Saturday, July 30, 2016

BSE Sensex and NSE Nifty charts (Jul 29, 2016): bulls outmanoeuver bears

FIIs were net buyers of equity during Jul '16. Their net buying for the month totalled Rs 10,100 Crores, which exceeded their combined net buying during Apr-Jun '16. DIIs were net sellers of equity worth Rs 6050 Crores, as per provisional figures.

Sensex gained 3.9% and Nifty gained 4.2% for the month. The gains may seem small. But in absolute numbers, Sensex gained 1052 points and Nifty gained 350 points over 20 trading sessions.

Q1 (Jun '16) results have more or less been as per expectations, with a handful of positive surprises. The GST bill is going to be placed in the Rajya Sabha for approval after the government and opposition came to an understanding.

After two years of near drought, monsoon is wreaking havoc across the country. Deforestation and unplanned urbanisation due to lack of environmental awareness is undoing India's economic and technical progress. 

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex continued its sideways consolidation with a slight upward bias inside the long-term 'support-resistance' zone (marked by blue dotted lines) between 27600 and 28600.

All three EMAs are rising and the index is trading above them in a bull market. The index touched an 11 months high of 28240 on Jul 28. However, the rally from the BrExit low of 25911 - touched on Jun 24 '16 - is looking a bit 'tired'.

All four technical indicators are showing negative divergences by failing to touch new highs with the index (marked by small arrows). The index looks poised for a correction. FIIs may buy the dip and prevent a big fall.

If you are sitting on profits, it may be a good idea to take some of it off the table. Alternatively, keep a trailing stop-loss and continue to enjoy the bull ride.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty has now spent 10 weeks inside a 'rising wedge' pattern. The expected breakout from the pattern is downwards.

The index is facing resistance from the long-term resistance level of 8650. Rising volume bars indicate that there is no dearth of buying support - mainly from FIIs.

All four weekly technical indicators are looking overbought. That doesn't mean Nifty can't move even higher. An index can remain overbought for long periods during bull rallies.

The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone - hinting at some more upside for the index.

Stay invested, but avoid fresh buying unless you find compelling value in individual stocks. 

Bottomline? Sensex and Nifty charts show that bulls are continuing to outmanoeuver bears. Index valuations on a TTM basis are looking expensive. Passing of the GST bill and RBI policy announcement next week may be triggers for bulls to make an attempt to test lifetime highs.

Friday, July 29, 2016

What should you do when a stock suddenly shoots up like a rocket?

Sometimes strange things happen in the stock market. Well, may be not so strange for experienced hands. But logic-defying for novice investors.

One of these logic-defying happenings is a stock that has been lying dormant for months suddenly taking off like a rocket. (Many mid-cap and small-cap stocks have become 'rocket' stocks recently.)

Why does it happen? What should you do with such a stock?

There can be a number of reasons for the 'why'. The company may have low floating stock (i.e. the number of stocks readily available in the market for buying and selling).

Many mid-cap and small-cap companies have high promoter holdings that they do not transact in the market. What little is available to the public may get quickly gobbled up - leading to a supply-demand mismatch and higher prices.

Even where floating stock is comparatively higher, large informed buying by HNIs or FIIs can cause a sharp price spurt. Sometimes a company declares unexpectedly good results, or a business turnaround that lead to massive buying.

What should a small investor do with a 'rocket' stock? There are two possibilities:

1) You already hold the stock

a) book partial profits and hold the balance with a trailing stop-loss; or,
b) continue to hold the entire amount with a trailing stop-loss; or,
c) wait for the inevitable profit booking and then add to your holdings
d) if the stock is an unknown small-cap, just book your profits

2) You don't own the stock but want to jump on the bandwagon

a) wait for a profit-booking dip and then enter
b) if the stock price continues to rise, don't try to chase it; look for another stock
c) if the stock is an unknown small-cap, just avoid it.

Wednesday, July 27, 2016

Nifty chart: a midweek technical update (Jul 27 '16)

FIIs have been on a buying frenzy during F&O expiry week. Their net buying in equities crossed Rs 1950 Crores in 3 days, as per provisional figures. DIIs were net sellers of equity worth Rs 640 Crores.

Nifty broke out upwards from a consolidation range on Mon. Jul 25, and touched a new 52 week high of 8665 today - but closed 50 points lower due to lack of follow-up buying. 

In a strong message to moneybags who try to buy their way out of trouble, a special court has sentenced MD Pradeep Rathi and CEO Udit Rathi of Rathi Steel and Power to 3 year jail terms for illegal allocation of a coal block in Chhatisgarh.


The daily bar chart pattern of Nifty broke out from a 120 points trading range (8475-8595) on Mon. Jul 25 but hasn't made any upward progress since then on a closing basis.

All three EMAs are rising together, and Nifty is trading above them in a bull market. Daily technical indicators are showing negative divergences by failing to touch new highs with the index, and looking overbought.

Breadth indicator NSE TRIN (not shown) remains inside its overbought zone, and can trigger a correction at any time. 

Something else that is concerning many analysts is Nifty's high valuation (TTM P/E ratio is 23.63 and 1 year forward P/E ratio is 18.53). 

Q1 (Jun '16) results declared so far have not shown much improvement in top lines or bottom lines of India Inc. With earnings  growth remaining weak, downside risk for the index is increasing by the day.

Bull markets often climb a 'wall of worries'. Is that the situation now? What should small investors do in such a situation? 

Here is a 4-step strategy:

  1. Do not panic and sell, or jump in feet first
  2. Stick to your asset allocation plan (if you have one) and continue your SIPs
  3. Trim off non-performers in your portfolio 
  4. Stay invested with trailing stop-losses
If you are feeling jittery and/or, not sure about how to implement step 4 - book partial profits and hold on to your cash to fight another day.

If you are not sure how to implement step 3, send me an email or post your question in the 'Comments' link. I'll be glad to help out.

Tuesday, July 26, 2016

WTI and Brent Crude Oil charts: slip back into bear territories

WTI Crude Oil chart


The following remarks were made in the previous post on the daily bar chart pattern of WTI Crude Oil: "Daily technical indicators are in bearish zones and showing downward momentum - suggesting a possible break below the 200 day EMA towards the zone between 40-42."

Note that oil's price traded below its 20 day and 50 day EMAs for 10 trading sessions in a row, receiving good support from its 200 day EMA before finally breaking down and closing at 43.

All three daily technical indicators are in bearish zones and showing downward momentum - hinting at some more correction. Slow stochastic is inside its oversold zone, and showing positive divergence by not falling lower with oil's price.

A pullback towards the 200 day EMA is likely. Bears may use the opportunity to sell again.

On longer term weekly chart (not shown), oil's price dropped below its 20 week and 50 week EMAs after forming a small 'rounding top' reversal pattern. It is trading well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are looking bearish and showing downward momentum.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil made a valiant effort to return to bull territory, but failed to overcome strong resistance from its falling 20 day EMA.

Oil's price has breached its 200 day EMA once again, and closed below the 45 level. Daily technical indicators are looking bearish and showing downward momentum.

More correction is on the cards. Slow stochastic is showing positive divergence by not falling lower with oil's price. That can lead to a pullback to the 200 day EMA.

On longer term weekly chart (not shown), oil's price has dropped below its 20 week and 50 week EMAs. It continues to trade well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are looking bearish and showing downward momentum.

Monday, July 25, 2016

S&P 500 and FTSE 100 charts (Jul 22 '16): consolidating after sharp rallies

S&P 500 index chart


Negative divergences and overbought conditions of technical indicators in last week's post on the daily bar chart pattern of S&P 500 had hinted at a pause in the bull rally.

The index consolidated within a narrow range last week - touching a low of 2159 on Tue. July 19 and a new high of 2176 the following day - gaining just 8 points on a weekly closing basis.

All three EMAs are rising, and the index is trading well above them in a bull market. MACD and Slow stochastic moved sideways inside their overbought zones. RSI did likewise, just below its overbought zone.

Some more consolidation - or a correction - is likely. Booking part profits may be a good idea. 

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market for the 20th week in a row. Weekly technical indicators are looking overbought.

FTSE 100 index chart


The daily bar chart pattern of FTSE 100 consolidated sideways during the week, but closed with a weekly gain of about 1%. 

All three EMAs are rising, and the index is trading above them in a bull market. However, the rally from the Jun '16 low has been a bit too steep. A correction or some more consolidation will improve the technical 'health' of the chart.

All three daily technical indicator moved sideways with the index - MACD and Slow stochastic remained well inside their respective overbought zones; RSI was just below its overbought zone. 

On longer term weekly chart (not shown), the index closed more than 400 points above its three weekly EMAs in a long-term bull market for the 4th week in a row. All three EMAs are converging, which usually precedes a sharp move. Weekly technical indicators are looking quite overbought and hinting at a correction or consolidation.

Sunday, July 24, 2016

BSE Sensex and NSE Nifty charts (Jul 22, 2016): consolidating, with slight advantage for bears

FIIs continued in 'buy mode' during the week. Their net buying in equities exceeded Rs 2200 Crores, as per provisional figures. DIIs were net sellers of equity worth Rs 1600 Crores. 

Sensex closed marginally lower, while Nifty closed flat for the week. Both indices consolidated sideways as there were no fresh triggers for bulls or bears.

Q1 (Jun '16) results have been a mixed bag so far. Positive surprises have been few and far between. All eyes and ears will be tuned to the likely passing of the GST bill in the current session of parliament.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex has been consolidating sideways within a 400 points range for the past two weeks. All three EMAs are rising, and the index is trading above them in a bull market.

The likely breakout from the consolidation zone is upwards. However, upside may be limited as Sensex P/E is at 20.34, which is above the long-term average level.

Daily technical indicators have corrected overbought conditions, but remain in bullish zones. Some more consolidation or correction may follow.

The index appears to be in a 'wait and watch' mode - waiting for more Q1 (Jun '16) results to be announced before making the next move.

Several mid-cap and small-cap stocks are making sharp upward moves. Don't chase them. If you are holding them, book partial profits, or hold with a suitable trailing stop-loss.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty spent its 9th week within a bearish 'rising wedge' pattern, from which the likely breakout is downwards.

Note that the 20 week EMA has crossed above the 50 week EMA, and both EMAs are rising. The index is trading well above them and looking overbought.

Weekly technical indicators are in their overbought zones, and showing some signs of correcting. The breadth indicator, NSE TRIN (not shown), is also inside its overbought zone, and hinting at some more consolidation or correction.

FII buying is preventing Nifty from falling sharply. But Nifty P/E is at 23.43 - well above its long-term average. At some point, FIIs will book some profit.

Bottomline? Sensex and Nifty charts show that bulls and bears were evenly matched last week, with just a slight advantage for the bears. Index valuations on a TTM basis are becoming expensive. Wait for Q1 (Jun '16) results season to play out.

Friday, July 22, 2016

Are the movements of a stock market index predictable?

That may sound like a strange question coming from some one who regularly writes about the movements of Sensex, Nifty, S&P 500, FTSE 100. Nevertheless, it is a pertinent question.

Many small investors spend an inordinate amount of time and energy in trying to figure out in which direction a stock market index is going to move next. Some do it out of curiosity. Others, because they have taken a position in the F&O market. Some are trying to 'time the market' by fine tuning their entry or exit.

Those who have spent a long enough time in stock investing - whether using fundamental analysis, or technical analysis, or both - already know that predicting index (or stock price) movements is like tossing a coin. You only have a 50% chance of success at best.

(That may be good enough to make money. However, the 50% success rate comes from averaging multiple tosses/predictions. You may get 7 'heads' in a row and feel that you have mastered the art of coin tossing/predicting. But then you may get 12 'tails' in a row that will wipe out all your investments!)

What should a small investor do? Whether you are an inexperienced or an experienced investor, you need to accept the fact that index movements can not be predicted or controlled.

So, concentrate your time and energy on stuff that can be predicted and controlled. Like, how much you are likely to earn over the next 5-10-15 years. How much you need to save each year to achieve your financial goals. What kind of assets you should invest your savings in to get the required rate of return.

In other words, make an investment plan and then stick to that plan regardless of index movements. The plan may need to be tweaked to optimise returns - but such tweaking should not be done more than once or twice in a year.

It takes a lot of mental strength, faith and discipline to stick to a plan when an index goes through its periodic turmoil. Specially when a 15 months long bear phase decimates your stock portfolio.

But over the long term, a planned investment strategy will generate better returns than an unplanned strategy based on predicting index movements.

That was the long answer. The short answer is: Not really.  

Wednesday, July 20, 2016

Nifty chart: a midweek update (Jul 20 '16)

Road construction companies have reasons to rejoice. NHAI Chairman announced yesterday that 10,000 KM of roads and national highways projects will be awarded for physical construction during FY 2016-17.

Government's capital infusion of Rs 23,000 Crores for 13 PSU banks will cause dilution of book value per share for banks with larger capital allocation relative to their Tier 1 capital, as per investment bank Jefferies.

FIIs have been net buyers of equity worth Rs 1350 Crores this week, as per provisional figures. DIIs were net sellers of equity worth Rs 850 Crores. Nifty gained just 22 points in the three days of trading.  



The daily bar chart pattern of Nifty has been consolidating sideways for the past 7 trading sessions in a 120 points range (between 8475 and 8595).

All three EMAs are rising, and the index is trading above them in a bull market. Periodic corrections and consolidations have kept the chart technically 'healthy', allowing the index to move higher.

Daily technical indicators are looking overbought. MACD and Slow stochastic are inside their overbought zones. RSI is about to re-enter its overbought zone.

Indicators can remain overbought for long periods during bull rallies. That doesn't mean one should throw caution to the winds. 

The breadth indicator, NSE TRIN (not shown), is inside its overbought zone - hinting at some more consolidation or correction.

FIIs are buying on dips. That is preventing the index from correcting sharply despite overbought conditions. 

Index valuation is quite high (rising from a P/E of 18.9 on Feb 29 '16 to 23.49 today) - limiting index upside. It may be better to look for value among individual stocks from companies declaring good Q1 (Jun '16) results.

[Have you missed the bull rally? Want to learn which mid-cap and small-cap stocks to pick for long-term returns? Subscribe to my Monthly Investment Newsletter today. Subscriptions will remain open for one more day - till July 21, 2016.]

Tuesday, July 19, 2016

Gold and Silver charts: correcting after sharp BrExit rallies

Gold chart pattern


The daily bar chart pattern of Gold formed a small 'double top' reversal pattern just below 1380, and started a correction that is receiving support from its 20 day EMA and the 1320 level.

All three EMAs are rising, and gold's price is trading above them in a bull market. So, the dip is providing an adding opportunity.

Daily technical indicators are correcting overbought conditions and showing downward momentum. MACD and RSI are still in bullish zones, but Slow stochastic has slipped below its 50% level into bearish zone.

Some more consolidation or correction is likely before gold can resume its up move. 

BrExit concerns have receded. That doesn't mean gold's price can't move even higher. It may take a little time.

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory for the 6th week in a row. The 20 week EMA has crossed above the 200 week EMA. The 'golden cross' of the 50 week EMA above the 200 week EMA is still awaited. Weekly technical indicators are correcting overbought conditions.

Silver chart pattern



The daily bar chart pattern of Silver surged above the 21 level - backed by a huge volume spike on Jul 5 - but closed at 20. It has been consolidating sideways within a 'symmetrical triangle' pattern since then.

Triangles are unreliable patterns. A break out can occur in either direction. Since silver's price is trading in bull territory, an upward break out is more likely.

However, daily technical indicators are in the process of correcting overbought conditions, and MACD has formed a small 'rounding top' reversal pattern inside its overbought zone.

The possibility of a downward break out from the triangle can't be ruled out. Should that happen, it will be a good buying opportunity.

On longer term weekly chart (not shown), silver’s price closed above its falling 200 week EMA in long-term bull territory for the 3rd straight week. All three weekly technical indicators are beginning to correct overbought conditions. A pullback towards the 200 week EMA seems likely.

Monday, July 18, 2016

S&P 500 and FTSE 100 charts (Jul 15 '16) - bulls make merry after casting aside BrExit fears

S&P 500 index chart


The daily bar chart pattern of S&P 500 brushed aside all bearish concerns and climbed to touch a lifetime high of 2169 on Fri. Jul 15, but formed a small 'reversal day' bar that can temporarily halt the bullish surge.

Note the sliding volume bars during the sharp rally from the Jun 27 low of 1992. The index has run up well above its 20 day EMA. Such a rally can't sustain for long. 

All three daily technical indicators are in bullish zones, but looking overbought and showing negative divergences by failing to touch new highs with the index.

This may be as good a time as any to take some profits home.

On longer term weekly chart (not shown), the index traded well above its three rising weekly EMA in a long-term bull market for the 19th week in a row. Weekly technical indicators are in bullish zones and looking overbought.

FTSE 100 index chart


The daily bar chart pattern of FTSE 100 almost touched the 6750 level on Thu. Jul 14 - its highest level in nearly a year - but formed a 'reversal day' bar and dropped below 6650.

At the time of writing this post, the index is trading near 6700 - well above its three rising EMAs in bull territory.

Of the three daily technical indicators, MACD and Slow stochastic are moving sideways inside their overbought zones. RSI is also trading sideways, just below its overbought zone.

The index has taken recession concerns due to BrExit in its stride, and is likely to move higher after a bit of consolidation.

On longer term weekly chart (not shown), the index is trading well above its three weekly EMAs in bull territory, and closed above all three EMAs in a long-term bull market for the 3rd week in a row. Weekly technical indicators are looking overbought and hinting at a correction or consolidation. 

Saturday, July 16, 2016

BSE Sensex and NSE Nifty charts (Jul 15, 2016): bearish patterns may trigger corrections

FIIs were net buyers of equity worth almost Rs 3900 Crores during the week - slightly less than their entire net buying during Jun '16. As per provisional figures, DIIs were net sellers of equity worth Rs 3050 Crores - more than their entire net selling during Jun '16.

Both Sensex and Nifty closed the week with identical 2.6% gains. However, bearish patterns have formed on both charts (as explained below), which can trigger corrections.

WPI inflation surged to a 20 months high of 1.62% in Jun '16 against 0.79% in May '16. With CPI inflation also inching up to a 22 months high of 5.77% against 5.76% in the previous month, RBI may have no alternative to maintaining status quo on interest rates.

Merchandise exports rose 1.3% in Jun '16 after declining for 18 months; imports declined 7.3% - compared to the figures for Jun '15. The trade deficit rose to $8.1 Billion from $6.3 Billion in May '16. However, the cumulative deficit for the Apr-Jun '16 quarter was 67.5% lower than the deficit in the same quarter last year. 

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex touched an 11 months high of 28049 on Fri. Jul 15, but formed a 'reversal day' bar that often marks the end of an intermediate rally.

All three EMAs are rising, and the index is trading above them in a bull market. That means, any dips can be used to add to existing holdings.

Won't an investor miss out on profits by waiting for a dip to add instead of buying now? The answer will depend on an investor's investment horizon. For long-term investors, it won't make much difference. But short-term holders can maximise profits by buying the dips.

Note that all four technical indicators are showing negative divergences by failing to touch new highs with the index (marked by blue arrows). Also, ROC has already corrected down from its overbought zone, while RSI and Slow stochastic are well inside their overbought zones. MACD is rising towards its overbought zone.

These technical signals point to an imminent correction. It may be a deeper correction than the one at the beginning of the month. However, there is no need to fear a crash, because FIIs are in buying mood. 

Remember that an index can remain overbought for long periods, and strong inflow of liquidity in the market can toss technical warnings out the window. But it may be better to err on the side of caution by booking partial profits. 

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty touched an 11 months high of 8595 backed by strong volumes. The 20 week EMA has crossed above the 50 week EMA, and the index is trading above them in a bull market.

However, the index has been trading within a bearish 'rising wedge' pattern for the past 8 weeks. The expected break out from the pattern is downwards.

Weekly technical indicators are looking overbought and showing upward momentum. Nifty can rally for another day or two, but a correction may be just around the corner.

The breadth indicator, NSE TRIN (not shown), has started recovering from an extreme overbought condition - and is also hinting at a correction. It may be a good time to take some profits home.

Bottomline? Bears retreated last week due to a bull onslaught on Sensex and Nifty charts. But they are getting ready to fight back. Index valuations on a TTM basis look stretched. Look for companies that declare top and bottom line growth in Q1 (Jun '16).

Friday, July 15, 2016

How to avoid buying near a market top and selling near a market bottom

Common sense suggests that investors should buy near a stock market bottom and sell near a stock market top. But time and again, investors do just the opposite. They buy near a market top and sell near a bottom - losing their savings in the process.

Why so? The short answer is: Greed and fear. The greed of making quick money when the market has already gained a lot. The fear of saving whatever little they can of their invested amounts when all gains disappear and the market still keeps falling.

Even for experienced investors, it is very difficult to identify stock market tops and bottoms precisely. The brave-hearts keep trying by utilising various technical indicators that are supposed to identify when a market is in the throes of euphoria and when a market is totally in the grip of doom and gloom.

Smart investors follow an investment strategy that has been honed over the years. Since each individual is different from another - physically and mentally - investment strategies should take these differences into account.

How? By making a plan. In fact, two plans. First, a financial plan that includes current earnings and savings, present and likely future requirements - be it higher studies, marriage, child's education, parents' medical needs, retirement - and last, but not the least, tolerance to risk.

A financial plan acts like a map for the future in money terms - what amounts will be needed at various future life milestones, and what savings and investment instruments (depending on an individual's risk tolerance levels) will help provide the required amounts at those particular milestones.

Sounds complicated? It only requires a little bit of effort and the desire to make that effort. It definitely isn't rocket science. In fact, there are websites that will guide you how to develop a financial plan for free (if you don't want to pay for the services of a professional).

After you prepare a financial plan, it will be time to prepare an asset allocation plan according to your risk tolerance. The assets can be stocks, mutual funds, fixed income instruments, gold, cash. The proportion of your savings allocated to each asset will form your plan.

Real estate is usually kept out of a small investor's asset allocation plan because real estate investment usually means a flat for self occupation, which is unlikely to be sold in a hurry. 

So, what does all this planning have to do with avoiding buying at a market top and selling near a market bottom? 

Everything. Once you start following your plan, it will 'tell' you when to buy and sell which asset. Think about it. If the market shoots up, the 'stock' portion or 'equity fund' portion of your assets will increase in value. Proportionately, your investments in fixed income, gold, debt funds will reduce in percentage terms.

Beyond a threshold, which you can preset, it will trigger a 'sell' in stocks and 'buy' in other assets - to keep the percentage allocations to each asset class intact. So, you will actually sell near a market top.

The reverse will happen when a stock market starts sliding fast. Beyond your preset threshold, 'stocks' will become a 'buy' and your other assets will become a 'sell'. So, you will buy near a market bottom. 

This periodic adjustment in your asset allocation plan according to market conditions will keep your original percentage allocations intact - and free you from the clutches of greed and fear at market tops and bottoms.

Read more about it in this article from investopedia.com.

Related Posts
How to reallocate your assets
About Asset Allocation – a guest post

Wednesday, July 13, 2016

Nifty chart: a midweek update (Jul 13 '16)

There was good and bad news on the economic front. First, the good. IIP number for May '16  was 1.2% against -0.8% for Apr '16. It was only the second month of industrial growth during the past 6 months.

However, CPI inflation for Jun '16 was slightly higher at 5.77% against 5.76% in May '16. CPI may inch upwards till Aug '16 - reducing the probability of further interest rate cuts by RBI.

As per provisional figures, FIIs have been net buyers of equity worth Rs 1550 Crores this week. DIIs have been net sellers of equity worth Rs 1150 Crores.


The daily bar chart pattern of Nifty opened the week with an upward 'gap' after last week's corrective move, and rallied to touch an intra-day high of 8550 today - a level last touched 11 months ago.

However, the index formed a small 'reversal day' pattern (higher high, lower close) that can lead to some correction or consolidation.

All three EMAs are rising and the index is trading above them in a bull market. But all four technical indicators are looking overbought.

An index can remain overbought for long periods during a bull rally. So, continue with your SIPs but if you want to make big lump sum bets, do so only on dips.

The breadth indicator, NSE TRIN (not shown) is again in extreme overbought zone. Bears may pour cold water on bullish excitement.

Don't be surprised if there is a sudden 200 points correction during the next couple of days. FIIs will probably use the opportunity to buy.

[Feeling 'left out' from the bull rally? Want to learn which mid-cap and small-cap stocks to pick for long-term returns? Subscribe to my Monthly Investment Newsletter today. Paid subscriptions are being offered on a first-come, first-served basis. Subscriptions will remain open only till July 21, 2016.]

Tuesday, July 12, 2016

WTI and Brent Crude Oil charts: bulls reluctantly yield ground as bears dominate

WTI Crude Oil chart


The following comment appeared in the previous post on the daily bar chart pattern of WTI Crude Oil: "All three daily technical indicators are looking bearish and showing downward momentum - hinting at some more correction."

Oil's price moved above its three EMAs into bull territory - immediately after the previous post - but touched a lower top and corrected down to seek support from its rising 200 day EMA.

Daily technical indicators are in bearish zones and showing downward momentum - suggesting a possible break below the 200 day EMA towards the zone between 40-42.

On Mon. Jul 11, oil's price closed at a 2 months low. Production by OPEC countries reached an 8 years high, causing a supply glut.

On longer term weekly chart (not shown), oil's price formed a small 'rounding top' bearish pattern and slipped below 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 showing downward momentum after correcting overbought conditions.

Brent Crude Oil chart


In the previous post, bearish technical indicators had hinted at a continuation of the corrective move on the daily bar chart pattern of Brent Crude Oil.

After bouncing up above its three EMAs into bull territory in end-Jun '16, oil's price resumed its correction and has closed just below its 200 day EMA in bear territory.

Is the 4 months long rally from the Jan '16 low over? Bearish 'rounding top' patterns being formed by the 20 day and 50 day EMAs are suggesting a correction towards the zone between 40-42.

Daily technical indicators are in bearish zones and showing downward momentum. However, Slow stochastic is looking quite oversold, and can trigger a brief recovery in price.

On longer term weekly chart (not shown), oil's price dropped below its 50 week EMA and is seeking support from its 20 week EMA. It is trading well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are in bullish zones after correcting overbought conditions, but showing downward momentum.

Monday, July 11, 2016

S&P 500 and FTSE 100 index charts - Jul 08 '16

S&P 500 index chart

The daily bar chart pattern of S&P 500 soared on a better-than-expected employment report for June, rising above the 2130 level on Fri. Jul 8 before closing just below it. It was the highest level touched by the index since Jul 20 '15.

All three EMAs are rising, and the index is trading above them in a bull market. However, all three daily technical indicators, which are in bullish zones, touched lower tops (marked by blue arrows) while the index rose higher

The combined negative divergences can lead to another round of correction or consolidation. 

As pointed out in last week's post, the index has been trading within a bearish 'broadening top' pattern (higher tops, lower bottoms) since Apr '16. So, tread with caution.

On longer term weekly chart (not shown), the index traded throughout the week above its three rising weekly EMA in a long-term bull market for the 18th week in a row. Weekly technical indicators are in bullish zones.

FTSE 100 index chart


The daily bar chart pattern of FTSE 100 rose above the 6600 level on Mon. Jul 4, but formed a 'reversal day' bar (higher high, lower close). It consolidated sideways for the rest of the week in a range between 6450 and 6600.

The index is trading well above its three EMAs in bull territory. The 'golden cross' of the 50 day EMA above the 200 day EMA has technically confirmed a return to a bull market.

Daily technical indicators are looking bullish. MACD and Slow stochastic are inside their overbought zones. RSI is a little below its overbought zone. Some correction or consolidation is a possibility.

Bulls seem to be gradually gaining the upper hand. Dips can be used to add.

On longer term weekly chart (not shown), the index traded above its three weekly EMAs in bull territory throughout the week, and closed well above all three EMAs in a long-term bull market for the 2nd week in a row. Weekly technical indicators are in bullish zones. 

Saturday, July 9, 2016

BSE Sensex and NSE Nifty index charts – Jul 08, 2016

In a trading week shortened by Eid holiday, FIIs were net buyers of equity worth Rs 480 Crores, as per provisional figures. DIIs were net sellers of equity worth Rs 740 Crores. Both Sensex and Nifty closed marginally lower for the week.

Ultratech Cement's proposed acquisition of debt-laden JP Associates' cement business sent the latter's stock soaring. Anyone holding the dud stock can use the rise to exit. Birla Corp. expects to complete the acquisition of Reliance Infra's cement business by Sep. '16.

PM Modi has left for an African tour as a follow-up to the 54 African Nations summit in India a few months back - in a bid to counter China's growing influence in the continent.

IMF has reduced its GDP growth forecast for the Eurozone to 1.6% in 2016 and 1.4% in 2017 (from the earlier 1.7% for both years) due to BrExit concerns, with a warning that economic conditions could worsen. 

BSE Sensex chart pattern


Negative divergences visible on technical indicators in last week's post on the daily bar chart pattern of Sensex had led to the following comments:

"Some correction or consolidation is likely. BrExit concerns have been taken in its stride by the index, so a deep correction is unlikely. A runaway rally is also not expected because the index valuation on a TTM basis is beyond the 'fair' stage."

The index touched an intra-day high of 27386 on Mon. Jul 4 - gaining nearly 22% from the Feb 29 low of 22495 - but drifted down inside the 'gap' zone between 26730 and 27131 (ref. last week's post) and closed just below 27131.

Sensex is trading above its three EMAs in bull territory. Periodic corrections during the rally from the Feb 29 low has kept the chart technically 'healthy' and provided adding opportunities.

Daily technical indicators are in bullish zones but showing a bit of downward momentum that is hinting at a continuation of last week's correction/consolidation.

Q1 (Jun '16) results announcements will start next week. Keep a close watch for earnings improvements in your 'watch list' stocks before venturing to buy.

NSE Nifty chart pattern


The weekly bar chart pattern of Nifty almost touched the 8400 level intra-week but closed marginally lower - forming a small 'reversal' bar (higher high, lower close).

Note that Slow stochastic is showing negative divergence by touching a lower top inside its overbought zone while the index rose higher. That can lead to some correction/consolidation next week.

All three weekly EMAs are rising, and the index is trading above them in a long-term bull market. So, dips can and should be used to buy. But not indiscriminately. Select your stocks carefully.

The breadth indicator, NSE TRIN (not shown), is inside its overbought zone. That means any index gain is likely to be limited.

Bottomline? Bears are reluctant to yield ground as bulls strive for domination of Sensex and Nifty charts. A good monsoon and BrExit concerns have been 'discounted'. Index valuations on a TTM basis look stretched. Better earnings from India Inc. in Q1 (Jun '16) can trigger the next leg of the rally.

Thursday, July 7, 2016

Want long-term happiness over short-term thrills? Buy experiences, not things

Many small investors enter the stock market with the hope of making some quick gains. They may have heard stories from their friends or colleagues about making a killing in a sugar stock that quadrupled in 6 months, and want to jump on the bandwagon.

So they buy another sugar stock and are excited when the stock spurts 15% shortly after they purchase it. They book out with a small profit, and boast about their investing acumen to all and sundry. 

The thrill of the ride gets into their blood, and they want to repeat the experience with another stock. This time, their luck runs out as the stock tanks immediately after they purchase it. They buy some more to 'average down' their cost price - but the stock keeps going further down.

Reluctantly, they turn into 'long- term investors' in the hope that some day they will be able to get back their 'buy price'. That some day may take a very long time to come. Short-term thrill seeking turns into long-term unhappiness.

Sound familiar? As in the stock market, so in life.

We constantly seek instant pleasures - catching Salman Khan's latest film first-day first show, or buying the newest and thinnest laptop or smart phone - not realising that instant pleasures get easily satiated. So you go seeking for the next one.

According to this article in forbes.com, "... people who spent money on experiences rather than material items were happier and felt the money was better spent. The thrill of purchasing things fades quickly but the joys and memories of experiences ... can last a lifetime." 

Spend money for buying experiences. Gift your parents an all expenses paid weekend getaway to Chail or Kalimpong or Kodaikanal instead of buying the latest gadget. Not only will you feel good about it, your parents will share their experiences with you and the rest of your family for many years.

Go out with your friends or family for a concert and dinner. Those "who have more frequent social interactions live longer, healthier lives and experience less stress, depression and feelings of isolation."  

Join a creative writing course, or a foreign language class or an art/music school instead of sleeping late during weekends. Meet new people, learn new things, expand your mental horizons and experiences.

And, for long-term happiness in the stock market learn how to make a financial plan, an asset allocation plan and have the discipline to follow the plans to build wealth over the long-term.

[Want to learn how to pick stocks for the long-term? Subscribe to my Monthly Investment Newsletter today. Paid subscriptions are being offered on a first-come, first-served basis  Subscriptions will remain open till July 21, 2016.] 

Tuesday, July 5, 2016

Gold and Silver charts: surge ahead on BrExit tailwind

Gold chart pattern


The daily bar chart pattern of Gold had formed a 'reversal day' bar on Jun 16 with good volume support. That had triggered a correction that found support from the rising 50 day EMA on Jun 23.

The unexpected result of the BrExit referendum sent global stock markets on a free fall. Investors rushed to the 'safe haven' of the yellow metal. Gold's price spiked up to 1360 with a huge volume surge.

The initial panic has subsided. Nothing has changed on the ground yet. The process for UK to leave the EU will be long drawn out. Expect some consolidation around current price.

Note that gold's price has been in a bull market since the 'golden cross' of the 50 day EMA above the 200 day EMA occurred in Feb '16. BrExit merely initiated the next leg of the bull rally.

Daily technical indicators are in bullish zones, and looking a bit overbought. If you wish to enter, use any dip towards 1300 to do so. 

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory for the 4th week in a row. Weekly technical indicators are looking bullish but overbought. A correction or some consolidation is likely.

Silver chart pattern


The daily bar chart pattern of Silver had formed a 'reversal day' bar on Jun 16 with good volume support, which had triggered a sideways consolidation that found support from the rising 20 day EMA on Jun 24.

BrExit concerns led to a price spurt that fell short of 18.50. The subsequent rally on strong volumes took silver's price all the way to 20 - a level last seen in Aug '14.

The rally looks speculative and overdone. All three technical indicators are inside their overbought zones, and showing negative divergences by failing to touch new highs with silver's price.

A possible dip towards 18 can be used to add.

On longer term weekly chart (not shown), silver’s price closed above its falling 200 week EMA in long-term bull territory after more than 3 years. All three weekly technical indicators are looking overbought. A pullback towards the 200 week EMA is likely.

Monday, July 4, 2016

S&P 500 and FTSE 100 index charts - Jul 01 '16

S&P 500 index chart


The daily bar chart pattern of S&P 500 dropped sharply below its 200 day EMA and the 2000 level into bear territory on Mon. Jun 27 '16 as BrExit concerns dominated market sentiments.

Monday's strong volumes after Friday's huge volume surge resulted in a 'selling climax' that bulls used to their advantage. The index rallied strongly during the rest of the week, closing above its three EMAs and the 2100 level in bull territory.

The market appears to have digested BrExit concerns and come to the logical conclusion that any economic fallout will be long-term in nature and won't have any short-term impact on the market.

Daily technical indicators are looking bullish. MACD is about to cross above its signal line and enter positive zone. RSI has moved above its 50% level but not showing much upward momentum. Slow stochastic has just entered its overbought zone.

Bulls have managed to recover all the losses suffered during the 2-day BrExit crash. Bears may point out that since Apr '16, the index has formed a 'broadening top' pattern (higher tops, lower bottoms) with bearish implications.

It may be a good idea to sit on the sidelines as the index oscillates wildly - triggering stop-losses in both directions.  

On longer term weekly chart (not shown), the index dropped below its 20 week and 50 week EMAs, but recovered to close well above its three weekly EMA in a long-term bull market for the 17th week in a row. Weekly technical indicators are in bullish zones.

FTSE 100 index chart


The daily bar chart pattern of FTSE 100 traded below its three EMAs in bear territory on Mon. Jul 27, and closed below the 6000 level.

Bulls concluded that the selling on BrExit concerns was overdone and initiated a strong 4-day rally that took the index to an 11 months high above the 6550 level.

The 20 day EMA has crossed above the 200 day EMA once again. The imminent 'golden cross' of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market.

Daily technical indicators are in bullish zones, but looking overbought. The 4-day rally was backed by strong volumes (not shown), but some correction or consolidation will improve the technical 'health' of the chart.

Any dip towards the zone between 6400-6450 and a subsequent upward bounce can be used as an adding opportunity.

On longer term weekly chart (not shown), the index traded below its three weekly EMAs in bear territory intra-week, but bounced up to close well above all three EMAs in a long-term bull market after 10 weeks. Weekly technical indicators are in bullish zones.