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Tuesday, June 30, 2015

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

I am pleased to announce the re-opening of paid subscriptions to my monthly investment newsletter for a 3 weeks period from Jul 1-21, 2015. Only a limited number of subscriptions will be offered to blog visitors, followers and subscribers – on a first-come first-served basis – to enable me to provide personalised attention and guidance to each subscriber.

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

The newsletter has completed 66 issues, with its share of hits and misses. The past few months were challenging and humbling. Challenging because several selected stocks failed to perform well in a market that has shunned small-cap and mid-cap stocks. Humbling because subscribers have kept faith in my stock picking abilities. Improvement in market sentiments should help some of the non-performers to get back on track.

Those who follow my blog posts already know what kind of stocks I like, and what type of stocks I avoid. The guiding principle is to choose well-managed, financially prudent companies that generate cash from operations, have low debt, give steady (rather than spectacular) returns and have some growth prospects.

Non-subscribers may be interested to know how recommended stocks have fared during the past 18 months. Without revealing the names of the stocks (it won’t be fair to my subscribers to do so), here is a brief results table with recommended prices and dates, subsequent high and low prices, closing prices and gains as on Jun 30, ‘15:

Stock Date Price High Low Close Gain (%)
A Jan 28 ‘14 67.00 122.00 60.50 74.90 11.8
B Feb 26 ‘14 154.60 159.40 77.15 81.65 - 47.2
C Mar 28 ‘14 89.00 351.00 84.60 252.00 183.10
D Apr 25 ‘14 277.20 579.40 266.00 558.25 101.40
E May 27 ‘14 94.10 740.00 93.25 623.25 562.30
F Jun 27 ‘14 62.60 88.00 59.00 69.00 10.2
G Jul 28 ‘14 206.50 267.90 174.00 186.65 - 9.6
H Aug 28 ‘14 115.50 229.80 113.25 135.10 16.9
I Sep 26 ‘14 46.00 52.80 31.00 44.85 - 2.5
J Oct 27 ‘14 250.10 322.85 248.00 275.45 10.1
K Nov 27 ‘14 231.85 348.80 221.00 262.10 13.0
L Dec 26 ‘14 66.60 77.00 52.50 64.35 - 3.4
M Jan 28 ‘15 285.00 285.00 222.00 234.30 - 17.8
N Feb 26 ‘15 82.25 94.65 74.35 93.15 13.2
O Mar 27 ‘15 88.45 103.00 81.15 89.70 1.4
P Apr 27 ‘15 223.70 240.10 162.10 165.60 - 26.0
Q May 28 ‘15 89.40 91.85 84.20 87.75 - 1.8
R Jun 26 ‘15 77.15 77.20 72.00 75.15 - 2.6

All recommended stocks are small-cap or mid-cap, picked for long-term investment of 2 to 3 years. Some of them provided strong gains (in bold) – which is a testimony to their underlying strength. Note that three stocks are showing double-digit losses (in italics) but subscribers were recommended to sell much earlier when stop-losses got hit.

17 (out of 18) stocks touched higher levels after my recommendations. In a 2-3 years time frame, I expect most of the laggards to improve their performances.

None of these stocks were ‘cheap’ – fundamentally strong stocks rarely are - and some had already run up quite a lot when they were recommended. The down trend of the past 4 months have taken a toll on stock performance – but is providing entry opportunities.

Why wait if you wish to add fundamentally strong stocks with growth potential to your portfolio? Just subscribe to my Monthly Investment newsletter. Send me an email (atmobugobu@yahoo.com) soon – subscriptions will close on Jul 21, 2015.

Sunday, June 28, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 26, 2015

The following comment appeared in last week’s post: “Unless FIIs turn buyers, down trends on both Sensex and Nifty charts may not get reversed any time soon.”

As per last week’s provisional figures, FIIs were net buyers of equity worth Rs 445 Crores. DIIs were also net buyers of equity worth Rs 550 Crores.

Sensex has managed to cross above its down trend line (on chart below), while Nifty is poised to do likewise. Monsoon rains have covered the entire Indian peninsula ahead of schedule – so a major market concern is out of the way.

The Lalit Modi fiasco has galvanised the opposition and put the government on the back foot. Hopefully, reform measures will not slow down as a result.

Greece’s sovereign debt problem has not been resolved yet. Only 2 more days remain for the repayment deadline set by ECB and IMF. If a last minute deal is not agreed upon, there will be repercussions in the global economy.

BSE Sensex index chart

Sensex_Jun2615_ST

The daily bar chart pattern of Sensex overcame resistances from the blue down trend line and the lower edge of the ‘support-resistance zone’ and crossed above its three daily EMAs into bull territory on Mon. Jun 22.

Follow up buying from bulls was missing. The index consolidated sideways within a 330 points range during the rest of the week. Which begs the question: Is the down trend over?

The answer is: Not yet. Why? Volumes (not shown on chart) during Monday’s upward break out were not significantly high. That makes a pullback to the down trend line or, even below it to the 200 day EMA, a possibility.

If the pullback halts at the down trend line or the lower edge of the ‘support-resistance zone’, the subsequent upward bounce will be a good adding opportunity.

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line in positive territory. ROC, RSI and Slow stochastic are inside their respective overbought zones, but not showing much upward momentum.

Some more consolidation or a correction is likely. Note that the entire down move from the lifetime high touched in Mar ‘15 has been a bull market correction. Analysts predicting doom and gloom and much lower index levels should be ignored.

NSE Nifty 50 index chart

Nifty_Jun2615_LT

The following comment was made in last week’s post on the weekly bar chart pattern of Nifty: “Unless volumes pick up, Nifty may not be able to convincingly cross above the down trend line.”

Volumes did pick up during the past week – enough to enable Nifty to cross and close above its 20 week EMA in bull territory; but not enough to cross above the blue down trend line. That may give bears an opportunity to regain control.

Weekly technical indicators are still in bearish zones, but showing signs of turning around. MACD is below its falling signal line, but moving sideways just below the ‘0’ line. ROC, RSI and Slow stochastic have bounced up from their respective oversold zones, and showing good upward momentum.

Expect another interesting fight for dominance between bulls and bears next week – with bulls having a slight advantage.

Bottomline? Bulls are on the verge of reversing the down trends on BSE Sensex and NSE Nifty charts. Bears are still in the game, and may try their best to retain control. Both indices are back in bull territories. Stay invested, and be prepared to add to existing portfolios. If you are planning to enter the market for the first time, choose a good balanced fund.

Wednesday, June 24, 2015

Add some stability to your portfolio with bank fixed deposits – a guest post

The younger you are, the more should be your allocation to equities. Why? Because the longer you stay invested in equities, the greater is going to be your likely returns. Also, your financial commitments are lower when you are younger. So, you can afford to take more risks.

As you grow older, start a family and care for elderly parents, you will need more stability in your investment portfolio and additional cash flow to support your primary earnings from business or profession.

In this month’s guest post, Nishit argues in favour of bank fixed deposits. The downside to bank FDs is low returns which are taxable. The upside is safety of principal amount and facility of regular cash flows through quarterly interest payments. Using some simple investment strategies, the unexciting bank FD can add stability to your portfolio.

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Interest rates are falling. That is being touted as good news for the economy and for borrowers. Lower interest rates mean higher growth and more jobs. More jobs mean more income and more purchasing power. This whole cycle of spending, consumption and growth is likely to be triggered off by the cutting of interest rates by RBI.

RBI has already reduced rates by 75 basis points (i.e. 0.75%), and is further expected to reduce rates by about 1-2% before this cycle is over.

One of the casualties of this rate-cut cycle who goes unlamented is the senior citizen, who depends on fixed deposit (FD) interest for his livelihood. Banks are very quick to cut deposit rates and those FDs which were giving interest of 9.7% have already been reduced to 9%. In fact a study across PSU and Private Banks shows that maximum interest on FD which can be obtained now is 9%.

How does one work around this? To explain the impact, if a senior citizen has Rs 10 lakhs in FD, 9.7% interest gives him Rs 97000 and 9% gives him Rs 90000 per year. How does he make up for this Rs 7000 shortfall?

One way of doing it is locking in FDs for a period of 5 years when the rates are high. 5 years is a sufficient long period for one cycle of rate cuts to play out.

Also, once the rates start being cut, the 2-3 year FDs offer the highest rate of interest. At such times, one can go for such shorter-duration FDs.

The Senior citizen scheme from the Government, which has a 1 year lock in period, still offers 9.3% rate of interest. This rate changes only in April every year. So, one can lock in up to Rs 15 lakhs in this scheme till April ’16.

Next common question is: what about liquidity? What if one needs money urgently then how does one break the Fixed Deposit? A simple option is to break the one giving the least amount of interest. Even this can be circumvented by ensuring and planning the FDs in such a way that one FD matures every 3 months.

To do this, it requires certain amount of planning and the staggering of the FDs. Also, one can plan the FDs in such a way that every month some or the other FD gives interest. Quarterly credit of interest gives the highest returns and by staggering the FDs one can ensure a monthly flow of income while enjoying the higher returns of quarterly Interest.

The protection of capital is a must and only nationalized or top private banks FDs can be considered. This can be spread across 2-3 banks so that the risk of default is minimised.

These are some simple strategies, if followed scrupulously, can give maximum bang for the buck.

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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)

Related post

About Asset Allocation – a guest post

Tuesday, June 23, 2015

WTI and Brent Crude Oil charts: an update

WTI Crude chart

WTIC_Jun2215

The daily bar chart pattern of WTI Crude has been consolidating sideways for the past 2 months within a ‘pennant’ (narrow triangle) pattern. A ‘pennant’ (like a triangle) is usually a continuation pattern. So, the likely break out from the pattern should be upwards.

However, triangles are unreliable patterns. That means that the price break out can be downwards; or, there may not be a break out at all. Oil’s price may continue to consolidate sideways and eventually pass through the apex of the ‘pennant’.

In the latter case, the price level of the apex of the ‘pennant’ is likely to turn into a ‘support-resistance’ level.

Oil’s price is trading above its rising 20 day and 50 day EMAs but below its sliding 200 day EMA in a bear market. A convincing break out above the ‘pennant’ may propel oil’s price above its 200 day EMA into bull territory. A drop below the ‘pennant’ will restore control to bears.

Daily technical indicators are in bullish zones but not giving any clear signals – which is often the case during sideways consolidations. MACD is entangled with its signal line and sliding down in positive zone. RSI is moving sideways just above its 50% level. Slow stochastic has dropped down after facing resistance from the edge of its overbought zone.

On longer term weekly chart (not shown), oil’s price has spent 10 weeks above its rising 20 week EMA, but is trading well below its falling 50 week and 200 week EMAs in a long-term bear market. Weekly technical indicators are looking bullish. MACD is rising above its signal line in negative zone, but its upward momentum is slowing down. RSI has just crossed above its 50% level. Slow stochastic is moving sideways inside its overbought zone.

Brent Crude chart

BRENT_Jun2215

The daily bar chart pattern of Brent Crude oil has been consolidating sideways within a ‘falling wedge’ pattern during the past 2 months. Though oil’s price is trading below its three daily EMAs in a bear market, the ‘falling wedge’ has bullish implications.

That means the likely break out from the wedge pattern is upwards. An upward break out should be accompanied by a volume spike, otherwise the break out may turn out to be a ‘false’ one. Note the strong volumes during recent down-days, but the selling appears to have been well absorbed.

Daily technical indicators are looking bearish. MACD is entangled with its signal line in negative zone. RSI and Slow stochastic have dropped below their respective 50% levels. Some more consolidation within the wedge is likely.

On longer term weekly chart (not shown), oil’s price closed below all three weekly EMAs in a long-term bear market. Weekly technical indicators are turning bearish. MACD is above its signal line in negative zone, but its upward momentum has stalled. RSI is moving sideways below its 50% level. Slow stochastic has dropped down sharply from its overbought zone, but is above its 50% level.

Monday, June 22, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jun 19, 2015

S&P 500 Index Chart

S&P 500_Jun1915 

The daily bar chart pattern of S&P 500 took investors on another roller-coaster ride last week. The index dropped to an intra-day low of 2072 on Mon. Jun 15 – forming a small ‘double bottom’ reversal pattern.

Over the next 3 days, it rallied past its 20 day and 50 day EMAs – closing above the 2120 level in bull territory on Thu. Jun 18. On the last day of the week, the index corrected sharply – backed by the strongest volumes in 3 months.

Note that the index closed above its three daily EMAs in a long-term bull market – but at the same level that it closed more than 4 months back, and appears to be undergoing a sideways consolidation within a large bearish ‘rising wedge’ pattern.

Strong volumes on down-days may be a sign of ‘distribution’ from stronger to weaker hands.

Daily technical indicators are giving mixed signals. MACD crossed above its signal line in negative zone, but its upward momentum is weak. RSI is above its 50% level, but moving down. Slow stochastic is moving up towards its overbought zone.

Volatile index movements is often a sign of a change of trend. Stay invested, but remain watchful.

On longer term weekly chart (not shown), the index dropped below its 20 week EMA intra-week, but closed above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, and showing slight upward momentum.

FTSE 100 Index Chart

FTSE_Jun1915

The following comments appeared in last week’s post on the daily bar chart pattern of FTSE 100: “…the index has so far closed within the 3% ‘whipsaw’ limit below its 200 day EMA. That means the breach below the 200 day EMA has not been technically validated yet. Only a close below 6600 will do that.”

On Thu. Jun 18, the index dropped to an intra-day low of 6625 – testing the 3% ‘whipsaw’ limit below the 200 day EMA, but bounced up to close above the 6700 level. Despite the sharp correction, the breach below the 200 day EMA awaits technical confirmation.

It may be a temporary respite for bulls. The 20 day EMA is ready to drop below the 200 day EMA. The 50 day EMA is falling towards the 200 day EMA. The 200 day EMA has started sliding down. These are bearish signs.

A last-minute resolution of Greek’s sovereign debt problems may act as a positive trigger for bulls.

Daily technical indicators are in the process of correcting oversold conditions. MACD is inside its oversold zone, but has stopped falling. RSI has bounced up from the edge of its oversold zone. Slow stochastic is trying to emerge from its oversold zone.

Note that RSI and Slow stochastic are showing positive divergences by not touching lower lows with the index. The index may pull back to test resistance from its 200 day EMA.

On longer term weekly chart (not shown), the index dropped sharply below its 50 week EMA and closed below it. The 200 week EMA is still rising, and the index is trading well above it in a long-term bull market. Weekly technical indicators are looking bearish but showing signs of upward momentum.

Saturday, June 20, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 19, 2015

Sensex and Nifty completed 6 straight trading sessions with gains, marking their highest percentage weekly gains in nearly 5 months – thanks mainly to a rally in RIL stock. Above average monsoon rainfall also boosted investor sentiments.

FIIs remained net sellers of equity worth Rs 3200 Crores in the past week, as per provisional figures. DIIs were net buyers of equity worth Rs 4300 Crores. Unless FIIs turn buyers, down trends on both Sensex and Nifty charts may not get reversed any time soon.

Greece is again on the brink of defaulting on loan repayments to IMF and ECB. More than $100 Billion worth of Euros have been withdrawn by small savers from their bank accounts. Only an emergency fund injection can save Greek banks from going under. Russia may play the ‘white knight’ if IMF and ECB act tough.

BSE Sensex index chart

Sensex_Jun1915

The following comments in last week’s post on the daily bar chart pattern of Sensex may be worth repeating: “…all is not gloom and doom – yet. Why? Because the index has so far closed within the 3% ‘whipsaw’ limit below the 200 day EMA. Technical nitpicking, you think? On such nitpicking are fortunes made! In other words, there is a possibility of a technical bounce from current level.”

The expected technical bounce effortlessly crossed above the 20 day and 200 day EMAs into bull territory, but faced twin resistance from the falling 50 day EMA and the lower edge of the ‘support-resistance zone’ between 27350 and 28800.

The ‘death cross’ of the 50 day EMA below the 200 day EMA – which would have technically confirmed a bear market – has been averted for the time being. Is the down trend from the lifetime high touched in Mar ‘15 coming to an end?

Hanging like the ‘Sword of Damocles’ overhead is the blue down trend line – ready to provide stronger resistance if the rally continues. Does the index have sufficient upward momentum to cross above the down trend line – after failing to do so on three previous occasions?

Daily technical indicators are giving mixed signals. MACD has formed a bullish ‘rounding bottom’ pattern and crossed above its signal line, but remains in negative zone. ROC is showing good upward momentum by crossing above its 10 day MA to enter positive zone. RSI is below its 50% level, and showing weak upward momentum. Slow stochastic has risen sharply from its oversold zone, but is yet to cross above its 50% level.

Bears can be expected to defend the down trend line, i.e. selling can start at any time. Remember that a trend line increases in ‘strength’ the more it is tested without being breached – as opposed to a support (or resistance) level, which ‘weakens’ with every test.

Technically, next week’s trading can be crucial for both bulls and bears. A convincing cross above the down trend line will mean a shift of control to bulls. Bears will try to retain control by keeping the index below the trend line and the 200 day EMA.

NSE Nifty 50 index chart

Nifty_Jun1915

The following remarks appeared in last week’s post on the weekly bar chart pattern of Nifty: “Oversold conditions may prevail for long periods during bear markets. In bull markets – and technically Nifty is still in a bull market – oversold conditions are usually of shorter durations. Slow stochastic and ROC (not clearly visible) have both touched slightly higher bottoms than the ones they touched in May ‘15. The positive divergences may lead to a technical bounce, if not a rally.”

Nifty bounced up strongly after touching an intra-week low of 7940 in the week ending on Jun 12 ‘15. The index closed above its 50 week EMA inside the ‘support-resistance zone’ between 8180 and 8630. Is the correction coming to an end finally?

Too soon to say. The index is trading below its 20 week EMA and the blue down trend line. That means bears are still in control. Note that last week’s trading volumes were lower than the volumes in each of the previous three weeks. Unless volumes pick up, Nifty may not be able to convincingly cross above the down trend line.

Weekly technical indicators are in bearish zones, but showing some signs of turning around. MACD is negative, and moving sideways below its falling signal line. ROC (not clearly visible) is below its falling 10 week MA inside its oversold zone, but crawling up. RSI has bounced up strongly from the edge of its oversold zone, but is still below its 50% level. Slow stochastic is yet to emerge from its oversold zone.

An intermediate bottom may have formed at 7940. In case of bear selling, a stronger support is at 7840.

Bottomline? Despite 6 days of rallying, bears are still in control of BSE Sensex and NSE Nifty charts - and will remain so as long as both indices trade below their respective down trend lines. Bulls need to muster stronger buying support to cross above the down trend lines. Stay invested, but remain cautiously optimistic.

Wednesday, June 17, 2015

Nifty chart: a mid-week update (Jun 17 ‘15)

FIIs are still in sell mode. As per provisional figures, their net sales in equity crossed Rs 2000 Crores during the first three days of the current week. DIIs more than compensated by net buying equity worth Rs 2700 Crores.

Monsoon rains have been above average so far, despite a late start. WPI inflation was –2.36% in May ‘15. Current account deficit contracted to a 3 months low in May ‘15. But exports are down for the 6th month in a row.

The government has consented to 16 FDI proposals worth Rs 6750 Crores recently. A gradual shift towards FDI will have a longer lasting effect on trade deficit than the present dependence on volatile FII flows.

"Manufacturers in the United States and around the world are eager to invest in India, but first, we need Prime Minister Modi to enact serious policy reforms that level the playing field for all, and encourage and protect collaboration and innovation," said Jay Timmons, President and CEO, US National Association of Manufacturers at a recent meeting in Washington.

Nifty_Jun1715

Even after 4 straight sessions of gains, the daily bar chart pattern of Nifty has spent 11 consecutive trading sessions below its 200 day EMA. The 20 day EMA has crossed below the 200 day EMA, and is providing resistance to the current rally.

The 50 day EMA is falling towards the 200 day EMA. The ‘death cross’ below the long-term moving average will technically confirm a bear market. The rally needs to gather strength to prevent the ‘death cross’.

Daily technical indicators have corrected oversold conditions, but remain bearish. MACD has moved up to touch its falling signal line in negative zone, and showing positive divergence by touching a higher bottom. ROC has crossed above its 10 day MA and is ready to enter positive zone. RSI has emerged from its oversold zone. Slow stochastic is trying to follow suit.

The blue down trend line is dominating the Nifty chart – as it has done since the beginning of Mar ‘15. Bears will remain in control as long as the index stays below the trend line. 

Volumes picked up a bit today, but much more needs to be done by bulls if the rally is to sustain longer. Without FII buying support, that seems unlikely to happen.

Tuesday, June 16, 2015

Gold and Silver charts: an update

Gold Chart Pattern

Gold_Jun1515

The following remarks were made in the previous post on the daily bar chart pattern of gold: “The bullish pattern of 'higher tops and higher bottoms' from the Mar '15 low still remains in force. But for how much longer? Strong volumes on down days show that bears are regaining control.”

Gold’s price touched an intra-day low of 1162 on Jun 5 ‘15. The subsequent technical bounce faced resistance from its falling 50 day EMA.

By falling below the May ‘15 low of 1170, the bullish pattern of ‘higher tops and higher bottoms’ from the Mar ‘15 low of 1140 has been negated. All three EMAs are moving down, and gold’s price is trading below them in a bear market.

Daily technical indicators are showing some upward momentum, but remain in bearish zones. MACD has moved up to touch its falling signal line in negative zone. RSI is making another attempt to cross above its 50% level. Slow stochastic has climbed up towards its 50% level. Bears are unlikely to give up control anytime soon.

On longer term weekly chart (not shown), all three weekly EMAs are moving down, and gold’s price is trading below them in a long-term bear market. Weekly technical indicators are in bearish zones but not showing much downward momentum.

Silver Chart Pattern

Silver_Jun1515

The daily bar chart pattern of silver faced strong selling and dropped sharply below its 20 day and 50 day EMAs into bear territory at the beginning of the month. It has been consolidating in a range between 15.75 and 16.25 since then.

Strong volumes on up days is a sign of accumulation. The bullish pattern of ‘higher tops and higher bottoms’ from the Mar ‘15 low of 15.25 remains in force – but may not be for long. Bears are still ruling the chart.

Daily technical indicators are in bearish zones, but showing a bit of upward momentum. MACD is below its falling signal line in negative territory, but its downward momentum has stalled. RSI is below its 50% level, but trying to move up. Slow stochastic has formed a ‘rounding bottom’ bullish pattern inside its oversold zone.

On longer term weekly chart (not shown), silver’s price is trading below its three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones.

Monday, June 15, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jun 12, 2015

S&P 500 Index Chart

S&P 500_Jun1215

The following remarks were made in last week’s post on the daily bar chart pattern of S&P 500: “Slow stochastic has dropped sharply inside its oversold zone. That can lead to a technical bounce. Bears are likely to use any rally to sell.”

The index dropped to an intra-day low of 2072 on Tue. Jun 9, but formed a ‘reversal day’ pattern (lower low, higher close). Over the next two days, the index rose sharply above its 20 day and 50 day EMAs into bull territory, but touched a lower intra-day high of 2115 on Thu. Jun 11.

As expected, bears used the brief rally to sell. The index dropped below its 20 day and 50 day EMAs and the 2100 level, and closed flat for the week. The down trend from the small ‘double top’ at 2134 (touched on May 20 & 21) continues.

Daily technical indicators are turning bearish. MACD is below its signal line in negative zone, and is turning down. RSI faced resistance from its 50% level, and is moving down. Slow stochastic managed to creep above its 50% level, but its upward momentum is slowing down.

Some more correction is likely. Note that the index is trading well above its rising 200 day EMA in a long-term bull market.

On longer term weekly chart (not shown), the index dropped below its 20 week EMA intra-week, but managed to close above its three weekly EMAs in a long-term bull market. Weekly technical indicators are still in bullish zones, but showing downward momentum.

FTSE 100 Index Chart

FTSE_Jun1215

The following comments appeared in last week’s post on the daily bar chart pattern of FTSE 100: “A technical bounce is a possibility - but bears have a firm grip on the chart.”

The index dropped below the 6750 level intra-day on Tue. Jun 9, but closed just above it at 6754. FTSE bounced up nicely above its 200 day EMA over the next two days, but failed to test its falling 20 day or 50 day EMAs.

Bears used the opportunity to sell. The index dropped and closed below all its three EMAs in bear territory. It also closed below the 6800 level for the first time since Mar 31 ‘15. The down trend from the Apr 27 ‘15 lifetime top of 7123 continues.

Note that the index has so far closed within the 3% ‘whipsaw’ limit below its 200 day EMA. That means the breach below the 200 day EMA has not been technically validated yet. Only a close below 6600 will do that. At the time of writing this post, the index is struggling to stay above the 6750 level.

Daily technical indicators are looking bearish and a bit oversold. MACD is falling below its signal line, and entered its oversold zone. RSI is falling below its 50% level after bouncing up weakly from the edge of its oversold zone. Slow stochastic has re-entered its oversold zone. Expect bulls and bears to fight for control of the 200 day EMA.

On longer term weekly chart (not shown), the index dropped sharply below its 50 week EMA but managed to close near it. The 200 week EMA is still rising, and the index is trading well above it in a long-term bull market. Weekly technical indicators are looking bearish and showing downward momentum.

Sunday, June 14, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 12, 2015

Finally some good news to counter the bearish ‘poor monsoon’ sentiment. The IIP number – aided by growth in manufacturing and cap. goods sectors – came in higher than consensus estimate at 4.1% in Apr ‘15 vs. 2.1% in Mar ‘15. However, CPI inflation inched up above 5%, which is not so good news.

FIIs remained net sellers of equity during the week. As per provisional figures, their net selling during the first two weeks in Jun ‘15 has crossed Rs 4400 Crores. That figure was offset by the DIIs, whose net buying in equities was almost Rs 5700 Crores.

Down trends – marked by blue trend lines – continue to dominate both Sensex and Nifty charts below. Both indices closed lower for the third straight week – to their lowest levels in nearly 8 months.

BSE Sensex index chart

Sensex_Jun1215

The daily bar chart pattern of Sensex dropped below the May ‘15 low of 26424, and is seeking support from the 26300 level – which corresponds to the top touched in Jul ‘14. Will the support hold?

Technical signs are bearish. The 20 day EMA has crossed below the 200 day EMA – for the first time since Aug ‘13. The 50 day EMA is falling towards the 200 day EMA, and a convincing cross below (‘death cross’) will confirm a bear market.

Daily technical indicators are bearish and looking oversold. MACD is falling below its signal line towards its oversold zone. ROC has entered its oversold zone after failing to cross above its falling 10 day MA. RSI is trying to emerge from its oversold zone. Slow stochastic is well inside its oversold zone.

The index has closed below its 200 day EMA for 9 straight trading sessions. But all is not gloom and doom – yet. Why? Because the index has so far closed within the 3% ‘whipsaw’ limit below the 200 day EMA.

Technical nitpicking, you think? On such nitpicking are fortunes made! In other words, there is a possibility of a technical bounce from current level. Whether it turns into a full fledged rally or not will depend a lot on the progress of the monsoon and Q1 results to be announced from next month.

Whatever you do, do not sell in a panic. It is a difficult thing to do when your portfolio value keeps diminishing every day. These are tests that you need to pass if you want to build wealth during long-term bull markets.

NSE Nifty 50 index chart

Nifty_Jun1215

The weekly bar chart pattern of Nifty closed below the 8000 level (at 7983) for the first time since the week ending on Oct 17 ‘14, and below its 50 week EMA for the first time since the week ending on Sep 6 ‘13.

Since the index closed within the 3% ‘whipsaw’ limit below its 50 week EMA, the breach is technically not valid yet. But that may be a small respite for bulls.

Weekly technical indicators are bearish and looking oversold. MACD is falling below its signal line, and entered negative zone. ROC and RSI have dropped to the edge of their respective oversold zones. Slow stochastic has entered its oversold zone.

Oversold conditions may prevail for long periods during bear markets. In bull markets – and technically Nifty is still in a bull market – oversold conditions are usually of shorter durations.

Slow stochastic and ROC (not clearly visible) have both touched slightly higher bottoms than the ones they touched in May ‘15. The positive divergences may lead to a technical bounce, if not a rally.

The NSE TRIN (a breadth indicator) is looking extremely oversold – at a level not seen in the past 2 years.

Bottomline? Bears are still dominating BSE Sensex and NSE Nifty charts, and will remain dominant as long as both indices trade below their respective down trend lines. Technical bounces in both indices are likely. Stay invested, but remain cautious.

Friday, June 12, 2015

5 Must-Have Metrics For Value Investors

The investopedia.com web site is one of my favourites because they have such a wide variety of useful articles and tutorials aimed at small investors. Whether you are interested in learning about fundamental analysis or technical analysis, trading or investing, equity market or debt market – you will find something of interest.

For most small investors interested in the equity market, the place to start should be to learn as much as possible about the company whose stock you wish to buy. But the problem for many small investors is: which companies to choose from the thousands that are listed in the stock exchanges.

There are no formulas or rules that work for every one. The concept of “Circle of Competence” has been recommended by Warren Buffett. It means investing in the stocks of only those companies whose businesses you clearly understand. You should be able to assess with reasonable certainty their business model, competitive advantage, strengths and weaknesses, future growth possibilities.

What if your “Circle of Competence” is very limited? You are not in a minority of one. The “Circle of Competence” expands with experience. What to do till then? Stick to sectors that are known for consistent performance over many years. Such as? FMCG, Pharma, Financial Services. You don’t need to own stocks in 20 different sectors. Owning a couple of good companies in 3 or 4 sectors should be enough for a core portfolio.

Once you have decided on the sectors, you need to go through fundamental analysis to identify the better stocks from each sector. In a recent article by Jonas Elmerraji, 5 important metrics for value investors have been explained. Read the article at this link.

Related Posts

Which sectors should you invest in?
How small investors can widen their Circle of Competence

Wednesday, June 10, 2015

Nifty chart: a mid-week update (Jun 10 ‘15)

FIIs continue to be net sellers of equity in Jun ‘15. Their net selling, as per provisional figures, has touched Rs 3100 Crores. In contrast, DIIs have been net buyers of equity worth Rs 4400 Crores. Still, Nifty is trading below its three EMAs in bear territory.

A delayed monsoon has made investors jittery. Also, there may have been some front-ended FII selling on speculation about China ‘A’ shares getting included in the MSCI EM index. That would have meant increased allocation to China and lower allocations for other emerging markets, including India. But China ‘A’ shares have not been included in the MSCI index.

SIAM has indicated increased sales of commercial and passenger vehicles but lower sales of two and three wheelers in May ‘15. That is a positive sign for the overall economy but a negative one for the rural economy.

Nifty_Jun1015

The daily bar chart pattern of Nifty has spent 6 consecutive trading sessions below its 200 day EMA. That is good news for bears. The longer the index stays below its long-term moving average, greater is the chance of the index falling into a bear market.

Bulls will take solace from the 3% ‘whipsaw’ rule. Only a close below 7950 will technically validate a break below the 200 day EMA. So far, bulls have defended the 8000 level well. However, bears will dominate as long as the index remains below the blue down trend line.

Is today’s pullback towards the 200 day EMA and the ‘support-resistance zone’ providing a selling opportunity? The answer is: not yet. Why? The thumb rule to follow is: upward pullbacks towards support zones are selling opportunities in bear markets. Not during bull market corrections. (See what happened in May ‘15 – the pullback turned into a rally.)

Daily technical indicators are also pointing towards a possible rally. MACD is below its signal line in positive zone, but has stopped falling. ROC has bounced up from the edge of its oversold zone, and is about to cross above its 10 day MA. RSI is trying to emerge from its oversold zone. Slow stochastic is inside its oversold zone, but has stopped falling.

Trading volumes will hold the key. If volumes pick up, the rally may test and breach the blue down trend line. Otherwise, expect the index to consolidate below the trend line.

Time wise, the current correction in Nifty has been the longest since the one during May-Aug ‘13. Those who had the courage to invest then are sitting on good profits. Being able to buy when most are selling in panic is the mark of a mature investor. But buying should be done prudently, and with appropriate stop-losses.

Tuesday, June 9, 2015

WTI and Brent Crude Oil charts: bears regaining control?

WTI Crude chart

WTI Crude_Jun0915

The daily bar chart pattern of WTI Crude continued its sideways consolidation with a downward bias after touching a high of 62.50 on May 6 ‘15. The rising 50 day EMA has provided good support so far. Strong volumes on a couple of up days indicate some buying interest.

Oil’s price is trading below its falling 200 day EMA in a bear market. The 20 day EMA is forming a bearish ‘rounding top’ pattern. Looks like the bear market rally from the Mar ‘15 low is coming to an end.

Daily technical indicators are looking bearish. MACD is falling below its signal line in positive zone. RSI has slipped below its 50% level. Slow stochastic has dropped sharply below its 50% level.

OPEC’s decision to stick to current production levels may have taken the wind out of bullish sails.

On longer term weekly chart (not shown), oil’s price has spent 8 weeks above its rising 20 week EMA, but is trading well below its falling 50 week and 200 week EMAs in a long-term bear market. Weekly technical indicators are turning bearish. MACD is rising above its signal line in negative zone, but its upward momentum is slowing down. RSI has just slipped below its 50% level. Slow stochastic is sliding down inside its overbought zone.

Brent Crude chart

BrentCrude_Jun0915

The daily bar chart pattern of Brent Crude oil has been correcting within a downward-sloping channel after touching a high of 69.50 on May 6 ‘15. All three EMAs are moving down and oil’s price is trading below them in a bear market.

The rally from the Jan ‘15 low may be coming to an end – despite occasional buying support. Bears are selling at every rise.

Daily technical indicators are looking bearish. MACD is falling below its signal line, and entered negative zone. RSI is below its 50% level, but its downward momentum is not strong. Slow stochastic has dropped sharply towards its oversold zone.

On longer term weekly chart (not shown), oil’s price has again closed below all three weekly EMAs in a long-term bear market after spending 7 weeks above its 20 week EMA. Weekly technical indicators are turning bearish. MACD is above its signal line in negative zone, but its upward momentum has stalled. RSI is falling below its 50% level. Slow stochastic has dropped down sharply from its overbought zone.

Monday, June 8, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jun 05, 2015

S&P 500 Index Chart



Strong volumes on down days and downward momentum visible on technical indicators had led to the following comment in last week's post on the daily bar chart pattern of S&P 500: "Some more correction can not be ruled out." 

The index managed to close above its 50 day EMA on the first two days of the trading week, followed by a close above its 20 day and 50 day EMAs in bull territory on Wed. Jun 3 - but that was the end of an attempt at a recovery by bulls.

Bear selling caused a sharp drop below the 50 day EMA and the 2100 level. The index lost only 15 points on a weekly closing basis, but has formed a bearish pattern of 'lower tops and lower bottoms' since making a small 'double top' reversal pattern by touching 2134 on May 20 & 21 '15.

The 200 day EMA is rising, and the index continues to trade well above it - which is the sign of a long-term bull market. That doesn't mean the correction has ended. Note that the index touched a higher bottom than the May 6 low of 2068, but all three technical indicators are showing negative divergences by touching lower bottoms.

MACD and RSI are in bearish zones and sliding. Slow stochastic has dropped sharply inside its oversold zone. That can lead to a technical bounce. Bears are likely to use any rally to sell.

On longer term weekly chart (not shown), the index found good support from its 20 week EMA and closed above its three weekly EMAs in a long-term bull market. Weekly technical indicators are still in bullish zones, but showing downward momentum and negative divergences by touching lower bottoms.

FTSE 100 Index Chart



The daily bar chart pattern of FTSE 100 dropped below its 20 day and 50 day EMAs on Mon. Jun 1. On wed. Jun 3, the index attempted a recovery but faced resistance from its falling 20 day EMA. That was just the opportunity bears were waiting for.

Strong selling on the last two days of the week sent the index crashing below its 200 day EMA into bear territory for the first time in more than 4 months. By dropping and closing below the May 7 low of 6810, the index has formed a bearish pattern of 'lower tops and lower bottoms' since touching a lifetime high of 7123 on Apr 27 '15.

Daily technical indicators are bearish. MACD is falling towards its oversold zone. RSI is below its 50% level. Slow stochastic is inside its oversold zone. A technical bounce is a possibility - but bears have a firm grip on the chart. 

On longer term weekly chart (not shown), the index dropped sharply below its 20 week EMA and is seeking support from its 50 week EMA. The 200 week EMA is still rising, and the index is trading well above it in a long-term bull market. Weekly technical indicators are looking bearish and showing downward momentum.

Sunday, June 7, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 05, 2015

As per provisional figures, FIIs were net buyers of equity on Mon. and Thu., but net sellers on the other three days. Their net selling for the week totalled Rs 1250 Crores, which was more than compensated by DIIs, who were net buyers of equity on all 5 days totalling Rs 2400 Crores.

Then why did both Sensex and Nifty fall to their lowest levels in 4 weeks? The obvious answer is: selling by retail investors and HNIs. Panic selling on the Nestle counter due to the ‘Maggi’ noodles fiasco spread like a contagion to other FMCG counters.

There were other concerns for small investors: a deficient monsoon; a hawkish stance on further interest rate cuts by RBI; encouraging jobs data in the US that can lead to a rate hike soon; a stalemate between Greece and IMF regarding the former’s debt repayment ability.

Technically, blue down trend lines have continued to dominate the two index charts (below) for the past three months. A trend is supposed to remain in force till it gets reversed.

BSE Sensex index chart



The following comment appeared in last week’s post on the daily bar chart pattern of Sensex: “Failure to cross above the blue down trend line means that bears still have the upper hand.”

Note that the index rose to test the down trend line on Jun 1, failed to cross above it, and then collapsed below the ‘support-resistance zone’ and its three EMAs into bear territory.

Both the 20 day and 50 day EMAs are falling towards the 200 day EMA. A convincing cross of the 50 day EMA below the 200 day EMA (‘death cross’) will technically signal a bear market.

Technical indicators are bearish and looking oversold. MACD has crossed below its signal line, and is falling towards its oversold zone. ROC and RSI have reached the edges of their respective oversold zones. Slow stochastic has dropped inside its oversold zone.

Some more correction can’t be ruled out – but a technical bounce may occur at any time. The index formed a bullish ‘hammer’ pattern (in candlestick parlance) on Thu. Jun 4. Similar patterns formed at the end of down trends on Jan 7, Mar 27 and May 7 ‘15 had led to strong rallies.

If the technical bounce is accompanied by strong volumes, the index may form a ‘double bottom’ reversal pattern. Good progress of the monsoon – despite a late onset - can be a positive trigger for bulls.

Bears still have the upper hand, but it may be prudent to suppress your urge to go short.

NSE Nifty 50 index chart



The weekly bar chart pattern of Nifty briefly rose above its sliding 20 week EMA intra-week, but failed to test its blue down trend line.

The index dropped on huge volumes below the ‘support-resistance zone’ and the 50 week EMA intra-week, but managed to close exactly on its 50 week EMA.

Weekly technical indicators are looking bearish. MACD is falling below its signal line and looks ready to enter its negative zone. ROC is sliding towards its 10 week MA in negative zone. RSI has dropped to the edge of its oversold zone. Slow stochastic is moving down towards its oversold zone.

Some more correction is possible. A technical bounce is also a possibility. The NSE TRIN (a market breadth indicator) is inside its oversold zone, where it doesn’t remain for long.

Bottomline? BSE Sensex and NSE Nifty charts are still in strong bear grips, and will remain so as long as they fail to cross above their respective down trend lines. Technical bounces in both indices appear imminent. Stay invested, and add to fundamentally strong stocks in your portfolios.

Friday, June 5, 2015

The Risks & Rewards of Penny Stocks

Message boards in many investment groups and web sites are full of 'buy' recommendations for unknown small-cap stocks. Why do small investors get attracted - like moths to a flame - by such recommendations?

Two reasons: desire for instant gratification and greed. No one is willing to put in the time and effort in studying the fundamentals of a company. Much easier to follow some one's tips - and more fun if it is a penny stock, because more is the possibility of a multi-bagger.

End result? Getting stuck with unsaleable stocks, losing money, and losing faith in the stock market. Moral of the story? Small investors should read and learn about the stock market before spending a single Rupee. When they are ready, they should get their feet wet by investing through mutual funds.

Should small stocks be avoided entirely? Yes, if you are a novice. No, if you have paid your dues and appreciate and understand the risks involved.

In a recent article at investopedia.com, the risks and rewards of buying penny stocks have been explained. You can read the article here.

Related posts

The futile quest for the mythical 'multibagger'

'Fatal Attraction', or why small investors prefer small-cap stocks

Wednesday, June 3, 2015

Nifty chart: a mid-week update (Jun 03 ‘15)

The stock market had already discounted an interest rate cut of 25 bps by the RBI. It got what it had expected. That should have satisfied both bulls and bears. Instead, bears went on a selling spree. What is going on?

RBI Governor's hints that inflation may start increasing again and GDP growth may be lower than earlier expectations were not well received by the market. Coupled with the possibility of a deficient monsoon were enough reasons for bears to head for the exit door.

During the first three trading days of the month, FIIs have been net sellers of equity worth Rs 1200 Crores. DIIs were net buyers of equity worth Rs 730 Crores. Anecdotal evidence suggests that retail investors have sold heavily. That may explain today's huge volumes.


The daily bar chart pattern of Nifty broke out above its three daily EMAs on Jun 1, but lacked volume support and failed to cross above the May '15 top of 8490. Resistance from the blue down trend line also proved strong.

That was just the excuse that the bears may have been waiting for. Heavy selling has dropped the index below the 'support-resistance zone' between 8630 and 8180 and the 200 day EMA into bear territory. The May '15 low of 7997 may get tested, and broken.

How much further can Nifty fall? There is a support zone between 7700 and 7850. The index may test support from that zone if 7997 gets breached.

Is the bull market getting over? Not yet. The economy is still growing at a better rate than last year. Inflation has been contained. Interest rate is falling - though banks have been reluctant to pass it along to borrowers. These are bullish signs for the longer term. But the market is definitely under pressure in the near term.

Daily technical indicators are looking bearish but not oversold. MACD has crossed below its signal line in negative zone after facing resistance from its '0' line. ROC has fallen to the edge of its oversold zone. RSI and Slow stochastic have dropped below their respective 50% levels. Some more correction seems likely.

Stay invested. This may be a good time to start accumulating some good large-cap stocks that have corrected more than the index.

Tuesday, June 2, 2015

Gold and Silver charts: bear market rallies end?

Gold Chart Pattern



In the previous post on the daily bar chart pattern of gold, the breakout above the 200 day EMA was not expected to lead to a sustained rally due to the falling volumes that accompanied the breakout. Sure enough, bears used the opportunity to strike.

Gold's price dropped to seek support from its 20 day and 50 day EMAs for a few days before falling below all three EMAs into bear territory. The 2 months long rally from the Mar '15 low of 1140 appears to have come to an end.

Why 'appears'? Note that gold's price has not fallen below its May '15 low of 1170. The bullish pattern of 'higher tops and higher bottoms' from the Mar '15 low still remains in force. But for how much longer? Strong volumes on down days show that bears are regaining control.

Daily technical indicators are looking bearish. MACD is below its signal line and has entered negative zone. RSI is moving sideways below its 50% level. Slow stochastic is at the edge of its oversold zone.

On longer term weekly chart (not shown), gold’s price is trading below its three weekly EMAs in a long-term bear market. MACD and RSI are moving sideways in bearish zones. Slow stochastic is falling towards its 50% level.

Silver Chart Pattern



The following comment was made in the previous post on the daily bar chart pattern of silver: "A correction can occur at any time." The reason for the comment? All three technical indicators were in their overbought zones. Also, the breakout above the 200 day EMA was not validated technically.

Silver's price dropped below its 200 day and 20 day EMAs and is desperately seeking support from its 50 day EMA. Note that the bullish pattern of 'higher tops and higher bottoms' from the Mar '15 low of 15.25 is still in force. Bulls have suffered a setback, but may try to fight back.

Daily technical indicators are looking somewhat bearish. MACD is falling below its signal line in positive zone. RSI is seeking support from its 50% level. Slow stochastic has dropped below its 50% level, but its downward momentum has stalled.

On longer term weekly chart (not shown), silver’s price has managed to close exactly on its 20 week EMA, but is trading below its falling 50 week EMA, and well below its 200 week EMA in a long-term bear market. Technical indicators are neutral. MACD is rising above its signal line in negative zone. RSI is just below its 50% level and moving sideways. Slow stochastic is falling towards its 50% level.

Monday, June 1, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – May 29, 2015

S&P 500 Index Chart



The daily bar chart pattern of S&P 500 oscillated about its 20 day EMA, received good support from its rising 50 day EMA; but closed below its 20 day EMA in a holiday-shortened trading week. The index lost about 1% on a weekly closing basis.

Strong volumes on Fri. May 29, which was a down day, may be a sign of 'distribution'. The index is trading above its 50 day EMA and well above its 200 day EMA, so there is no immediate threat to the bull market.

However, daily technical indicators are showing downward momentum, and beginning to turn bearish. MACD has crossed below its signal line in positive zone. RSI has slipped below its 50% level. Slow stochastic has dropped from its overbought zone, and is falling towards its 50% level.

Some more correction can not be ruled out.

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

FTSE 100 Index Chart



The daily bar chart pattern of FTSE 100 corrected below its 20 day and 50 day EMAs and the 6950 level on Tue. May 26. It rallied during the next two days, but on decreasing volumes. On Fri. May 29, the index touched its week's high of 7070, but formed a 'reversal day' bar and closed below its 20 day EMA and the 7000 level.

Strong volumes (not shown on chart) on Fri. is probably a sign of 'distribution' from stronger to weaker hands. At the time of writing this post, the index has regained the 7000 level and is trading above its three EMAs in a bull market.

Daily technical indicators are giving mixed signals. MACD is touching its signal line in positive zone. RSI is trying to find support from its 50% level. Slow stochastic is falling towards its 50% level.

Expect some consolidation before the index can breakout in either direction.

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