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Sunday, January 31, 2016

About pullbacks, corrections and bear markets

After touching lifetime highs in early Mar '15, both Sensex and Nifty entered down trends that are now completing 11 months. FIIs have been in selling mode, not because India's economy is in a down turn. Quite the contrary.

Slowdown in China, turmoil in Middle East, oversupplied oil market, a gradually rising interest rate regime in the USA have turned FIIs cautious and heading for safety. That means exiting Emerging Markets and returning to their home markets.

Many Middle East sovereign funds have started withdrawing from India as well, as low oil prices have begun to hurt and have depleted their investing surpluses.

Domestic investors have shown greater maturity by continuing their fund SIPs and buying the dips. Mutual funds have been buying equities, but haven't been able to prevent the downward slide in Sensex and Nifty.

Many small investors are in a quandary: Is this a bull market correction, or is it a bear market? Should we buy the dips or sell the rallies? The answers to those questions is another question: What difference does it make?

Unless you are investing in index futures or index ETFs, the state of the market should not be of much concern. For a long-term investor, your financial and asset allocation plans should guide your investment decisions.

However, for the curious, here are some thumb-rules.

A pullback is a short counter-trend move that falls about 5% from a recent top, or rises 5% from a recent bottom. Often, a pullback occurs to a previous breached support or breached resistance level. 

In a bull phase, a pullback provides a buying opportunity to those who missed buying when the previous resistance level was breached. In a bear phase, a pullback is a selling opportunity for those who could not or did not sell when the previous support level was breached.

A correction is a counter-trend move that falls 10% from a recent top, or rises 10% from a recent bottom. There is no way of knowing before hand if or when a pullback will turn into a correction.

A correction in a bull phase is quite common, and should be anticipated and used as an adding opportunity by long-term investors. Short-term traders make money by selling the rallies during a correction.

A bear market corrects 20% from a market top. Again, it is very difficult to know in advance if a correction in a bull market will turn into a bear market or not. Usually, some fundamental change in the economy or global concerns trigger a bear market.

When does a bear market end? It often takes 2 or 3 months for a reversal pattern to form on price charts. Ability to identify such pattern formation can help investors to take early long positions.

The 5%-10%-20% numbers are guidelines for those who can't or don't follow technical analysis. To really understand the underlying technical status of the market, one needs to learn about long-term EMAs, support-resistance levels and Fibonacci retracement levels.

Related Post

About Nifty Fibonacci retracement levels


Saturday, January 30, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 29, 2016

Stock markets worldwide reacted bullishly to economic stimulus announcements by ECB and China and a cut in interest rate (to -0.1%) by Japan. 

All is not well on the economic front, as India's GDP growth rates for FY14 was revised down to 6.6% from 6.9% and for FY15 to 7.2% from 7.3%.

As per provisional figures, FIIs were net sellers of equity worth Rs 14350 Crores in Jan '16. The figure exceeded their combined sales in Nov '15 and Dec '15. DIIs were net buyers of equity worth Rs 12900 Crores.

A combination of short covering and value buying at lower levels ensured that both Sensex and Nifty made weekly gains for the first time in Jan '16.

BSE Sensex chart pattern


The daily bar chart pattern of Sensex, which had twice received support from the 24830 level (in Sep '15 and Dec '15 - marked by green arrows), breached the support level and dropped to a low of 23840 last week - correcting more than 20% from the Mar '15 top of 30025.

The index formed a small 'double bottom' pattern and pulled back to the 24830 level (marked by red arrow). The likelihood of a counter-trend move and resistance from the 24830 level were explained in last week's post.

Daily technical indicators are turning bullish. MACD has crossed above its signal line in negative zone. ROC has entered positive zone. RSI has moved up to its 50% level. Slow stochastic has climbed above its 50% level.

Bears (read FIIs) are still dominating in the near term, and will continue to do so as long as the index trades below it falling 200 day EMA and the blue down trend line.

However, the long-term bull market is intact because Sensex is trading more than 1300 points above its 200 week EMA. 

If the pullback to the 24830 level is used as a selling opportunity by bears, the index will fall into 'attractive valuation' zone.

NSE Nifty 50 chart pattern


The weekly bar chart pattern of Nifty had received good support from the 7540 level in Sep '15 and Dec '15 (marked by green arrows). The support level got broken and the index dropped to an intra-week low of 7241 in the week ending on Jan 22 '16 - correcting more than 20% from its Mar '15 peak of 9119.

A 20% correction from an index top is often considered a confirmation of a bear market by technical analysts. So, last week's pullback to the 7540 level may be used as a selling opportunity by bears.

Bulls may point to the weekly bar of the previous week, which formed a 'dragonfly doji' candlestick pattern. The pattern has bullish implications when formed at the bottom of an intermediate down move.

Weekly technical indicators are looking bearish, but showing faint signs of reversal. MACD below its signal line in negative zone but stopped falling. ROC is facing resistance from its 10 week MA at the edge of its oversold zone. RSI has bounced up weakly from the edge of its oversold zone. Slow stochastic is trying to emerge from its oversold zone.

Bulls need to muster a lot of buying support if they wish to turn the pullback into a full-fledged rally.

Bottomline? Chart patterns of Sensex and Nifty have pulled back to previous support levels. Bears may use the opportunity to sell. Long-term bull markets are still intact, as both indices are trading above their rising 200 week EMAs (not shown), and near long-term P/E averages, which make them fairly valued.
 

Wednesday, January 27, 2016

Will Modi kickstart reforms to reverse the bearish market sentiment? - a guest post

Global stock markets have seen one of the most bearish January trading in history. Some experts are calling it a 2008-like bear market.

Bull markets are supposed to climb a wall of worries. The big worries in 2015 were a possible exit of Greece from the Eurozone, tensions in Ukraine and an interest rate hike by the US Fed.

Those worries have been absorbed by the market. This year's worries are a shrinking Chinese economy, continued turmoil in the Middle East and plummeting oil prices.

In this month's guest post, Nishit opines that falling oil prices will be a boon for the Indian economy, and passing of the GST Bill will boost bullish sentiments in the stock market.

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The New Year has begun with a massive fall across global stock markets. It is the China fear factor which is causing investors to take out money and flee. The information about China is nothing new. All this has been known for quite some time. Most selloffs need some trigger and then it becomes self sustaining.

India is well placed due to low crude oil prices. The year 2016 has to be the year of major reform. Major reform means passage of the GST bill in the budget session. If the GST bill goes through then it will be a major sentiment booster for the folks who pour money into Indian markets.

Every bull market has corrections and this is no different. 2016 is also the year of elections in various states where BJP does not have major influence, viz. Tamil Nadu, West Bengal, Kerala and Assam. Whatever they gain out there is a bonus.

The real electoral test for BJP comes in Uttar Pradesh in 2017. This is the last budget where major reform is expected, post this it will be just building on what has been initiated.

The money being pulled out is not India specific but all across the globe. Global risk trade is off and the money will seek safe pastures like US bonds or US markets.

Modi has initiated several reforms in the Power sector, Telecom sector, and subsidies that will benefit India in the long term. There is a game changer which every Prime Minister needs; for Modi it is the GST bill. Modi has aligned the smaller parties isolating the Congress. Now, it is only a question of playing his cards right.

Tax reform is what India needs as major portion of the population does not pay taxes. Increasing service tax is one way of plugging the tax gaps.

Politically, with the Dalit student suicide and various untoward incidents, the Modi Government is being cornered by opposition parties. Elections are won on sentiments and 2016 is the make or break year for Modi.

The current dip is a buying opportunity. It does not take much time for sentiment to turn and the markets to rise again. Even if the markets go in for a longer term correction, good companies will continue to thrive.

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

Tuesday, January 26, 2016

WTI and Brent Crude Oil charts: an update

WTI Crude chart


The following comments appeared in the previous post on the daily bar chart pattern of WTI Crude oil: "A technical bounce is likely - but there is still no sign of a bottom formation. That means even lower levels are possible ..."

Oil's price dropped with huge volumes to a new low of 27.50 on Wed. Jan 20 '16. It bounced up sharply to test resistance from its falling 20 day EMA before closing just below 30.

Daily technical indicators have corrected oversold conditions but remain in bearish zones. RSI is showing a bit of downward momentum. Bears are likely to resume their total control of the chart.

Iranian oil may be the proverbial last straw that breaks the back of an already oversupplied market. OPEC is doggedly refusing to cutback on production in their endeavour to close down competing US shale oil producers.

On longer term weekly chart (not shown), oil’s price is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are inside their respective oversold zones.

Brent Crude chart


The daily bar chart pattern of Brent Crude oil has lost its premium against WTI Crude oil, and both oil prices have been moving down in lock-step during Jan '16.

After slipping down just below 27.50 on Wed. Jan 20 '16 with a huge volume surge, oil's price bounced up sharply but failed to overcome resistance from its falling 20 day EMA and slid down to the 30 level.

All three daily technical indicators have recovered from their respective oversold zones, but their upward momentum is waning. Expect renewed bear activity.

Lower oil prices have been a bane of producing nations but a boon for consumers. However, if prices fall any further, it will eventually affect those who depend on business, investment and remittances from oil-rich nations in the Middle East.

On longer term weekly chart (not shown), oil's price is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are inside their respective oversold zones.

Monday, January 25, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 22, 2016

S&P 500 index chart



The following comments appeared in last week's post on the daily bar chart pattern of S&P 500: "...the fall has been a bit too steep. Daily technical indicators are looking bearish and oversold, which can lead to a technical bounce."

On Wed. Jan 20 '16, the index dropped even lower with high volumes to touch a new 52 week low of 1812 - confirming a bearish pattern of 'lower tops and lower bottoms' since Jul '15.

However, Wednesday's price action formed a 'hammer' pattern (in candlestick parlance) that has bullish implications when formed at the end of a down move. The index bounced up sharply to end the week with a gain of nearly 1.5%.

Is the correction over? Or, was it just a 'dead cat bounce'? It may be a bit early to call. Daily technical indicators are recovering from oversold conditions, but remain in bearish zones.

Expect bulls to make an effort to turn the technical bounce into a proper rally. But the scale is tilted towards bears despite the 95 points recovery from the mid-week low.

The drop to 1812 last week corrected 15% from the May '15 top of 2135. So, an important condition of a bear market, viz. a 20% correction from the top, has not been met yet - though the 'death cross' of the 50 day EMA below the 200 day EMA earlier in the month confirmed an impending bear phase.

On longer term weekly chart (not shown), the index bounced up strongly after receiving support from its rising 200 week EMA, and formed a bullish 'hammer' candlestick pattern. The long-term bull market is still intact. Weekly technical indicators are in bearish zones.

FTSE 100 index chart



The following comment appeared in last week's post on the daily bar chart pattern of FTSE 100: "Daily technical indicators are again looking oversold. That doesn't mean that the index won't fall lower."

The index dropped to a new 52 week (and 3 year) low of 5640 on Wed. Jan 20 '16 with strong volumes, but bounced up sharply to close exactly at 5900 - gaining more than 1.6% on a weekly closing basis.

FTSE continues to trade below its three falling EMAs in a bear market. By falling to 5640, the index corrected more than 20% from its Apr '15 top of 7123 - further confirming a bear market.

The 20 day EMA is providing the immediate overhead resistance. Daily technical indicators are recovering from oversold conditions, but remain in bearish zones.

Expect bears to pounce if the technical bounce from oversold conditions tries to turn into another bear market rally.

On longer term weekly chart (not shown), the index closed well below its three weekly EMAs in a bear market, but has formed a bullish 'hammer' candlestick pattern. The imminent 'death cross' of the 50 week EMA below the 200 week EMA will technically confirm a long-term bear market. Weekly technical indicators are in bearish zones.

Saturday, January 23, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 22, 2016

There seems to be no let up in FII selling. Last week, their net selling in equities crossed Rs 5900 Crores as per provisional figures. DIIs more than matched them as their net buying in equities crossed Rs 6075 Crores.

However, both Sensex and Nifty closed marginally lower for the week after completing bearish 'rounding top' patterns. Can Friday's (Jan 22) technical bounce lead to a trend reversal? Or, can more downside be expected?

The charts below are showing some interesting developments that may go in favour of bulls.

BSE Sensex chart pattern


The daily bar chart pattern of Sensex dropped to test support from the 'gap' (of 156 points between 23573 and 23729) formed on the chart in May '14 following the euphoria of Modi-led victory in the general elections.

Most 'gaps' formed on charts get filled quickly, but some don't get filled for a long time and often become 'support/resistance' zones. The May '14 'gap' has remained unfilled for 20 months.

So, will the 'gap' continue to act as a 'support' zone for the index, as it did last week? It may, or it may not - but it shouldn't really matter for bulls. Why?

After an upward 'gap' gets filled, the previous up move - during which the 'gap' had formed - tends to resume. (The same holds true for a downward 'gap', i.e. the down move usually resumes after the 'gap' is filled.)

Are there any other technical indications of a reversal of the intermediate down trend? The answer is: Yes. Three of the four technical indicators have formed reversal patterns inside their respective oversold zones. 

ROC has formed a small 'inverse head and shoulders' pattern. RSI and Slow stochastic have formed 'double bottom' patterns. (Please right click on the chart and open it in a new window or tab to see the patterns more clearly.)  

Note that the index is trading below its three falling EMAs and the blue down trend line in bear territory. The 24830 level, which had acted as a 'support' level in Sep '15 and Dec '15 may provide 'resistance' to a continuation of Friday's technical bounce.

On longer-term weekly chart (not shown), Sensex continues to trade more than 900 points above its still rising 200 week EMA in a long-term bull market. The correction has provided an opportunity to buy fundamentally strong stocks at fair prices.

NSE Nifty 50 chart pattern


The weekly bar chart pattern of Nifty has formed a 'dragonfly doji' pattern (in candlestick parlance), which has bullish implications. 

A 'doji' usually indicates indecision among bulls and bears. But a 'dragonfly doji' formed at the bottom of a 3 months long intermediate downtrend may be hinting at a trend reversal.

There is no guarantee that the index won't fall lower - specially with FIIs still in selling mode. However, the 7120 level is likely to provide strong support. (Significance of the 7120 level was explained in a post 2 days ago.)

All four weekly technical indicators are looking bearish and oversold. ROC is showing some upward momentum in an effort to emerge from its oversold zone. The other three are still showing downward momentum.

The index looks ready for a counter-trend move, but that may not happen during F&O settlement week.

Bottomline? Chart patterns of Sensex and Nifty are near important long-term support levels. Technical indicators are suggesting a counter-trend move. Long-term bull markets are still intact, as both indices are trading above their rising 200 week EMAs (not shown). Use the dip to gradually buy fundamentally sound stocks. Deploy 15-20% of your savings on 2/3 different stocks instead of going 'all in' on one.

Friday, January 22, 2016

Aggressive Investment Strategy

Of late, I have received several requests from investors seeking help with their investment portfolios. Earlier, such requests used to come when the stock market was nearing a bull market top.

This time it has been different. The market is at the tail-end of a 10 months long bear phase. The timing is much more appropriate for building or modifying an existing portfolio.

It clearly shows that small investors are becoming more savvy about when to buy. One of the reasons for starting this blog was to highlight the fact that 'when to buy' is just as important as 'what to buy'.

Without analysing the fundamentals of a company, buying its stock is like shooting in the dark. Chances of missing are far greater. But choosing the right stock is not enough if you buy it just before, or just after, it enters a correction. That is where technical analysis can help.

Even before you start fundamental analysis of a company, or technical analysis of its stock price, there are important decisions to be made. Like, what do you wish to achieve by investing in stocks? Make some quick money to buy the latest iPhone or put a deposit on a new car? 

Or, would you prefer to build wealth for the long-term - using stocks as an asset class that can generate risky but inflation-beating returns?

In other words, you need to make a plan. First, a financial plan to fund your long-term goals and commitments. Then an Asset Allocation plan based on your risk tolerance to achieve those goals.

If you are in your 20s or 30s and earning good money with decent savings, you can afford to be aggressive about your investment strategy. 

Being aggressive doesn't mean buying 10000 shares of a penny stock and selling it for a Rs 2 gain after a month. That is being foolish - because the penny stock can just as well go down by Rs 2.

To learn more about aggressive investment strategies, read this article.

Wednesday, January 20, 2016

Nifty chart: a midweek update (Jan 20 ‘16)

FII selling continued unabated this week. Their net selling in equities totalled almost Rs 3400 Crores, as per provisional figures. Interestingly, DIIs were net buyers of equity worth Rs 3900 Crores, but could not prevent Nifty from falling to a 19 months low.

Merchandise exports dropped for the 13th straight month, falling nearly 15% YoY in Dec '15 to $22.3 Billion. Imports fell by only 3.9% to $34 Billion.

For the Apr-Dec '15 period, trade deficit was lower at $99.2 Billion against $111.7 Billion in the same period in 2014, thanks mainly to lower import cost of oil.



The long-term closing chart pattern of Nifty 50 has completed a bearish 'rounding top' pattern by falling convincingly below the support level of 7550. The 'rounding top' is clearly visible on the 200 day EMA.

It may be a good time to take a relook at the blog post on Jan 6 where possible lower support levels were mentioned. 

The important level to watch is 7120 (which is the 50% Fibonacci retracement level of the entire rise of 3672 points from the Aug '13 closing low of 5285 to the Mar '15 top of 8957). 

The current level of the 200 week EMA (not shown) is 7085. A convincing breach of that level may mark the end of the long-term bull market.

All three daily technical indicators are looking oversold. The TRIN breadth indicator is approaching extremely oversold conditions. 

Nifty looks ripe for a technical bounce. But continued FII selling can negate technicals.

Caution should be the watchword. Next week has F&O expiry and Republic Day holiday. Better to stay away for now and let the dust settle.

(Note: Thinking of adding quality mid-cap and small-cap stocks to your portfolio? Subscribe to my Monthly Investment NewsletterPaid subscriptions are being offered to blog visitors, followers and subscribers for 1 more day only - till Jan 21, 2016. Contact me at mobugobu@yahoo.com for details.)

Tuesday, January 19, 2016

Gold and Silver charts: an update

Gold chart pattern



The daily bar chart pattern of gold found good support from the zone between 1040 and 1060, and bounced up with good volume support above its 20 day and 50 day EMAs - boosted by the rush to safety after a panic sell-off in global stock markets.

Gold's price briefly crossed above 1110 - the highest level touched in more than 2 months. Bears resumed their dominance. Gold's price dropped below all its three EMAs before making another effort to cross above its 20 day and 50 day EMAs.

Daily technical indicators are in bullish zones, but not showing much upward momentum. With sanity prevailing in global stock markets, expect gold's price to resume its down move.

On longer term weekly chart (not shown), gold’s price faced resistance from its falling 20 week EMA, and is trading below its three falling weekly EMAs in a long-term bear market. Weekly technical indicators failed to emerge from their respective bearish zones.

Silver chart pattern



The following observation appeared in the previous post on the daily bar chart pattern of silver: "The falling 50 day EMA is proving to be an insurmountable resistance."  

Silver's price tried to follow in the footsteps of the yellow metal, but its rally fizzled out as it failed to overcome the resistance from its 50 day EMA. It has dropped below all three EMAs and closed below the 14 level, and is in danger of falling below its Dec '15 low.

Daily technical indicators are not giving bulls much hope. MACD is moving sideways above its signal line in negative zone. RSI has made several attempts to cross above its 50% level, but slipped down each time. Slow stochastic received support from the edge of its oversold zone, but its upward momentum looks weak.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones, and moving sideways with downward bias.

Monday, January 18, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 15, 2016

S&P 500 Index Chart



The following comment appeared in last week's post on the daily bar chart pattern of S&P 500"Strong volumes, and the 'death cross' of the 50 day EMA below the 200 day EMA indicate bears are regaining control of the chart."

The index dropped with strong volumes to a 52 week intraday low of 1858 on Fri. Jan 15 '16, but bounced up to close at 1880 - losing 2.1% on a weekly closing basis.

All three EMAs are falling, and the index is trading below them in bear territory. But the fall has been a bit too steep. Daily technical indicators are looking bearish and oversold, which can lead to a technical bounce.

On longer term weekly chart (not shown), the index closed well below its 20 and 50 week EMAs, but nearly 70 points above its rising 200 week EMA. The long-term bull market is still intact. Weekly technical indicators are in bearish zones and showing strong downward momentum.

FTSE 100 Index Chart



The following comment appeared in last week's post on the daily bar chart pattern of FTSE 100: "Daily technical indicators are bearish, and beginning to look oversold. Any technical bounce will probably be used by bears to sell."

FTSE briefly rallied past the 6000 level during the week before succumbing to bear selling. The previous low of 5768, touched on Aug 24 '15, was tested on Fri. Jan 15 '16 but not breached.

The index bounced up to close above the 5800 level, losing 1.8% on a weekly closing basis. At the time of writing this post, the index is trading below the 5800 level after touching a 3 year low of 5766.

All three EMAs are falling, and the index is trading below them in a bear market. Daily technical indicators are again looking oversold. That doesn't mean that the index won't fall lower.

On longer term weekly chart (not shown), the index closed well below its three weekly EMAs in a bear market. The imminent 'death cross' of the 50 week EMA below the 200 week EMA will technically confirm a long-term bear market. Weekly technical indicators are in bearish zones and looking oversold.

Saturday, January 16, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 15, 2016

Plummeting oil price and a crash in the Chinese stock market continues to spook FIIs, who have been on a selling spree across global markets. Already there is talk about a 2008-like bear market - specially from those experts who propound the 8 years market cycle.

As per provisional figures, FIIs were net sellers of equity worth Rs 4300 Crores last week. Their total sales during the first half of the month has crossed Rs 7600 Crores. DIIs were net buyers of equity worth Rs 3900 Crores last week. Their total buying during the first half of Jan '16 was Rs 5350 Crores.

WPI inflation number for Dec '15 was -0.73%, its 14th straight month of contraction. The revised figures for Nov '15 and Oct '15 are -1.99% and -3.7% respectively. Food inflation rose to 8.17% - its steepest rise in 17 months.

BSE Sensex chart pattern


The daily bar chart pattern of Sensex spent a volatile week, oscillating within a range of 630 points near the support level of 24830 (which had provided support to the index in Sep '15 and Dec '15).

The index closed near the lowest point of the week - 375 points below the support level of 24830 - losing about 1.7% on a weekly closing basis. A bearish pattern of 'lower tops and lower bottoms' that got briefly stalled in Dec '15 has resumed.

The index is trading well below its blue downtrend line and its three falling daily EMAs in a bear market. So, is it 'game over' for bulls?

Not quite. All four technical indicators are looking oversold, which can lead to a technical bounce at any time. Also, the fall below the support level of 24830 remains within the 3% 'whipsaw' limit - keeping faint bullish hopes alive.

Whether any technical bounce will be strong enough to reverse the 10 months long downtrend is a moot point. Sensex is still trading 950 points above its 200 week EMA in a long-term bull market.

NSE Nifty 50 chart pattern


The weekly bar chart pattern of Nifty dropped and closed 100 points below the support level of 7540, losing 2.1% on a weekly closing basis. The index has resumed its bearish pattern of 'lower tops and lower bottoms'.

Nifty is trading below its blue downtrend line and its two falling weekly EMAs in a bear market. The 50 week EMA is forming a bearish 'rounding top' pattern.

Weekly technical indicators are in bearish zones and showing downward momentum, hinting at a continuation of the correction. However, all four indicators are beginning to look oversold, which could lead to a technical bounce.

The breadth indicator TRIN (not shown) is rising inside its oversold zone - indicating that a counter-trend move may be around the corner. It is unlikely that such a move will lead to a change of trend because of the bearish mood of FIIs.

Bottomline? Chart patterns of Sensex and Nifty have breached long-term support levels, leaving the door open for deeper corrections. Long-term bull markets are still intact, as both indices are trading above their rising 200 week EMAs (not shown). Use the dip to accumulate slowly. You don't need to be greedy just because others are fearful.

(Note: Learn how to choose fundamentally strong mid-cap and small-cap stocks. Become a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions are being offered till Jan. 21, 2016. Enrolments have started. Contact me for details:mobugobu@yahoo.com.)

Friday, January 15, 2016

Stock Chart Pattern - Balrampur Chini (An Update)

Sugar stocks are not really my cup of tea - though I do add a spoonful of sugar to my evening cuppa. 

The sugar business is cyclical and weather dependent. To make matters worse, policies and prices are subject to frequent interference by the government.

That makes the business unpredictable, and I stay far away from it. But a young, risk-taking trader interested in making quick gains may find sugar stocks attractive.



The 2 years closing chart pattern of Balarampur Chini clearly reflects the cyclical nature of the sugar business. How cyclical? A look at the net profit figures of the past 5 years should suffice.

For year ending Mar '11 and Mar '13, net profit crossed Rs 160 Crores. For year ending Mar '12 and Mar '14, net profit was Rs 6.6 Crores and Rs 3.6 Crores respectively. For year ending Mar '15, there was a net loss of Rs 58 Crores.

Debt/Equity ratio is 1.43. High interest expenses continue to affect the bottom line. In other words, fundamentals do not warrant long-term investment.

But have a look at the returns that a trader could have made. From a low of 36.80 touched on Jan 31 '14 to a high of 85.15 touched on Jun 23 '14, the stock gave 130% return in less than 6 months.

A 15 months long bear phase followed (marked by the blue down trend line). The stock dropped to a closing low of 38.90 on Jun 16 '15 - giving up almost all its gain in one year, but providing good trading opportunities.

After forming a 'double bottom' reversal pattern (marked B1 and B2), the stock price embarked on another bull rally, touching a 2 years high of 87.85 on Jan 13 '16 - giving 120% return in less than 5 months from the low of 39.60 (B2) touched on Aug 31 '15.

The stock is trading well above its rising 200 day EMA in a bull market, but such a sharp rally is unsustainable. 

All four daily technical indicators are looking overbought and a couple of them are showing negative divergences by failing to touch new highs with the stock price.

Get ready for another stomach-churning roller coaster ride. Like I said, not really my cup of tea.


Wednesday, January 13, 2016

Nifty chart: a midweek update (Jan 13 ‘16)

The Indian economy seems to be taking one step forward and two steps back. Domestic passenger car sales during Dec '15 grew almost 13% YoY - its 14th straight month of growth. Sales of M&HCVs grew 19%, but two-wheeler sales declined 3%. 

However, IIP showed degrowth of 3.2% in Nov '15 YoY - its worst show in 4 years - against a revised 9.9% growth in Oct '15. CPI inflation inched up to 5.61% in Dec '15 YoY against 5.41% in Nov '15. Further interest rate cuts by RBI is unlikely any time soon.

This week, FII net selling in equities has crossed Rs 1930 Crores. DIIs were net buyers of Rs 1660 Crores, as per provisional figures. Month-to-date in Jan '16, FII net selling has crossed Rs 5200 Crores, while DII buying has touched Rs 3100 Crores.



The long-term closing chart pattern of Nifty 50 may be forming a 'rounding top' reversal pattern (more clearly visible on the 200 day EMA). Bulls have so far managed to defend the long-term support level of 7550 - despite a day's close below it on Tue. Jan 12 '15.

Today's price recovery late in the trading day, with strong volume support, may have brought some temporary respite for bulls. On the daily bar chart pattern of Nifty below, a 'reversal day' pattern (lower low, higher close) has formed. That may end the intermediate downtrend - like it did exactly a month ago.



Candlestick pattern experts (not me) may identify today's price bar as a 'dragonfly doji' or a 'hammer', both of which have bullish implications when formed at the end of a down move.

The importance and significance of the 7550 level was explained in last week's update. Lower support levels in case of a convincing breach of 7550 were also mentioned in last week's update.

Note that 7550 did get breached on a closing basis yesterday (Jan 12 '15). But it wasn't a 'convincing breach'. Why? Because of the 3% 'whipsaw' rule. What is that?

It is a simple rule that differentiates a token breach from a convincing one. A convincing breach - particularly of a long-term support (or resistance) level - requires a close beyond 3% of the actual support (or resistance) level.

In this case, a convincing breach would require Nifty to close below 7323 (i.e. 7550 - 3% of 7550). That gives bulls another 225 odd points to play with.

There is no guarantee that FIIs will stop selling - though their net selling today was overshadowed by DII buying. So, Nifty may very well close below 7323 and fall even further.

Daily technical indicators - which look oversold - are showing some signs of upward momentum. It will require considerable buying support to break the bear stranglehold on Nifty's chart.

So, are you getting paralysed by fear, or getting ready to jump into the market feet first? Do neither. Remain circumspect, but maintain your SIPs and/or accumulate good stocks with suitable stop-losses.

As I have been harping for a while, the long-term bull market is intact.

(Note: Thinking of adding quality mid-cap and small-cap stocks to your portfolio? Subscribe to my Monthly Investment NewsletterPaid subscriptions are being offered to blog visitors, followers and subscribers till Jan 21, 2016. Contact me at mobugobu@yahoo.com for details.)

Tuesday, January 12, 2016

WTI and Brent Crude Oil charts: fall to 12 year lows

WTI Crude chart



The daily bar chart pattern of WTI Crude oil briefly rallied past the resistance of its falling 20 day EMA and the 38 level on the first trading day of 2016 - only to form a 'reversal day' pattern (higher high, lower close).

Renewed bear onslaught dropped oil's price to a 12 year low below the 31 level intraday on Jan 11 '16. Strong volumes indicate total bear dominance.

Daily technical indicators are showing downward momentum and looking oversold. Note that MACD and Slow stochastic are showing positive divergences by touching higher bottoms while oil's price dropped lower.

A technical bounce is likely - but there is still no sign of a bottom formation. That means even lower levels are possible - specially if fears of slower offtake from China continue.

On longer term weekly chart (not shown), oil’s price is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are looking oversold, but showing positive divergences by not falling lower than their Aug '15 lows.

Brent Crude chart




The following comments appeared in the previous post on the daily bar chart pattern of Brent Crude oil: "The fall during the past 2 months has been quite sharp. A technical bounce is a possibility."

On Jan 4 '16 - the first trading day of the year - oil's price rallied briefly with good volume support to overcome resistances from the 38 level and its falling 20 day EMA.

Bears pounced immediately - using global worries about an economic slowdown in China as an excuse. Oil's price dropped to a 12 year low below the 32 level, and stayed there.

All three technical indicators are looking oversold and showing downward momentum - but also showing positive divergences by not falling below their Dec '15 lows.

Any technical bounce may induce more selling by bears. At some point, OPEC will be forced to cut back on production. Only then can oil's price reverse the prolonged downtrend.

On longer term weekly chart (not shown), oil's price is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are inside their oversold zones and showing downward momentum.

Monday, January 11, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 08, 2016

S&P 500 Index Chart



The following comment was made in last week's post on the daily bar chart pattern of S&P 500: "The index may once again fall down into bear territory - below its three daily EMAs."

So it did - and how?! The index dropped like a stone below the 1920 level and just managed to close above it - losing 120 points (almost 6%) on a weekly closing basis.

It was the worst start in the first trading week of a calendar year for many years. Strong volumes, and the 'death cross' of the 50 day EMA below the 200 day EMA indicate bears are regaining control of the chart.

Daily technical indicators are bearish and showing downward momentum, but looking oversold. Some more correction is possible. Any technical bounce may be used by bears to sell again.

On longer term weekly chart (not shown), the index closed well below its 20 and 50 week EMAs, but more than 100 points above its rising 200 week EMA in a long-term bull market. Weekly technical indicators have entered bearish zones and showing downward momentum.

FTSE 100 Index Chart



Readers were adequately warned in last week's post on the daily bar chart pattern of FTSE 100: "The index is expected to fall down below its 50 day and 20 day EMAs."

The fall was sharp, and backed by heavy volumes (not shown). The index dropped briefly below the 5900 level before closing just above it - losing 330 points (more than 5%) on a weekly closing basis.

The index is once again trading below its three falling EMAs in a bear market.
Daily technical indicators are bearish, and beginning to look oversold. Any technical bounce will probably be used by bears to sell.

On longer term weekly chart (not shown), the index closed well below all three weekly EMAs in a long-term bear market. The 50 week EMA is hurtling down towards the 200 week EMA. Weekly technical indicators are in bearish zones and showing downward momentum.