Wednesday, June 29, 2016

Is BrExit offering a good stock-picking opportunity? - a guest post

The BrExit referendum was expected to be a close contest between those who wanted the UK to 'remain' within the Eurozone and those who wanted the UK to 'exit'. The actual result was unexpected. 

Actually, UK was never a fully integrated part of the Eurozone - as they maintained their own currency and visa system. A large number of those who voted for BrExit may have been duped by politicians into thinking that the 'leave' vote was an 'anti-immigration' vote.

The legal negotiations between UK and the Eurozone will start now to make the referendum a reality. That will take till the end of calendar year 2017. Nothing has actually changed on the ground yet. Still, stock markets over-reacted on the downside.

And therein may lie an opportunity. In this month's guest post, Nishit identifies some industry sectors that are unlikely to be affected whether UK eventually leaves the Eurozone or not.   

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BREXIT has happened and the world is behaving as if it is about to end. The stock markets are correcting and this is a time to add several good stocks.

What is BREXIT? It is simply the UK leaving the European Union. All trade agreements made with the EU will not be valid after 2 years (from the date when the UK triggers the Exit clause). Fresh trade agreements will have to be put in place with the UK.

Now, there are several sectors which could be affected, viz. the IT sector as also export dependent sectors like pharma, textiles and auto-ancilliaries. What will happen is that the currency market will be in a state of flux. The Pound will get weaker and the US Dollar will get stronger with safe haven demand. The US will try to devalue the Dollar for its exports to remain competitive.

International Trade will face some hiccoughs. At the same time, there are several sectors which are not dependent on exports. They are purely domestic consumption stories. These are Sugar, FMCG, Packaging and sectors whose products are mainly consumed in India.

A safe bet during these turbulent times would be to focus on sectors which have less exposure to exports and are more focused on the domestic markets. India’s growing middle class will continue to consume, and there will always be demand for soap, hair oil, cooking oil, toothpaste, biscuits, cigarettes, liquor.

Also, with news of a good monsoon, rural demand will pick up. Two wheeler and tractor manufacturers will be in demand. Last 2 years have been drought years so many farmers have not changed their equipment for a substantial time now. A good harvest can led to increase in rural demand.

The Power Sector also is not dependent on external factors ever since Coal India made plentiful coal available. When the markets fall, everything falls and this is a good opportunity to focus on such stories which are not affected by BREXIT.

Such falls give the best buying opportunities. Remember the 'GrExit' drama in August 2013 when the Nifty hit 5118. Those who bought then doubled or tripled their money.

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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, June 28, 2016

WTI and Brent Crude Oil charts: an update

WTI Crude Oil chart


In the previous post on the daily bar chart pattern of WTI Crude Oil, a 'reversal day' bar on daily chart and a 'gravestone doji' candlestick on weekly chart had raised concerns about the formation of an intermediate top, with a correction to follow.

That is exactly what oil's price did - falling to its 50 day EMA, bouncing up to a lower top and then dropping below its 50 day EMA on BrExit concerns.

Bulls need not lose hope just yet. Oil's price is trading above its rising 200 day EMA in bull territory. Though the correction has formed a bearish pattern of 'lower tops, lower bottoms', the pattern may turn out to be a 'falling wedge' or a 'flag' - both of which have bullish implications.

All three daily technical indicators are looking bearish and showing downward momentum - hinting at some more correction.

On longer term weekly chart (not shown), oil's price has formed a small 'rounding top' bearish pattern and is seeking support from its 50 week EMA. It continues to trade well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are correcting overbought conditions.

Brent Crude Oil chart


In the previous post on the daily bar chart pattern of Brent Crude Oil, a 'reversal day' bar on daily chart and negative divergences visible on MACD and Slow stochastic had hinted at the formation of an intermediate top, with a correction to follow.

Oil's price did as expected. It dropped to seek support from its 50 day EMA, bounced up to touch a lower top and then dropped below its 50 day EMA on BrExit concerns.

Bulls can take solace from the fact that oil's price is trading above its rising 200 day EMA in bull territory. The correction has formed a bearish pattern of 'lower tops, lower bottoms'. There is a possibility that the pattern may evolve into a 'falling wedge' or a 'flag' - both having bullish implications.

All three daily technical indicators are looking bearish and showing downward momentum. Some more correction is likely.

On longer term weekly chart (not shown), oil's price has dropped to seek support from its 50 week EMA. It is trading well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are correcting overbought conditions.

Monday, June 27, 2016

S&P 500 and FTSE 100 index charts - Jun 24 '16

S&P 500 index chart


Readers were given adequate warning with the following comments in last week's post on the daily bar chart pattern of S&P 500: "A further correction to test support from the 200 day EMA is possible. If the May 19 low of 2026 gets breached, the index can fall to 2000."

The index rallied during the first 4 days of the week, touching a lower top, before collapsing on huge volumes on Fri. Jun 24 due to the unexpected BrExit referendum in UK.

The 200 day EMA was breached intra-day on Friday. Though the index managed to close exactly on its long-term moving average, it lost 1.6% for the week. The May 19 low of 2026 was tested but not breached - giving bulls some hope. 

The hope may be short-lived. All three daily technical indicators have dropped into bearish zones - hinting at a further correction.

Till the dust settles and ramifications of the BrExit vote becomes clear, bears may opt to sell on every rise.

On longer term weekly chart (not shown), the index received good support from its 50 week EMA, and closed well above its 200 week EMA in a long-term bull market for the 16th week in a row. Weekly technical indicators are turning bearish.

FTSE 100 index chart


The daily bar chart pattern of FTSE 100 rallied sharply above its three EMAs back into bull territory and touched a 2 months high of 6381 on Thu. Jun 23.

The bottom fell out of the market due to the unexpected BrExit vote. The index plunged to an intra-day low of 5789 on Fri. Jun 24, but recovered 350 points to close at 6139 with a 2% weekly gain.

Bulls should temper their celebrations. At the time of writing this post, the index is trading 50 points lower and below all three EMAs in bear territory.

Daily technical indicators are looking bearish. MACD and RSI are falling in bearish zones. Slow stochastic has dropped from its overbought zone.

There is a concern that UK may slip back into recession. Bears are likely to use it as an excuse to sell.

On longer term weekly chart (not shown), the index moved above its three weekly EMAs into bull territory intra-week, but dropped to close below all three EMAs in a long-term bear market for the 10th week in a row. Weekly technical indicators are in bearish zones. 

Saturday, June 25, 2016

BSE Sensex and NSE Nifty index charts – Jun 24, 2016

Global stock markets plummeted after UK voters decided to exit from the European Union by a 52%-48% margin. Interestingly, Scotland and Northern Ireland voted for 'BRemain' while England and Wales voted for 'BrExit'.

That may open the door for Scotland and Northern Ireland exiting from the UK - even as fears of a breakup of the EU is looming large. Such 'doomsday' events may not happen, but investors certainly voted with their feet.

As per provisional figures, FIIs were net sellers of equity in the Indian market worth about Rs 650 Crores - the bulk of the selling occurring on Friday after the 'BrExit' results. DIIs were net buyers of equity worth more than Rs 1050 Crores during the week. 

Sensex and Nifty lost around 1% on a weekly closing basis, but bounced up strongly after receiving support from long-term moving averages.   

BSE Sensex chart pattern


The daily bar chart pattern of Sensex continued its sideways consolidation within a 'symmetrical triangle' pattern for four days - till the 'BrExit' news on Friday caused a breakout from the triangle with a downward 'gap' supported by strong volumes (not shown). 

An upward or downward breakout with a 'gap' is usually considered a stronger breakout than one without a 'gap'. The index dropped below its 20 day EMA, the support level of 26300 and its 50 day EMA to touch an intra-day low of 25911 - losing almost 1100 points from Thursday's close.

The rising 200 day EMA provided good support to the index, which pulled back sharply towards the lower edge of the triangle and closed the week above its 50 day EMA and the 26300 level.

Despite the huge intra-day fall, daily technical indicators are looking mildly bearish. MACD and Slow stochastic are moving down in bullish zones. ROC and RSI have just slipped into bearish zones.

Some more correction or consolidation is likely as the dust settles on the 'BrExit' ramifications and bulls take a little time to recover their poise.

Investors need not rush in to buy or sell. Stick to your asset allocation plans till sanity prevails in the market.

NSE Nifty chart pattern


An extremely overbought TRIN indicator had led to the following remarks in last week's post on the weekly bar chart pattern of Nifty: "A correction towards 7950 level is likely. In case 7950 gets breached on the downside, expect strong support from the 20 week and 50 week EMAs."

The index traded within the 'support-resistance' zone between 7950 and 8275 for the 4th week in a row. Friday's sharp fall after 'BrExit' results hit the market led to an intra-week breach of the 7950 level, but the entangled and rising 20 week and 50 week EMAs provided good downside support.

Weekly technical indicators have started correcting overbought conditions. MACD is moving sideways in positive zone. ROC and RSI have slipped down from their respective overbought zones. Slow stochastic is about to do likewise.

Though NSE TRIN has just emerged from its overbought zone, some more correction or consolidation within the 'support-resistance' zone is expected before Nifty can breakout decisively.

Bottomline? Bears used the unexpected 'BrExit' setback to dent the confidence of bulls and prevent them from regaining control of Sensex and Nifty charts. Bulls may stoop to conquer. Suppress the feeling of being 'left out'. If in doubt, stay out. Whether you enter a couple of hundred points higher or lower won't make much difference to your long-term returns.

Friday, June 24, 2016

A 4-Step Guide to Growth Investing

Try this social experiment with some of your friends or colleagues who regularly air their views about the stock market. Ask them why they invest in the stock market.

Chances are, they will look at you as if you are an alien from another planet. Most will answer: To make money, of course!

Then you point out that money can be made by selling shoes through the Internet, or by smuggling gold, or by becoming a movie star, or a doctor or a lawyer. Why from the stock market?

You may get the odd well thought out response to that last question; others will hem and haw, and then blurt out the truth: To make some quick money.

That is precisely the wrong reason to enter the stock market. Stocks provide inflation-beating returns over the long-term. For that to happen, stocks need to be picked carefully, and then held for the long-term.

There are two schools of thought about stock investing - value investing and growth investing. Those interested in value investing can go through the 7-Step Guide.

Those interested in finding the 'next Infosys' or the 'next L&T' may like to follow the 4-Step Guide to evaluate growth stocks:-

1. Revenue Growth - ideally the average revenue growth of a company over the past 5 years

2. Profitability - during the initial years of a company's existence, growth may require in-flow of cash through debt or additional equity. Thereafter, it will be operating and net profit margins that will determine growth

3. Efficient use of Capital - two indicators of capital efficiency are Return on Assets (ROA) and Return on Equity (ROE) ratios

4. Industry Position/Competitive Advantage - qualitative assessments about whether a company can continue to grow and outperform.

Read more from this investopedia.com article.

Related Post

What is the Return on Assets (ROA) ratio?

Wednesday, June 22, 2016

Nifty chart: a midweek update (Jun 22 '16)

Dr Rajan's decision to return to academia in Sept '16 without seeking a second term as RBI Governor was met with some trepidation by market players. FIIs were expected to rush towards the exit doors - which they were doing anyway due to BrExit concerns.

In a bid to stem the forex outflow, which was partly successful, the NDA government announced a slew of FDI reforms. Mere announcement may not be enough unless the underlying infrastructure is put in place and the tentacles of bureaucracy are removed.

FIIs and DIIs turned bulls and bears on alternate days this week. FIIs were net sellers of equity worth less than Rs 100 Crores, as per provisional figures. DIIs were net buyers of about Rs 750 Crores.
  


The following comments appeared in the previous mid-week Nifty update: "... the breadth indicator NSE TRIN (not shown) has dropped deeper into its overbought zone. Some more correction or consolidation around current levels is possible."

The index has been consolidating sideways within a small 'symmetrical triangle' pattern for the past two weeks, with the rising 20 day EMA providing good downside support.

Triangle patterns tend to be unstable. A breakout can occur in either direction. Sometimes there is no breakout at all, as the price meanders along and moves sideways through the apex of the triangle.

It is better not to take new positions till a breakout occurs. All three EMAs are rising, and Nifty is trading above them in a bull market. So, the chances are better for an upward breakout.

Daily technical indicators are in bullish zones. However, MACD and RSI are showing downward momentum while Slow stochastic is showing upward momentum. Contrary signals are the norm during periods of sideways consolidation.

The breadth indicator, NSE TRIN, has started correcting overbought conditions but remains well inside its overbought zone. That means bears are not going to give up without a good fight.

BrExit concerns have led to cautious dealing in global markets. Till the referendum results are declared on Fri. Jun 24, expect the sideways consolidation to continue.

Stay invested, follow your asset allocation plan and wait for the event to play out.

Tuesday, June 21, 2016

Gold and Silver charts: an update

Gold chart pattern


The daily bar chart pattern of Gold rallied sharply above its three EMAs and touched an intra-day high of 1320 (a level last touched in Aug '14) on Thu. Jun 16. 

However, it formed a 'reversal day' bar (higher high, lower close) with a volume surge, which often marks an intermediate top.

Daily technical indicators are in bullish zones, but MACD and RSI are showing negative divergences by failing to touch new highs with gold's price. Slow stochastic is correcting overbought conditions.

Some correction or consolidation can be expected. As long as gold's price trades above its rising 200 day EMA, bulls will remain in control.

On longer term weekly chart (not shown), gold’s price broke out with strong volume support above its 200 week EMA into long-term bull territory. Weekly technical indicators are looking bullish.

Silver chart pattern



The daily bar chart pattern of Silver rallied to touch an intra-day high of 17.90 on Thu. Jun 16, but fell short of its May '16 top and formed a 'reversal day' bar (higher high, lower close) with strong volume support.

An intermediate top may be in place. Expect some correction or consolidation as the market is discounting 'BrExit' concerns.

All three EMAs are rising, and silver's price is trading above them in a bull market. Dips are providing adding opportunities.

Daily technical indicators MACD and RSI are in bullish zones, but not showing much upward momentum. Slow stochastic is about to drop from its overbought zone.

On longer term weekly chart (not shown), silver’s price is trading well above its 20 week and 50 week EMAs but below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are in bullish zones. 

Monday, June 20, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 - Jun 17, 2016

S&P 500 index chart


The daily bar chart pattern of S&P 500 corrected below its 20 day and 50 day EMAs, touching an intra-day low of 2050 on Thu. Jun 16. It recovered to close exactly on its 50 day EMA.

Status quo on interest rates by the US Fed triggered the recovery. Though the index lost 1.2% on a weekly closing basis, it is trading above its rising 200 day EMA in bull territory.

Daily technical indicators are looking bearish. MACD is falling below its signal line in positive zone, and is likely to drop inside negative zone soon. RSI is moving sideways below its 50% level. Slow stochastic is just above its oversold zone.

The 50 day EMA provided good support on a closing basis in spite of being breached thrice on intra-day basis during the week. A further correction to test support from the 200 day EMA is possible.

If the May 19 low of 2026 gets breached, the index can fall to 2000.

On longer term weekly chart (not shown), the index received good support from its 20 week EMA, and closed above its three weekly EMAs in a long-term bull market for the 15th week in a row. Weekly technical indicators are in bullish zones but showing some downward momentum.

FTSE 100 index chart


The following comment appeared in last week's post on the daily bar chart pattern of FTSE 100: "A possible fall below the 6050 level will confirm a bearish pattern of 'lower tops, lower bottoms'."

The index dropped and closed below the 6050 level on Mon. Jun 13 and remained below 6050 for the rest of the week, losing 1.5% on a weekly closing basis.

On Fri. Jun 17, the index bounced up with a volume surge (not shown) but failed to overcome resistance from the 6050 level. Bears may use the pullback to sell.

Daily technical indicators are trying to correct oversold conditions. MACD has slipped 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.

All three EMAs are falling, and the index is trading below them in a bear market. The 'BrExit' referendum next week is hanging over the market like the proverbial 'Sword of Damocles'.

On longer term weekly chart (not shown), the index stayed below its three weekly EMAs in a long-term bear market for the 9th week in a row. Weekly technical indicators are bearish - hinting at more correction. 

Sunday, June 19, 2016

Sunday musings: Mind over Matter

The phrase 'Mind over Matter' can be used in different contexts. As per Wikipedia, a similar phrase 'the mind drives the mass' was used by the poet Virgil in 19 BC. 

In parapsychology, the phrase has been used to describe paranormal phenomena. In the context of physical ailments, it means the use of willpower to overcome pain. 

In the Bhagavad Gita, the second part of Shloka 5 in Chapter 6 states: "Atmaiva hy atmano bandhur atmaiva ripur atmanah" (the mind can be one's best friend and also one's worst enemy).

Around 172 countries affiliated to the United Nations are celebrating World Yoga Day today. TV images of hundreds and thousands of people across the world sitting in yoga postures are probably being broadcast while this post is being written.

It is important to understand what 'yoga' really means. It is not the physical exercises that go by the same name. The exercises are to prepare one's body and mind for long periods of meditation. 

According to Vedanta philosophy, meditation under the guidance of an enlightened instructor can eventually lead to the 'union' (or 'yoga') of the inner Self that dwells within all beings with the Supreme Consciousness (also called Brahman or God).

Before one can practice meditation, one's mind has to be purified. To find out how to do that, one needs to be aware of the different characteristics of the mind.

In his clear and comprehensive summary of Patanjali's Yoga, Swami Bhaskarananda of the Ramakrishna Mission states the following characteristics of the mind:

1) Like water, it has a natural tendency to flow downwards and do what is harmful - like indulging in sensual, destructive and negative thoughts
2) It naturally resents being controlled or restrained
3) It inherently gets bored doing the same thing over and over again, and craves newer and more sensational experiences
4) It is full of old and bad habits; to overcome them requires a lot of will power and sustained effort
5) It is like a clean piece of white cloth that acquires any colour in which it is dipped.

Whether you are a spiritual aspirant, or a common householder, knowing and accepting the characteristics of the mind will help you to succeed in your endeavours.

In the field of investments, keeping a record of your past mistakes and analysing them with respect to the mind's characteristics will lead to better control of your impulses, which in turn will lead to more disciplined and better decision making under stressful market conditions. 

Saturday, June 18, 2016

BSE Sensex and NSE Nifty index chart patterns – Jun 17, 2016

Global concerns regarding Britain's possible exit ('Brexit') from the European Union turned FIIs into bears during the week - though their net selling in equities was worth less than Rs 150 Crores, as per provisional figures.

DIIs were also net sellers of equity worth less than Rs 600 Crores. Sensex and Nifty closed almost flat for the week. Concerns about a delayed monsoon and rising inflation led to bearish market sentiments.

India's exports slipped by 0.8% YoY in May '16. Imports dipped by 13.2%, bringing down trade deficit to $6.3 Billion in May '16 compared to $10.4 Billion in May '15.

For FY 2015-16, the Current Account Deficit (CAD) was 1.1% of GDP against 1.8% of GDP in FY 2014-15. Exports declined by 15.8% and Imports declined by 14.1% during FY 2015-16.

BSE Sensex chart pattern


The following remarks appeared in last week's post on the daily bar chart pattern of Sensex: "Some more correction and/or consolidation within the 'support-resistance' zone is likely. The rising 20 day EMA and the 26300 level may prevent the index from falling too far."

As expected, the index consolidated within the 'support-resistance' zone for the third week in a row and received good support from its 20 day EMA and the 26300 level.

Daily technical indicators have corrected overbought conditions and are turning bearish. MACD has crossed below its signal line in positive zone. ROC, RSI and Slow stochastic have slipped into bearish zones.

Some more correction or consolidation is likely till results of the 'Brexit' vote are declared on Jun 24. Those voting for Britain to remain in the Eurozone should win, but global markets may 'sell on news'.

The index is trading above its three EMAs in bull territory, so dips can be used to add. However, there is a possibility that the index may drop to seek support from its 50 day EMA (as it had done 4 times in the past 3 months).

NSE Nifty chart pattern


The weekly bar chart pattern of Nifty traded within a range of less than 150 points and remained within the 'support-resistance' zone between 7950 and 8275 for the third week in a row.

The index is trading above the blue down trend line and its two weekly EMAs in bull territory. The 20 week EMA is about to cross above the 50 week EMA. The 50 week EMA is completing a bullish 'saucer' pattern. Bulls are slowly regaining control of the chart.

However, weekly technical indicators are looking overbought. The market breadth indicator, NSE TRIN (not shown), has dropped to extreme overbought level not seen in the past year.

A correction towards 7950 level is likely. In case 7950 gets breached on the downside, expect strong support from the 20 week and 50 week EMAs.

Bottomline? Bears are using global and local concerns to fight back and prevent bulls from regaining control of Sensex and Nifty charts. It is a losing battle, as bull markets usually climb a 'wall of worries'. Stock selection will be a key. Don't get sucked into sector-rotation - a strategy that 'smart money' appears to be following.

Friday, June 17, 2016

Does your Investment Style fit your Personality?

To be a successful investor, you must have your own investment style. That means evolving a system that works for you - by figuring out your own strengths and weaknesses and keeping a record of your successes and failures.

Every person has personality traits, cognitive biases, eccentricities, habits that affect their decision making. If you are impulsive, you may buy 5000 shares of Opto Circuits at Rs 9 and hope to double your investment in 3 months.

If you are risk averse, you may be happy with the long-term returns you get from a monthly SIP in an index fund or a balanced fund. 

An investor below the age of 30 may invest all her monthly savings into an equity fund. An investor who has already celebrated his 50th birthday may prefer the safety of bank fixed deposits or a debt fund.

According to an article published by the CFA Institute, there are four types of Investor Personalities:

1. Preservers - loss averse and deliberate in decision making, they are more keen to preserve their existing wealth than indulge in risky investments in search of rapid growth. They often end up not taking any decision at all and miss money-making opportunities.

2. Followers - not much interested or skilled in the investment process, they end up following the advice of friends or colleagues and have a portfolio full of yesterday's winners.

3. Accumulators - may have tasted success in a business enterprise or career, giving them the confidence to actively manage their own investment portfolio. They like to win big, and often make large risky bets that can lead to big losses.

4. Independents - like to think 'out of the box' and play contrarian based on their own research. They usually follow a plan and are not as over-confident as Accumulators. But relying too much on their own research can be time consuming and counter-productive.

So, which of these four Investor Personalities fit you the best? Give it some thought (if you haven't done so before) and then decide what kind of investment style you should follow. Your investment success will depend on it.

Read more from this investopedia.com article.  

Wednesday, June 15, 2016

Nifty chart: a midweek update (Jun 15 '16)

Inflation has started to move up again. CPI inflation for May '16 was 5.76% against 5.01% in May '15 and 5.47% in Apr '16. WPI inflation was 0.79% in May '16 - its highest level since Oct '14 - against -2.2% in May '15 and 0.34% in Apr '16. Rising food price was the main culprit.

FIIs were net buyers of equity on Mon. Jun 13, but turned net sellers on the next two days. DIIs were net sellers of equity on Mon. & Tue., but turned net buyers today. The total net selling by FIIs and DIIs was worth Rs 400 Crores.

Global uncertainties and rising domestic inflation failed to deter bulls. Nifty corrected less than 3% from its Jun 7 top of 8295, and bounced up nearly 100 points today. 


The daily closing chart pattern of Nifty ended 4 days of correction after receiving strong support from the 8100 level and its 20 day EMA. All three EMAs are rising, and the index is trading above them in a bull market.

In last week's update, it was suggested that a correction or consolidation was likely and investors would do well to buy the dip and not wait for a deeper correction.

When bulls are regaining control of the chart after a long down trend, the index tends to ignore bad news and logic. The smart thing to do is to follow the trend - as long as valuations remain reasonable.

The periodic corrections during the rally from the Feb '16 low has kept the chart technically 'healthy'. Bulls are buying the dips and propelling the index higher.

Daily technical indicators have corrected overbought conditions, but remain in bullish zones. MACD has crossed below its signal line, but its downward momentum is reducing. RSI has turned up before reaching its 50% level. Slow stochastic is falling towards its 50% level.

However, the breadth indicator NSE TRIN (not shown) has dropped deeper into its overbought zone. Some more correction or consolidation around current levels is possible.

The US Fed is unlikely to increase interest rates anytime soon, as growth of the US economy is quite low. 'Brexit' fears have been overdone - just like 'Grexit' fears a few months back. 

FIIs will soon realise that valuations are never cheap when a large economy is on a growth trajectory. May be they are just waiting for the onset of monsoon across India to renew their buying.

Tuesday, June 14, 2016

WTI and Brent Crude Oil charts: golden crosses technically confirm bull markets

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil continued its strong rally from the Feb '16 low of 26 - nearly doubling in price by touching an intraday high of 51.67 on Jun 9.

However, oil's price formed  'reversal day' bar (higher high, lower close) that often marks an intermediate top, and dropped below its 20 day EMA.

The convincing 'golden cross' of the 50 day EMA above the 200 day EMA has technically confirmed a return to a bull market. The 200 day EMA has formed a bullish 'saucer' pattern.

Daily technical indicators have corrected overbought conditions. MACD and RSI are still in bullish zones. Slow stochastic has slipped below its 50% level. Note that MACD and Slow stochastic are showing negative divergences by failing to touch new highs with oil's price.

More correction may be on the cards. Bulls have been using price dips to buy. They may do so again.

How much further can oil's price rise? One analyst has already talked about levels of 60 and 70. However, higher prices will encourage resumption of fracking for shale oil, which may put a lid on further price rise. 

Canadian production is slowly coming back on track after disruption due to wild fire. Nigerian and Libyan oil production remains uncertain due to militant activity.

On longer term weekly chart (not shown), oil’s price has formed a weekly 'gravestone doji' candlestick that often marks an intermediate top. The 200 week EMA continues to fall, and oil's price is trading well below it in a long-term bear market. Weekly technical indicators are in the process of correcting overbought conditions.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil almost touched the 53 level intraday on Jun 9 - gaining 95% from its Jan '16 low of 27.10 - but formed a 'reversal day' bar (higher high, lower close) and corrected down to its 20 day EMA.

The 50 day EMA has crossed above the 200 day EMA - the 'golden cross' that technically confirms a return to a bull market. Price dips can be used to buy.

Daily technical indicators have corrected overbought conditions, but remain in bullish zones. MACD and Slow stochastic failed to touch new highs with oil's price. The negative divergences may have triggered the price correction.

On longer term weekly chart (not shown), oil's price closed above its 20 week and 50 week EMAs for the 5th week in a row, but well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are correcting overbought conditions.

Related Post

How OPEC lost its iron grip on oil prices

Monday, June 13, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 - Jun 10, 2016

S&P 500 index chart


The daily bar chart pattern of S&P 500 defied bears by negating the possibility of a 'double top' reversal pattern formation and rose to touch an 11 months high of 2120 on Wed. Jun 8.

Bears fought back, raising concerns of an interest rate hike and 'Brexit'. The index dropped below the 2100 level, where it received good support from its 20 day EMA, but ended the week with a small loss.

The index is trading above its three EMAs in bull territory. Higher volumes on recent down days indicate that bears remain active despite the 300+ points rally from the Feb '16 low.

Daily technical indicators are in bullish zones, but showing downward momentum. All three indicators are showing negative divergences by failing to touch new highs with the index.

The index may tread water till the US Fed's mid-week policy announcement. 

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 14th week in a row, but has formed a weekly 'reversal bar' (higher high, lower close) that often marks an intermediate top. Weekly MACD and Slow stochastic are looking overbought. RSI is moving sideways above its 50% level.

FTSE 100 index chart


Bulls desperately tried to dominate the daily bar chart pattern of FTSE 100. The index crossed above its three EMAs and the 6300 level during the first three days of the week.

Bears decided enough was enough. The index dropped to seek support from its 200 day EMA on Thu. Jun 9. The next day, it plummeted below its three EMAs and the 6100 level into bear territory - ending the week with a loss of 1.5%.

Daily technical indicators are looking bearish. MACD has dropped to touch its rising signal line in positive zone. RSI has fallen sharply below its 50% level. Slow stochastic formed a 'double top' reversal pattern inside its overbought zone and is falling towards its 50% level.

A possible fall below the 6050 level will confirm a bearish pattern of 'lower tops, lower bottoms'.

On longer term weekly chart (not shown), the index faced strong resistance from its 200 week EMA, formed a 'reversal bar' (higher high, lower close) and closed below its three weekly EMAs in a long-term bear market for the 8th week in a row. Weekly technical indicators have slipped into bearish zones. 

Sunday, June 12, 2016

BSE Sensex and NSE Nifty index chart patterns – Jun 10, 2016

FIIs were net buyers of equity on all 5 days of the week. Their net buying totalled less than Rs 1500 Crores. DIIs were net sellers of equity worth Rs 925 Crores, as per provisional figures.

Concerns about 'Brexit' led to a global sell off in equity markets during Thursday and Friday. Sensex and Nifty closed less than 1% lower for the week.

The IIP number for Apr '16 was a disappointing -0.8%, against a revised figure of 0.3% in Mar '16 and 2% in Feb '16. Industrial growth remains a major challenge for India Inc.

BSE Sensex chart pattern


The daily bar chart pattern of Sensex traded above its three EMAs and the blue down trend line in bull territory for the 2nd week in a row. The 'golden cross' of the 50 day EMA above the 200 day EMA (marked by light blue circle) has technically confirmed a return to a bull market for the index.

Bears are refusing to give up without a fight after dominating the chart for 15 long months. Note that for the past 2 weeks, the index has consolidated within the long-term 'support-resistance' zone between 26300 and 27250.

The index needs to cross above 27250 convincingly for bulls to regain full control over the chart.

Daily technical indicators are correcting overbought conditions. MACD has dropped to touch its rising signal line. ROC has dropped sharply to its '0' line. RSI and Slow stochastic have started moving down inside their respective overbought zones.

Some more correction and/or consolidation within the 'support-resistance' zone is likely. The rising 20 day EMA and the 26300 level may prevent the index from falling too far.

The dip can be used as an adding opportunity, but maintain a stop-loss at 26100 in case global factors lead to a deeper correction.

NSE Nifty chart pattern


For the 2nd week in a row, the weekly bar chart pattern of Nifty failed to overcome resistance from the 8275 level, and formed a 'reversal bar' (higher high, lower close) that often marks an intermediate top.

The index traded well above the blue downtrend line and its two weekly EMAs in bull territory. The 50 week EMA is forming a 'saucer' (rounding bottom) pattern that has bullish implications.

Weekly technical indicators are correcting overbought conditions but remain in bullish zones. MACD is rising above its signal line in positive zone. ROC is showing negative divergence by touching a lower top and slipping below its rising 10 week MA. 

RSI is about to drop from its overbought zone. Slow stochastic is inside its overbought zone. Some consolidation within the 'support-resistance' zone between 7950 and 8275, or a correction towards 7950 is likely.

The 15 months long downtrend has been reversed and a new bull phase is starting. Use dips to add.

Bottomline? Bears are trying to fight back as bulls are slowly regaining control of Sensex and Nifty charts. The onset of monsoon in southern India should provide further incentive to bulls to charge ahead. Brexit concerns may keep global indices in consolidation mode. Pick your stocks carefully. Stay away from penny stocks and unknown small-caps.

Friday, June 10, 2016

How many Mutual Funds should you hold to adequately diversify your portfolio?

If you ask that question to your friendly fund agent, he may say: "The more the merrier. The more funds you have the more diversified will be your portfolio." From his point of view, the answer may seem logical. 

If you listen to his suggestion, you may end up with 15 or 20 funds. There are so many funds to choose from - large-cap funds, mid-cap funds, small-cap funds, multi-cap funds, FMCG funds, banking funds, infrastructure funds, arbitrage funds, funds of funds, balanced funds, ELSS funds, gilt funds, short-term debt funds, long-term debt funds, income funds, liquid funds, gold funds, and so on.

After a year, you will find that your portfolio has under-performed the fixed deposit rates of banks because the good performance of some of the funds have been neutralised by the poor performance of the others.

So, what should a small investor do? The answer is: It depends. On what? On where you are in your investing/wealth-building stage.

If you are a young person who has just joined employment, investing your meagre monthly salary savings in one good balanced fund may serve your purpose and provide adequate diversification. 

The equity component of a balanced fund can comprise a mix of large-cap and mid-cap stocks. The debt component can comprise a mix of government securities, company fixed deposits, NCDs. 

The equity component takes care of growth. The debt component minimises downside risk. A balanced fund with 60-65% equity component is treated as an equity fund. That means they are not subject to long-term capital gains tax and dividends paid are tax free. 

Someone who has been working for a while, or is running a successful small business, more substantial monthly savings may be available for investment. In which case, a large-cap equity fund, a mid-cap/small-cap fund, an ELSS tax saving fund, a gold fund and a debt fund should provide adequate diversification.

What about all the other types of funds mentioned earlier? Aren't there money-making opportunities in them? 

Yes, if you have nothing better to do than monitor the performance of your funds regularly. Then you will be in a position to move in and out of your funds to increase returns - most of which may be eaten away by fees and taxes.

No, if you want your funds portfolio to run on auto-pilot while you spend your time and energy in furthering your career or growing your business.

Many investment advisors - particularly the ones who work in wealth management divisions of private banks - are clueless about what constitutes an adequately diversified funds portfolio.

Typically, they give you a suggested list of funds that are 5-star or 4-star rated by valueresearchonline.com or moneycontrol.com and expect you to choose from them. 

You may end up with 8 or 10 funds all of which hold Infosys, Reliance, L&T, HDFC Bank, Tata Motors among their top holdings. In which case, the performance of all your funds may depend on the performance of just these 5 stocks - giving you hardly any diversification.

You will be better off just buying these 5 stocks and not buying any of the suggested funds.

Remember that the more funds you have, the more time you will need to spend in monitoring their performances. Also, proper fund selection to avoid duplication of holdings will give you better portfolio diversification.

Last, but not the least, avoid the newer funds. Choose established funds that have a long-term returns track records.

Wednesday, June 8, 2016

Nifty chart: a midweek update (Jun 08 '16)

A  delayed monsoon and an upside risk to CPI inflation were the probable reasons why the RBI Governor kept repo, reverse repo and CRR rates unchanged during yesterday's policy announcement.

Though the move was widely anticipated by economists and market experts, bulls treated it as 'no news is good news' and went on a buying spree. 

In the three trading days this week, FIIs have been net buyers of equity worth Rs 1050 Crores. DIIs were net sellers of equity worth Rs 440 Crores.

Passenger vehicle sales in May '16 rose 7.6% over May '15, against a YoY growth of 11% in Apr '16. Maruti, Hyundai, M&M, Ford and Renault showed good growth. Honda, Tata Motors, Volkswagen and Nissan showed decline in sales.

The daily closing chart pattern of Nifty shows a 3-step recovery from a 15 months long down trend after formation of a 'double bottom' reversal pattern in Feb '16.

Step 1 was a sharp rally during Mar '16 that faced strong resistance from the 200 day EMA. Step 2 was a 8 weeks long sideways consolidation within a 'symmetrical triangle' pattern.

Step 3 was a sharp upward breakout from the triangle into bull territory, followed by the 'golden cross' of the 50 day EMA above the 200 day EMA that technically confirmed a return to a bull market.

A 'doubting Thomas' may point out that Nifty has gained only 18.7% from its Feb 25 '16 closing low of 6971, whereas a 20% gain is required to confirm a bull market.

Also, the index is yet to close above the long-term resistance level of 8275, though the level was breached intra-day two days in a row.

But these may appear to be nothing more than technical nitpicking. The chart is firmly in the grip of bulls. All three EMAs are rising and the index is trading above them.

Does it mean that the index will continue to rally without a correction? Obviously not. 

All three technical indicators are in their overbought zones following the sharp rally after the upward breakout from the triangle. The breadth indicator, NSE TRIN, has dropped back inside its overbought zone.

A correction or consolidation may be around the corner.

A chart can look overbought for long periods during a bull market. Should you now chase the rally? Prudence requires waiting for a dip to enter/add.

A few market analysts have mentioned substantially lower levels for Nifty due to high valuations and global uncertainties. You should ignore them.

But don't throw caution to the wind. Do not try to short the index. If you decide to buy, pay attention to your asset allocation plan and maintain a suitable stop-loss.

Tuesday, June 7, 2016

Gold and Silver charts: sharp corrections provide buying opportunities

Gold chart pattern


The daily bar chart pattern of Gold corrected sharply below its 20 day and 50 day EMAs but bounced up with strong volumes after receiving good support from the 1200 level.

The 200 day EMA is rising. Gold's price is trading above all three EMAs in bull territory. The dip provided a buying opportunity.

Daily technical indicators have corrected oversold conditions but have not quite turned bullish yet. Both MACD and Slow stochastic formed bullish 'rounding bottom' patterns inside their oversold zones. RSI is moving sideways just above its 50% level.

Disappointing non-farm payrolls data in USA encouraged gold bulls to fight back after a sharp month-long price correction.

On longer term weekly chart (not shown), gold’s price dropped below its 200 week EMA and stayed in long-term bear territory for three weeks. However, it has bounced up after receiving support from its rising 50 week EMA. Weekly technical indicators have corrected overbought conditions. Another attempt to break out above the 200 week EMA is likely.

Silver chart pattern


The following remarks were made in the previous post on the daily bar chart pattern of Silver: "Expect some more correction or consolidation. Dips are providing adding opportunities."

Silver's price corrected sharply below its 20 day and 50 day EMAs but bounced up with good volumes after testing support from its rising 200 day EMA, and closed exactly on its 20 day EMA. 

Daily technical indicators are in bearish zones, but have corrected oversold conditions. The correction provided a buying opportunity to those who missed buying during the upward breakout in Apr '16.

On longer term weekly chart (not shown), silver’s price bounced up after receiving support from its rising 50 week EMA. It is trading above its 20 week and 50 week EMAs but well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are in bullish zones after correcting overbought conditions.