines). Though the index is trading above all three EMAs in a bull market, a failure to move above the upper blue resistance line may lead to a crash below the lower blue support line.

Technical indicators are looking overbought. MACD and Slow stochastic are well inside their respective overbought zones. RSI is just below its overbought zone, but showing negative divergence by failing to rise higher with the index. Caution is advised. One needs to respect a reversal pattern till it gets negated.

On longer term weekly chart (not shown), the index is trading above all three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but showing negative divergences by failing to touch new highs with the index. The bearish ‘broadening top’ pattern is casting a dark shadow over the bull market.

FTSE 100 Index Chart

FTSE_Nov0714

The daily bar chart pattern of FTSE 100 consolidated between its 20 day and 50 day EMAs during the first three trading days of the week before gathering strength to cross above the 50 day EMA and briefly above the 6600 level, before closing with a small gain of 20 odd points for the week.

Daily technical indicators are looking bullish. MACD is rising above its signal line and is poised to enter positive zone. RSI is moving up towards its overbought zone. Slow stochastic has entered its overbought zone.

The index needs to gain another 50 points to cross above its falling 200 day EMA and re-enter bull territory. Bears may not give up without a fight.

On longer term weekly chart (not shown), the index has moved almost 400 points above its rising 200 week EMA but is facing resistance from its entangled 20 week and 50 week EMAs. Weekly technical indicators have corrected oversold conditions. MACD and RSI are still in bearish zones. Slow stochastic has just crossed above its 50% level. The long-term bull market may have survived a strong bear attack.

Saturday, November 8, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 07, 2014

During the three days of trading on another holiday-shortened week, both Sensex and Nifty managed to touch new highs, but consolidated sideways within narrow ranges and closed with negligible gains.

FIIs were net buyers of equity on all three days, while DIIs were net sellers. Both indices are trading above their daily and weekly EMAs in long-term bull markets.

Industry leaders and the Finance Minister have been exhorting the RBI Governor to cut interest rates because WPI and CPI inflation are on downward paths. But a rate cut seems unlikely in this calendar year – as per the Deputy Governor’s speech at a recent industry gathering.

BSE Sensex index chart

Sensex_Nov0714

The daily bar chart pattern of Sensex touched a new high of 28010 on Nov 5 ‘14, but failed to sustain above the psychological 28000 level – gaining a meagre 3 points for the week.

Daily technical indicators are showing some signs of correcting overbought conditions. MACD is rising above its signal line towards its overbought zone, but its upward momentum has slowed down. ROC is inside its overbought zone, but falling towards its 10 day MA. RSI and Slow stochastic are inside their respective overbought zones, but turning down.

A little more consolidation is possible before the index can get its breath back for the next upward climb.

NSE Nifty 50 index chart

Nifty_Nov0714

The weekly bar chart pattern of Nifty touched a new high of 8365 mid-week, but closed below the 8350 mark with a small gain of 15 points for the week.

Weekly technical indicators are looking overbought. MACD has re-entered its overbought zone to touch its falling signal line. ROC has slipped down to touch its 10 week MA just below its overbought zone. RSI and Slow stochastic have re-entered their respective overbought zones.

However, all four indicators are showing negative divergences by failing to touch new highs with the index – hinting at a consolidation phase before the next up move.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are back in the control of bulls, and rising to new highs. As the thief said to the joker: “No reason to get excited.” Use dips to add to existing portfolios. If you are new to the market, SIP into a good balanced fund instead of trying your luck with individual stocks.

Thursday, November 6, 2014

How the stock market acts like a voting machine in the short term – an example

“In the short run the stock market behaves like a voting machine, but in the long term it acts like a weighing machine.” – Benjamin Graham

Value investing guru Graham’s oft-quoted statement is best validated by an example. With Q2 (Sep ‘14) results hitting the market thick and fast, results from two companies - and the subsequent contrasting market behaviour of their stocks - caught the eye.

Let us call the companies Company ‘A’ and Company ‘B’, and look at their Q2 Sep ‘14 results and compare them with their Q2 Sep ‘13 results in the table below (figures in Rs. Crores).

Company A Q2 (Sep ‘14) Q2 (Sep ‘13) Company B Q2 (Sep ‘14) Q2 (Sep ‘13)
Sales 7639.33 6892.64 Sales 207.45 225.03
Net Profit 988.16 913.80 Net Profit - 1.21 1.52

Company ‘A’ increased its sales by Rs. 746.69 Crores (10.8%) over the same quarter in the previous year. Its net profit increased by Rs. 74.36 Crores (8.1%).

Company ‘B’ had sales lower by Rs. 17.58 Crores (7.8%) than the same quarter in the previous year. Its net profit turned negative. The loss would have been much higher except for a forex gain of Rs 3.89 Crores and gain on sale of subsidiary of Rs. 6.69 Crores.

You will not be faulted for concluding that the stock market should have given a ‘thumbs up’ to Company ‘A’ and trashed the shares of Company ‘B’. But the exact opposite happened!

The stock price of Company ‘A’ fell almost 8% after announcement of results – though it has recovered a substantial portion of its losses since then. The stock of Company ‘B’ rose a whopping 54% – thanks to three ‘upper circuits’ – after results announcement!

So, are investors completely irrational? Not completely. The Q2 ‘14 sales and net profit of Company ‘A’ were lower by 10% and 6.5% respectively than Q1 ‘14. These figures disappointed the market. The high stock price of Company ‘A’ may have led to profit booking.

Company ‘B’ increased sales by 4.4% and reduced losses by 95% over its Q1 ‘14 numbers. The fact that the stock price of Company ‘B’ is low may have something to do with investor enthusiasm about the reduced losses and the three upper circuits.

In the longer term, the stock market will act like a weighing machine, and sanity will prevail. That doesn’t mean the stock price of Company ‘B’ will not rise even higher.

Tuesday, November 4, 2014

Gold and Silver charts: bottoms fall out

Gold Chart Pattern

Gold_Nov0314

The following comments appeared in the previous post on the daily bar chart pattern of gold: “The … upward bounce was sharp – typical of bear market rallies. Gold’s price crossed above its falling 20 day EMA without much ado, but is likely to face strong resistance from the zone between 1240 and 1260.”

Gold’s price climbed into the resistance zone, briefly crossed above the falling 50 day EMA, but topped out after touching an intra-day high of 1255 on Oct 21.

Bears resumed their selling, After a day’s support at 1240, gold’s price dropped below its 20 day EMA and then crashed through the long-term support level of 1180 on huge volumes to touch a low of 1160 – the lowest level in 4 years.

All three technical indicators have entered their respective oversold zones. Note that MACD is showing positive divergence by touching a higher bottom. Any rally is likely to be short-lived, as bears are strictly on a ‘sell on rallies’ mode.

On longer term weekly chart (not shown), gold’s price faced resistance from its falling 20 week EMA and is trading below its three weekly EMAs in a long-term bear market. Technical indicators are looking oversold – which could lead to another rally. The next long-term support is at 1000; that is where gold’s price may find a bottom.

Silver Chart Pattern

Silver_Nov0314

The following comments were made in the previous post on the daily bar chart pattern of silver: “Silver’s price may rally some more, but the zone between 18 and 19 will provide strong resistance.”

Silver’s price managed to cross above its falling 20 day EMA on a couple of occasions, but failed to even test the 18 level. After consolidating sideways for a few days – during which the 17 level provided support – silver’s price fell below 16 on huge volumes.

Daily technical indicators are in their respective oversold zones. Slow stochastic has formed a small ‘rounding bottom’ pattern. MACD and RSI are showing positive divergences by touching higher bottoms. However, any rally will probably face more bear selling.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMAs in a long-term bear market. Technical indicators are in their respective oversold zones, and two of them – MACD, RSI – are showing positive divergences by touching higher bottoms. The next long-term support is at 14.

Monday, November 3, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Oct 31, ‘14

S&P 500 Index Chart

S&P 500_Oct3114

The 6 months daily bar chart pattern of S&P 500 started the week by dropping to its 50 day EMA intra-day, but resumed its up trend by forming a bullish pattern of higher tops and higher bottoms for the rest of the week.

On Fri. Oct 31 ‘14, the index rose to test its previous (Sep 19) top on good volume support, and closed the week at a new lifetime high of 2018. Bulls are back in control, and bears should start preparing for hibernation – right?

Yes – except for some dark clouds on the horizon that may rain on the bull party. By failing to cross above its previous top, the index has left the door open for a bearish ‘double top’ reversal pattern – though the pattern will be confirmed only if the index falls below its Oct 15 low of 1821.

More worrisome is the large ‘broadening top’ reversal pattern that appears to be forming since the index touched its Jul 24 top of 1991. Note that a smaller ‘broadening top’ pattern - formed in early Sep ‘14 - had preceded the sharp correction in Oct ‘14.

Daily technical indicators are in bullish zones, and beginning to look overbought. MACD and RSI are just below their respective overbought zones. Slow stochastic is well inside its overbought zone. The sharp ‘V’ shaped rally from the Oct 15 low may not sustain.

On longer term weekly chart (not shown), the index stayed above all three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but looking a bit overbought. The index may be forming a bearish ‘broadening top’ pattern that will be negated only if the previous top of 2020 is crossed convincingly.

FTSE 100 Index Chart

FTSE_Oct3114

After facing resistance during the first 2 days of the trading week, the daily bar chart pattern of FTSE 100 crossed above its 20 day EMA and rose above the 6500 level to its 50 day EMA by the end of the week.

Despite a weekly gain of 150 odd points, the failure of the index to move above its 50 day EMA may encourage bears to get active again. (At the time of writing this post, FTSE has slipped down towards the 6500 level.)

Daily technical indicators are looking bullish. MACD is still negative, but has emerged from its oversold zone and is rising above its signal line. RSI has moved above its 50% level. Slow stochastic has climbed to the edge of its overbought zone.

Note that the MACD signal line and Slow stochastic %D line have both formed bullish ‘rounding bottom’ patterns. Bulls are trying extricate themselves from a strong bear grip – but still have a lot of work to do.

On longer term weekly chart (not shown), the index has moved well above its 200 week EMA but remains below its falling 20 week and 50 week EMAs. Weekly technical indicators have corrected oversold conditions but remain in bearish zones. The long-term bull market appears to have survived a strong bear attack.

Saturday, November 1, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 31, 2014

The following remarks appeared in last week’s analysis: “Bulls are about to regain control and take both indices to new highs. The Sep 8 ‘14 lifetime high remains a psychological hurdle. There is usually some profit booking near a previous top, but that shouldn’t prevent bulls from charging ahead.”

There was just a day’s pause near the Sep 8 ‘14 tops before Sensex and Nifty soared away to touch lifetime highs. FIIs turned net buyers of equity during the week. But they were net sellers of Rs 1700 Crores during Oct ‘14. DII’s were net sellers of equity during the week, but net buyers of Rs 4100 Crores during Oct ‘14.

Retail investors have started entering the market in large numbers. But news on the ground is not encouraging yet. PSU banks are showing increasing NPAs. Credit growth remains poor. A deficient monsoon has affected rural sales. Core sector growth has slipped.

However, the possibility of an interest rate hike in USA has receded for now. Japan’s announcement of a large dose of economic stimulus triggered renewed buying in global equities and a sell off in gold.

BSE Sensex index chart

Sensex_Oct3114

The daily bar chart pattern of Sensex soared to new intra-day and closing highs on Fri. Oct 31 ‘14 - in a rousing finale to the first full week of trading during the month. A number of festivals and state election in Maharashtra meant several holidays that kept trading at a low ebb.

Bulls are firmly in control, with Sensex reaching blue-sky territory with no known resistances. Daily technical indicators are looking overbought. MACD has formed a bullish ‘rounding bottom’ pattern, and crossed above its signal line into positive territory. ROC has moved sharply above its 10 day MA (which has also formed a ‘rounding bottom’ pattern) and entered its overbought zone. RSI and Slow stochastic have also entered their respective overbought zones.

Note that MACD and RSI are showing negative divergences by failing to touch new highs with the index. A sharp rise to touch a new high is often followed by some consolidation or correction. The likely dip can be used to add/enter.

NSE Nifty 50 index chart

Nifty_Oct3114

The following comments were made in last week’s analysis of the weekly bar chart pattern of Nifty: “The drop below UL3 was within the 3% ‘whipsaw’ range – keeping the up trend intact technically. Nifty should cross above UL3 soon, and move up to touch new highs.”

Nifty comfortably crossed above UL3 to touch new intra-week and closing highs. The sharp rise in the index outpaced the technical indicators – all four of which are showing negative divergences by failing to touch new highs.

Since the index is firmly in control of bulls, a consolidation is more likely than a correction. Global markets are climbing and FIIs are back in buy mode. Any correction or consolidation is going to be short-lived.

Suppress the feeling of excitement as you see newly acquired stocks hurtling towards outer space. Maintain investment discipline of following an asset allocation plan and booking part profits in small-cap or mid-cap stocks.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have shaken off bears and climbed to lifetime highs. Q2 results declared so far show top line growth but some pressure on bottom lines. Keep a cool and clear head. Avoid jumping around from one stock to another. If you have built a good portfolio, just sit back and enjoy the bull ride.