Amazon deals

Wednesday, September 28, 2016

Nifty chart: a midweek technical update (Sep 28 '16)

FIIs were net sellers of equity on Mon. and Tue. while DIIs were net sellers of equity on Mon. and Wed. FIIs were net buyers on Wed. while DIIs were net buyers on Tue.

Total net selling of equities by FIIs was worth Rs 290 Crores. Total net selling by DIIs was worth Rs 90 Crores - as per provisional figures. The comparatively lower numbers are due to uncertainty during F&O expiry week.

In a sign of recovery, India's seafood exports for the Apr-Aug '16 period was higher by 7% on volume terms over the same period last year. In value terms, exports were higher by 17% - wiping out the entire loss of 2015.

In last week's post on the daily bar chart pattern of Nifty a couple of bearish scenarios and a bullish scenario were discussed. The balance appears to be tilting towards the bears.

The index has been consolidating sideways within a 'descending triangle' pattern since touching a 52 weeks high of 8969 on Sep 7. Such a triangle - when formed at a market top - can be a trend reversal pattern.

A 'descending triangle' has measuring implications. If the lower support level (8690) gets breached, the index can fall a distance equal to the height of the triangle (about 280 points).

That gives a downside target of about 8410 - which is the upper level of 'Runaway Gap3'. If the index does fall there, use the opportunity to buy.

The index has already touched the downward sloping trend line twice and the flat support level of 8690 twice. As per theory of triangles, a breakout can occur at any time.

Since triangle patterns are unreliable, it may be prudent to wait for the breakout. A convincing move above 8850 can negate the 'descending triangle'.

Things can change quickly on a price chart. Note that a small fall below the triangle and a subsequent quick recovery can turn the bearish 'descending triangle' into a bullish 'falling wedge' pattern. 

Daily technical indicators are giving mixed signals. MACD (in positive zone) and Slow stochastic (in oversold zone) are showing downward momentum. RSI is moving sideways in neutral zone.

Nifty's TTM P/E is still high at 23.97. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone and rising. Some more consolidation within the triangle and/or a breakout below it is possible.

Don't hit the panic button. But if you are sitting on good profits, take some of it off the table.

Tuesday, September 27, 2016

WTI and Brent Crude Oil charts: sideways consolidations within 'triangle' patterns continue

WTI Crude Oil chart

The daily bar chart pattern of WTI Crude Oil appears to have formed a bearish 'descending triangle' pattern. A likely breakout below 43 can drop oil's price to its Aug '16 low of 39.

All three daily technical indicators are in neutral zones and not showing much upward momentum. The three EMAs are moving sideways and gradually converging together. A sharp move is likely to follow.

All eyes are on the unofficial OPEC meeting in Algiers later this week. Saudi Arabia has suggested a cut in production to stabilise prices but Iran is refusing to toe the line.

If producers manage to reach an agreement on an output freeze, oil's price may see an upward bounce. But such an agreement seems unlikely due to geo-political rivalry between Saudi Arabia and Iran.

On longer term weekly chart (not shown), oil's price is oscillating about its entangled 20 week and 50 week EMAs and trading well below its sliding 200 week EMA in a long-term bear market. Weekly technical indicators are in neutral zones, and not showing much upward momentum.

Brent Crude Oil chart

The daily bar chart pattern of Brent Crude Oil seems to have formed a bearish 'descending triangle' pattern. A likely breakout below 45 may drop oil's price to test its Aug '16 low of 41.50.

Of the three technical indicators, MACD and Slow stochastic are in bearish zones while RSI is in neutral zone. The 20 day and 50 day EMAs have converged and are falling towards the 200 day EMA.

If OPEC countries fail to agree on a production freeze, oil's price can drop to 40.

On longer term weekly chart (not shown), oil's price is oscillating about its converging 20 week and 50 week EMAs, and is trading well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are in neutral zones, but none are showing any upward momentum.

Monday, September 26, 2016

S&P 500 and FTSE 100 charts (Sep 23 '16): bears pushed back but not routed yet

S&P 500 index chart pattern

After receiving good support from the 2120 level, the daily bar chart pattern of S&P 500 resumed its up move by crossing above its 20 day and 50 day EMAs and touching an intra-day high of 2180 on Thu. Sep 22.

However, it faced resistance from the blue down trend line and slipped down to close below 2165. The index gained 1.2% on a weekly closing basis and is trading above its three EMAs in a bull market. 

Should bears get ready to throw in the towel? Not yet. 

Note that the index formed an upward 'gap' of 8 points on Thu. (marked by blue square) and completely filled the downward 'gap' (also of 8 points - marked by blue circle) formed on Sep 9. The latter 'gap' had triggered a breakdown below a 'rectangle' consolidation pattern (see last week's post).

Technically, filling of a downward 'gap' should lead to a resumption of the down move. But Thursday's upward 'gap' also got filled by Friday's corrective move. Shouldn't that lead to a resumption of the rally from the low of 2120?

That can happen only on a convincing breakout above the down trend line - as per theory of trend lines ('a trend remains in force till it gets reversed').

Daily technical indicators are giving mixed signals. MACD has just crossed above its signal line but remains in negative zone. RSI is in neutral zone, seeking support from its 50% level. Only Slow stochastic is looking bullish by rising above its 50% level.

Some consolidation can be expected before bulls can attempt a breakout above the down trend line. The longer the index consolidates between 2120 and the blue down trend line, the more bearish will become the technical set up

Why? Because a bearish 'descending triangle' pattern will then get formed near a lifetime high. That could very well be a trend reversal pattern. 

If you are holding long positions, take some profits off the table. Bulls better hope for a quick breakout above the down trend line.

On longer term weekly chart (not shown), the index traded above its three rising weekly EMAs in a long-term bull market for the 29th week in a row. Weekly technical indicators have corrected overbought conditions but remain in bullish zones.

FTSE 100 index chart pattern


The following comment was made in last week's post on the daily bar chart pattern of FTSE 100: "The Sep 2 top of 6928 needs to be crossed if bulls are to regain their control."

The index rose to touch an intra-day high of 6937 on Thu. Sep 22 before closing with a weekly gain of 3%. However, the index formed a 'doji' candlestick pattern, which is a sign of indecision among bulls and bears.

All three daily technical indicators are in bullish zones. The index is trading above its three rising EMAs in a bull market. The next hurdle to be crossed is the Aug 15 top of 6955 if bulls are to regain total control.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 13th week in a row. Weekly technical indicators are looking overbought.

Saturday, September 24, 2016

BSE Sensex and NSE Nifty charts (Sep 23, 2016): bears grudgingly yield ground

FIIs were net buyers of equity on Mon., Wed. and Thu. but their net selling on Tue. and Fri. took their net selling for the week to Rs 720 Crores, as per provisional figures. 

DIIs were net sellers on Mon. and Wed. but were net buyers on the other three days. Their net buying for the week was more than Rs 1100 Crores.

Sensex and Nifty closed marginally higher for the week, but touched lower tops and ended up near long-term resistance levels.

After diplomatically isolating Pakistan at the recent UN General Assembly meeting, the NDA government is pushing hard to ensure GST implementation from the next fiscal year starting Apr. 2017. 

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex consolidated sideways near the resistance level of 28600 during the first three days of the trading week, before bouncing up on Thu. Sep 22 on the back of FII and DII buying.

The index touched a lower top, formed a 'doji' candlestick pattern (which indicates indecision among bulls and bears) and dropped down to close near the resistance level of 28600 by the end of the week.

The trading during the past three weeks has been confined within a small 'symmetrical triangle' pattern, which is usually a 'continuation' pattern. That means the likely breakout from the 'triangle' is upwards.

The index is trading above its three rising EMAs in a bull market. The blue uptrend line is intact. That lends credence to the upward breakout possibility.

However, triangles are quite unreliable because a breakout can occur in either direction. On odd occasions, the price moves sideways through the apex of the triangle - negating the triangle and turning the horizontal level of the apex (at 28750) into a resistance level.

Daily technical indicators are treading water and giving conflicting signals, which often happens during periods of consolidation. MACD and RSI are in bullish zones. ROC and Slow stochastic are in bearish zones. None are showing any upward or downward momentum.

Bulls and bears are expected to remain cautious ahead of F&O expiry on Thu. Sep 29. Wait for a convincing breakout from the 'symmetrical triangle' before initiating any buy/sell strategies.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty closed about 0.5% higher for the week and received good support from the blue uptrend line, but failed to close above the resistance level of 8850 for the second week in a row.

The index is trading well above its two rising weekly EMAs in a bull market. Three of the weekly technical indicators are moving sideways inside their respective overbought zones. Only ROC is looking a bit bearish by sliding down from its overbought zone.

Nifty's TTM P/E remains above its long-term average at 24.24. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone - hinting at some more correction/consolidation.

Mid-cap and small-cap stocks are continuing to outperform large-cap stocks. This is typical during bull phases. Remember that the opposite holds true during bear phases, when mid-cap and small-cap stocks tend to underperform large-cap stocks.

If you are sitting on decent profits on mid-cap and small-cap stocks, this may be a good time to book partial profits.

Bottomline? Bulls and bears are continuing their fight to dominate Sensex and Nifty charts. Rallies from the Feb '16 lows - as marked by blue uptrend lines - are intact. Bulls may be winning the war, but bears are refusing to concede without a good fight.

Friday, September 23, 2016

A simple Strategy to achieve your Financial goals

(When Paul McCartney wrote the words "I don't care too much for money, 'cause money can't buy me love" he probably didn't have enough of it!)

There are three ways of making money:

1. Work hard
2. Own assets that earn money
3. Work hard and own assets that earn money

Unless you are born with a silver spoon in your mouth, you can't start adult life with option 2. So, you have no option but to work hard - whether at a job, or a business.

What you do with the money you earn by working hard will determine whether you will achieve your financial goals and will be able to retire later in life to benefit from option 2.

The simple strategy to achieve your financial goals? Save and invest. And the sooner you start, the better.

But you knew that already - right? 

Do you also know how much money you will need to save today, and what mix of assets you need to invest in so that when you eventually stop working you will be able to live comfortably on what your assets will earn?

Probably not - as per anecdotal evidence from a few young working people. 

One complained she hardly has any savings left after paying for rent, food and the daily commute. Another said he is putting some money into a mutual fund every month, but hasn't figured out how much he will need 30 years from now.

Would it be a surprise to know that both own high-end smartphones and laptops, commute only by app-cabs, wear designer clothes, eat out 2-3 times a week and rent apartments in posh localities?

Living the good life now may mean that you will neither be able to retire early to do the things you really love, nor will you be able to enjoy retired life without cutting corners. 

Is there a way to live reasonably well now - and in future when you will not be able (or willing) to work any more?

There is - but you will need to plan for it:

- Set financial goals - near-term, medium-term and long-term
- Figure out how much money you will need at each stage
- Save and invest accordingly

For longer term goals, you can and should invest in riskier assets like equity or equity funds for better returns. For nearer term goals, invest in less risky assets like bank fixed deposit or debt funds.

From your monthly/quarterly earnings, invest first (according to your financial plan) and then spend. 

Stay a bit farther away from town, commute by autorickshaw or train, eat out only once or twice a month, buy a cheaper phone and laptop, pay off your credit card dues in full every month. 

You will be amazed how much these small sacrifices now can lead to a more comfortable retired life. (Believe it or not, you will get old and retired life will be upon you sooner than you expect!)

Wednesday, September 21, 2016

Nifty chart: a midweek technical update (Sep 21 '16)

FIIs were net buyers of equity on Monday and Wednesday (worth Rs 400 Crores), but turned net sellers on Tuesday (worth Rs 1150 Crores). DIIs did the exact opposite. They were net sellers on Monday and Wednesday (worth Rs 480 Crores), but were net buyers on Tuesday (worth Rs 780 Crores).

The result of all this buying and selling? Nifty went nowhere - trading within a 70 points range, and closing just 3 points lower than Friday's close. Bulls and bears were kept on tenterhooks ahead of the US Fed's interest rate policy announcement.

India's Current Account Deficit for Q1 (Jun '16) was $300 Million (0.1% of GDP) against expectations of a surplus. The figure was much lower than the deficit of $6.1 Billion (1.2% of GDP) in Q1 (Jun '15).   

During the past 3 months, the daily bar chart pattern of Nifty has been quite active in forming different technical patterns. It formed a couple of 'runaway gaps' (marked 2&3) followed by a 7 weeks long consolidation within a 'rectangle' pattern.

The upward breakout from the 'rectangle' was followed by an 'exhaustion gap' on Sep 6 and then a downward 'breakaway gap' on Sep 12 - turning the four days of trading between Sep 6 & 9 into an 'island reversal' pattern.

After dropping and staying below the 20 day EMA for three consecutive trading sessions, the index bounced up with strong volumes (not shown) on Fri. Sep 16 and formed a 'long-legged doji' candlestick pattern (indicating indecision) that completely filled the 'exhaustion gap' of Sep 6 and the 'breakaway gap' of Sep 12.

Miles Davis would have said: So what? Here are three possible scenarios - two bearish and one bullish:

1. The 'island reversal' pattern raises the possibility of a retracement of the previous minor/intermediate up move. That means a likely filling of either 'Runaway Gap3' or 'Runaway Gap2' or both.
2. The filling of the downward 'breakaway gap' of Sep 12 should lead to a resumption of the corrective downward move.
3. The technical setup of the chart is bullish. All three EMAs are rising; Nifty is trading above them and receiving support from the 20 day EMA for the past four trading sessions. The up move may resume at any time. 

Confusing? You bet. Daily technical indicators appear confused too! MACD is falling below its signal line in positive zone, and showing negative divergence. RSI is moving sideways just above its 50% level. Slow stochastic is oscillating about its 50% level.

Nifty's TTM P/E remains well above its long-term average at 24.11. The breadth indicator NSE TRIN (not shown) is about to emerge from its overbought zone, and hinting at a correction.

The index is in suspended animation because FIIs are not sure whether the US Fed will announce an interest rate hike or not. This is typical of the short-term outlook of stock market participants. 

The hike won't be more than 25 bps (0.25%), which is unlikely to have much impact on the economy or the stock market but will indicate that the US economy is on a firm footing. Lack of a hike will indicate otherwise.

Nifty should not be affected either way - unless FIIs go on a profit-booking spree. In which case, use the dip to add. But don't be in a hurry to do so.

Sometimes, stepping back and watching events unfold is far better than hectic activity.   


Tuesday, September 20, 2016

Gold and Silver charts: bulls strongly defending important support levels

Gold chart pattern

The following remarks were made in the previous post on the daily bar chart pattern of Gold: "The upward breach of the 1310 level on Jun 26 was accompanied by a sharp increase in volumes. A resistance level when breached with high volumes often turns into a support level for future down moves."

Gold's price rose sharply above its 20 day and 50 day EMAs with good volume support on Sep 6, stopping just short of the 1360 level. The next day, it formed a 'reversal day' bar (higher high, lower close) that triggered a correction.

After falling below its 20 day and 50 day EMAs, gold's price found support at the 1310 level once more and has bounced up a bit - albeit with low volume support. Bears are not allowing gold's price to resume its bull rally.

However, the rising 200 day EMA - with gold's price trading 50 points above it - is an indication that bulls have the advantage over the longer term.

Daily technical indicators are in bearish zones. MACD is sliding below its signal line in negative territory. RSI is below its 50% level. Slow stochastic has dropped to the edge of its oversold zone.

Note that the 20 day EMA has formed a bearish 'head and shoulders' like pattern and is about to cross below the 50 day EMA. That can lead to some more correction. In case 1310 is breached, expect support from the zone between 1280-1300.

On longer term weekly chart (not shown), gold’s price again bounced up after receiving support from its rising 20 week EMA, and closed above its three weekly EMAs in long-term bull territory for the 15th week in a row. The 'golden cross' of the 50 week EMA above the 200 week EMA, which will signal a return to a long-term bull market, is still awaited. Weekly technical indicators have corrected overbought conditions but remain in bullish zones.

Silver chart pattern

The daily bar chart pattern of Silver crossed above the 20 level with strong volume support on Sep 6. Bears struck the very next day and pushed silver's price below its 20 day and 50 day EMAs.

After a brief sideways consolidation just above the 18.50 level, silver's price has managed to close above its three EMAs and the 19.25 level in bull territory.

Of the three daily technical indicators, MACD and Slow stochastic are moving sideways in bearish zones. RSI is trying to cross above its 50% level.

Silver's price may make an attempt to cross above its Sep 6 top of 20.25.

On longer term weekly chart (not shown), silver’s price closed below its 200 week EMA, but received good support from its rising 20 week EMA and bounced up. Weekly technical indicators are in bullish zones after correcting overbought conditions.

Monday, September 19, 2016

S&P 500 and FTSE 100 charts (Sep 16 '16): bulls trying to regroup at support zones

S&P 500 index chart pattern

The following comments were made in last week's post on the daily bar chart pattern of S&P 500: "...the index may use the 'support-resistance zone' between 2110-2120 to organise a pullback rally towards the lower edge of the 'rectangle'. Bears are likely to 'sell the rally'."

As if on cue, the index slipped into the 'support-resistance' zone on Mon. Sep 12, only to bounce up and close above its 50 day EMA at the lower edge of the 'rectangle'.

Bears resumed their selling from Tue. Sep 13. However, the 'support-resistance' zone held firm. The index consolidated sideways below its 50 day EMA for the rest of the week - gaining 0.5% on a weekly closing basis. 

The volume spike on Fri. Sep 16 may be a sign of 'selling exhaustion'. 

All three daily technical indicators are in bearish zones, but giving conflicting signals. MACD is showing downward momentum. RSI is moving sideways. Slow stochastic is showing slight upward momentum.

The index is trading above its rising 200 day EMA in a bull market. The correction below the 'rectangle' pattern and the subsequent sideways consolidation is improving the technical 'health' of the chart. That may enable bulls to regroup and resume their domination.

On longer term weekly chart (not shown), the index dropped below its 20 week EMA intra-week, but closed above its three weekly EMAs in a long-term bull market for the 28th week in a row. Weekly technical indicators have corrected overbought conditions but remain in bullish zones.

FTSE 100 index chart pattern

The following comments were made in last week's post on the daily bar chart pattern of FTSE 100"The index should receive support from the 'support-resistance zone' between 6600-6750. The rising 50 day EMA is within the support zone, and can provide additional support."

The index opened trading on Mon. Sep 12 with a drop inside the 'support-resistance' zone and a close below its 50 day EMA. For the rest of the week, the index traded sideways within the 'support-resistance' zone and tried to cling on to its 50 day EMA.

FTSE lost about 1% on a weekly closing basis. At the time of writing this post, it has recouped its losses and bounced up above its 20 day EMA.

Daily technical indicators are turning bullish. MACD is moving sideways in negative zone. RSI has crossed above its 50% level. Slow stochastic has emerged from its oversold zone.

The Sep 2 top of 6928 needs to be crossed if bulls are to regain their control.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 12th week in a row. Weekly technical indicators have corrected overbought conditions but remain in bullish zones.

Sunday, September 18, 2016

BSE Sensex and NSE Nifty charts (Sep 16, 2016): bulls fight back but bears stand their ground

FIIs and DIIs were both net sellers of equity in another holiday-shortened trading week. FII net selling was worth only Rs 65 Crores. They turned net buyers on the last two days of the week, as per provisional figures.

DII net selling was worth Rs 690 Crores. Both Sensex and Nifty closed about 1% lower for the week, but their up-trends from Feb '16 lows remain intact.

India's macroeconomic worries continue. WPI inflation rose to a two years high of 3.74% in Aug '16, against 3.55% in Jul '16 and -5.06% in Aug '15 - thanks to a spike in prices of pulses, potatoes and some manufactured items. 

Merchandise exports fell for the second straight month, contracting -0.3% in Aug '16 against -6.84% in Jul '16. There was some talk about a Rupee devaluation to boost exports - but the step would be ill-advised as cost of imports will go up.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex opened trading on Mon. Sep 12 with a big 274 points downward 'gap' and dropped below its 20 day EMA, but received support from the blue up-trend line (drawn from its Feb 12 '16 low).

The index continued to receive good support from the up-trend line during the next two trading sessions as it continued to hover near its 20 day EMA. 

Opening with a 40 points upward 'gap' on Fri. Sep 16 - thanks to strong FII buying - Sensex rose to touch an intra-day high of 28779. Monday's downward 'gap' got completely filled.

However, the index could not sustain near the day's high and dropped down to close just below the long-term 'support-resistance' level of 28600. What are the technical consequences of these downward and upward 'gaps'?

Note that in the previous week (on Tue. Sep 6), Sensex had opened trading with a 50 points upward 'gap'. The downward 'gap' of 274 points on Mon. Sep 12 overlapped the previous week's upward 'gap' - turning the previous week's trading into an 'island reversal' pattern.

Such a reversal pattern does not necessarily signify a change of trend, but can cause a retracement of the entire intermediate rally. When did the intermediate rally begin? From the 63 points upward 'gap' formed on Jul 11 '16.

How likely is it for Sensex to drop and close the Jul 11 'gap'? Not very - though the possibility can't be ruled out entirely. 

The blue uptrend line, the rising 50 day EMA and the 27600 level are expected to provide good support should the index fall further. Only if 27600 is breached convincingly can the possible filling of the Jul 11 'gap' be taken into consideration.

Daily technical indicators have corrected overbought conditions but remain in bullish zones. MACD is moving sideways below its signal line in positive territory. ROC crossed below its 10 day MA but bounced up after receiving support from its '0' line. RSI is rising towards its overbought zone. Slow stochastic has bounced up from its 50% level.

The index is trading above its three EMAs in a bull market. Bears are trying to stand their ground and prevent the index from rising to a new high. But they may be fighting for a lost cause.

NSE Nifty index chart pattern



Overbought technical indicators and high TTM index valuation had led to the following warning in last week's post on the weekly bar chart pattern of Nifty: "The index looks ripe for a correction."

The week's trading started with a big 133 points downward 'gap'. However, the index received good support from the blue uptrend line (drawn from its low from the week ending on Feb 12).

Though the index failed to overcome resistance from the 8850 level, it managed to fill the downward 'gap' by the end of the week's trading.

The index is trading above its two rising weekly EMAs in a bull market. Weekly technical indicators are inside their overbought zones. Only ROC is showing a bit of bearishness by crossing below its 10 week MA.

Nifty TTM P/E remains high at 24.07. The breadth indicator NSE TRIN (not shown) has corrected extreme overbought conditions and is rising inside its overbought zone - suggesting some more correction or consolidation around current levels.

A convincing downward breach of the blue uptrend line will tilt the balance in favour of bears. Otherwise, expect the bulls to resume their domination soon.

Bottomline? Bears almost wrested control away from bulls in their efforts to prevent Sensex and Nifty charts to rise to new highs. Bulls fought back strongly on Friday. As usual, FII fire power will decide the fate of the Indian market. Stay invested and stay patient. 

Friday, September 16, 2016

How to Increase your stock market Returns - be an Investor and a Speculator at the same time

There are two kinds of people in the stock market: those who invest and those who speculate. 

Those who invest transact rarely. Their motto is 'buy right and sit tight'. Those who speculate transact daily. They believe in 'get in - make a few bucks - get out'.

Unfortunately, neither make much money. Why?

Many investors are really speculators gone wrong. They 'get in - but can't get out' after getting stuck with a losing position. 

Most sell-out with a loss and swear never to buy a stock again. Some switch to mutual funds. 

A handful make the effort to really learn how to pick stocks that can give steady returns over the long term.

Speculators (read: traders) are a dime a dozen. They pick up the rudiments of technical analysis and think it is the 'Holy Grail' of getting rich.

They taste success with one or two trades but fritter away all their gains in the next few trades. Those who are really hooked get into deeper trouble by borrowing money for their daily trading fix.

A handful of traders really learn the tricks of the trade and are disciplined about booking losses when stop-loss levels are hit.

Like Voltaire's "Candide", you can enjoy the best of both worlds by becoming an investor and a speculator at the same time.

But isn't an investor and a speculator polar opposites? Like day and night? 

Au contraire. They are more like the Chinese Tao concept of Yin/Yang. One needs the other to make the stock market a complete whole.

Big investors bring in big money. A large number of speculators generate high volume of transactions that lead to price discovery.

Here is the secret to becoming an investor/speculator.

Allocate 75% of your portfolio to 8 to 10 financially sound, large-cap stocks that provide decent growth and pay regular dividends.

Allocate the balance 25% to another 8 to 10 mid-cap and small-cap stocks, which you can buy and sell to your heart's content.

The large-cap portfolio will give you boring but steady returns that will keep you solvent. The mid-cap/small-cap portfolio will provide excitement, and the occasional multibagger that can finance your dream trip to Bora Bora or Borobudur.

Wednesday, September 14, 2016

Nifty chart: a midweek technical update (Sep 14 '16)

FIIs have been in profit-booking mode during the two days of trading so far this week. Their net selling in equities exceeded Rs 1070 Crores. DIIs were also net sellers of equity but worth only Rs 20 Crores, as per provisional figures.

FII selling on Mon. Sep 12 triggered a huge 112 points downward 'gap' on Nifty's chart, which overlapped the 24 points upward 'gap' formed on Sep 6. (Technical significance of this unusual pattern has been explained below.) 

There is little to cheer and lots to worry about the Indian economy. CPI inflation dropped to 5.05 in Aug '16 against 6.07 in Jul '16 - thanks to a good monsoon and falling food prices.

However, the IIP number dropped to its lowest level since Nov '15 at -2.4% in Jul '16 against 1.95% in Jun '16. Manufacturing output fell -3.4%. RBI may have no option but to cut interest rates.

The technical significance of a number of 'gaps' formed on the daily bar chart pattern of Nifty was explained in last week's post.

Runaway Gaps 2&3 (formed on Jun 30 and Jul 11) have been marked on the chart. The 24 points 'exhaustion gap' formed on Sep 6 - which had bearish implications to begin with - has now become even more bearish.

Why? Because the huge 112 points downward 'breakaway gap' formed on Mon. Sep 12 has created an 'island reversal' pattern: last week's four daily bars have been preceded by an 'exhaustion gap' and followed by a 'breakaway gap', creating an 'island' of trading.

By itself, an 'island reversal' may not be a major trend reversal pattern. In other words, the bull market should remain intact.

However, the previous minor/intermediate move is likely to get reversed. Question is: Where did the previous intermediate move start from? The answer is: Either from Runaway Gap2 or Runaway Gap3.

That means, there is a good possibility that either or both 'runaway gaps' may get filled before the index can resume its attempt to touch a new lifetime high.

What if the index rallies over the next few days to partly or completely fill the 112 points downward 'breakaway gap' formed on Sep 12? Such a possibility should not be ruled out.

Don't get fooled by such a rally. Fundamentally, nothing much has changed in the economy. Technically, a reversal pattern has clearly formed on the chart, and one should respect it. Q1 (Jun '16) results have shown that earnings of India Inc. have fallen well behind Nifty valuation. 

Daily technical indicators are still in bullish zones, but showing downward momentum. MACD has crossed below its signal line in positive territory. RSI and Slow stochastic are seeking support from their respective 50% levels.

The breadth indicator NSE TRIN (not shown) is looking extremely overbought, and hinting at more correction.

The index may be in the midst of the much-awaited 5-10% correction from the Sep 7 top of 8969. A little patience may enable investors to add at lower levels. 

Tuesday, September 13, 2016

WTI and Brent Crude Oil charts: consolidating sideways within 'triangle' patterns

WTI Crude Oil chart

The daily bar chart pattern of WTI Crude Oil has been consolidating sideways within a large 'triangle' pattern for the past three months - alternatively rising above and falling below the 200 day EMA.

Oil's price is trading above its gradually rising 200 day EMA. Volumes have been stronger on recent up-days. These are signs that bulls are at a slight advantage. 

Daily technical indicators are in bullish zones, but MACD and RSI are not showing much upward momentum. Some more consolidation within the 'triangle' is likely.

Oil's price touched a lower top on Sep 8, and failed to test resistance from the upper edge of the 'triangle'. That may lead to a drop below the 'triangle'.

A 'triangle' pattern is unreliable. So, it is better to wait for the breakout before initiating any buy/sell decision. 

On longer term weekly chart (not shown), oil's price is trading above its entangled 20 week and 50 week EMAs but well below its sliding 200 week EMA in a long-term bear market. Weekly technical indicators are in bullish zones, but MACD and Slow stochastic are not showing any upward momentum.

Brent Crude Oil chart

The following remarks were made in the previous post on the daily bar chart pattern of Brent Crude Oil: "Daily technical indicators are in the process of correcting overbought conditions. A pullback towards the 200 day EMA is a possibility."

Oil's price dropped and closed below its 200 day EMA on Sep 1, but bounced up the very next day. It crossed the 50 level intra-day on Sep 8, but failed to test resistance from the upper edge of the 'triangle'. That may lead to a correction below the 'triangle'. 

A 'triangle' pattern is unreliable because a breakout can occur in either direction. It may be a good idea to wait for the eventual breakout before deciding to buy/sell.

On longer term weekly chart (not shown), oil's price 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, but none are showing any upward momentum.

Monday, September 12, 2016

S&P 500 and FTSE 100 charts (Sep 09 '16): bulls retreat after fierce bear attacks

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 had been consolidating sideways within a 'rectangle' pattern for two months, during which it had touched a lifetime high of 2194 on Aug 15. 

The sideways consolidation continued during the first three sessions of a holiday-shortened trading week. A missile test by North Korea was just the excuse bears needed to launch a fierce attack on Fri. Sep 9. 

The index opened with a downward 'gap' below its 20 day EMA and dropped sharply to close below its 50 day EMA and the 2130 level - losing 2.4% (52 points) on a weekly closing basis.

Daily technical indicators have turned bearish and are showing strong downward momentum. MACD is about to drop into negative territory. RSI has fallen all the way to the edge of its oversold zone. Slow stochastic has slipped below its 50% level.

It is possible that the index may use the 'support-resistance zone' between 2110-2120 to organise a pullback rally towards the lower edge of the 'rectangle'. Bears are likely to 'sell the rally'.

In case 2110 gets breached on the downside, expect a test of support from the rising 200 day EMA.

On longer term weekly chart (not shown), the index dropped to seek support from its 20 week EMA and closed above its three weekly EMAs in a long-term bull market for the 27th week in a row. Weekly technical indicators are correcting overbought conditions.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 had bounced up from the 6750 support level on Fri. Sep 2 to touch a lower top. The index started to correct from the beginning of the week, but received good support from its 20 day EMA.

A sell-off in global stock markets triggered profit booking on Fri. Sep 9. The index dropped below its 20 day EMA - receiving support from the 6750 level once again - but lost 1.7% (118 points) on a weekly closing basis.

Since touching a high of 6955 on Aug 15, the index appears to be forming a 'descending triangle' pattern from which the likely breakout is downwards.

The index should receive support from the 'support-resistance zone' between 6600-6750. The rising 50 day EMA is within the support zone, and can provide additional support.

In case the index falls below 6600, a test of support from the rising 200 day EMA may be on the cards.

Daily technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in positive zone. RSI has slipped below its 50% level. Slow stochastic is seeking support from its 50% level.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 11th week in a row. Weekly technical indicators are correcting overbought conditions.

Sunday, September 11, 2016

BSE Sensex and NSE Nifty charts (Sep 09, 2016): bears in a last-ditch battle

FIIs continued buying during a holiday-shortened trading week. Their net buying in equities was worth almost Rs 2100 Crores. DIIs were net sellers of equity worth Rs 1950 Crores, as per provisional figures.

Incidentally, FIIs and DIIs were both net sellers on Fri. Sep 9 - triggering a correction. That didn't prevent both Sensex and Nifty from closing around 1% higher for the week.

Global stock markets were dragged lower on Friday due to concerns about a US Fed interest rate hike, falling German exports and a nuclear test by North Korea. But sometimes over-extended markets use any excuse to correct. 

BSE Sensex index chart pattern



The following remark had been made in last week's post on the daily chart pattern of Sensex: "As and when the index moves above the 28600 level ... some resistance can be expected from the 29100 level."

The index crossed above the 28600 level with a 50 points upward 'gap' on Tue. Sep 6 and touched an intra-day high of 29013. It made three more attempts to breach resistance from the 29100 level, but failed.

The index is trading above its three rising EMAs in a bull market. Corrections are part and parcel of a bull market - specially near a lifetime index high - and provide opportunities to add.

A number of support levels have been marked on the chart. The nearest and strongest support is likely from the 'support-resistance zone' between 27600-28600. Note that the 20 day and 50 day EMAs are within the 'support-resistance zone' and should provide additional support.

In case 27600 gets breached on the downside, the 27100 level should provide good support. A 63 points 'gap' formed on Jul 11 just above the 27100 level can also provide support.

Daily technical indicators are beginning to correct overbought conditions after showing negative divergences by failing to touch new highs with the index. Some more correction is likely.

Keep a 'buy list' ready. The correction is providing a good adding opportunity before the index soars to a new lifetime high.

NSE Nifty index chart pattern



The following comments appeared in last week's post on the weekly bar chart pattern of Nifty: "A convincing cross above the resistance level of 8850 should take the index to a new lifetime high...some profit booking can be expected as the index approaches its previous top of 9119."

The index touched an intra-week high of 8969, but closed just above the 8850 level - forming a 'gravestone doji' candlestick pattern that often signals a trend reversal.

The index is trading well above its two rising weekly EMAs in a bull market. All four weekly technical indicators are in their overbought zones. ROC has crossed below its 10 week MA and giving the first hint of a correction.

Nifty's TTM P/E remains high at 24.31. The breadth indicator NSE TRIN (not shown) is falling deeper inside its overbought zone. The index looks ripe for a correction. 

Bottomline? Bears are in a last-ditch battle to prevent Sensex and Nifty charts from touching new lifetime highs. FII selling on Friday helped their cause. Index valuations on a TTM basis remain expensive. A likely correction will improve the technical 'health' of the charts and give fresh impetus to the bull market. 

Friday, September 9, 2016

10 Tips for Successful Long-term Investing

'Butch Cassidy and the Sundance Kid' is a 1969 Western (directed by George Roy Hill) about two bank/train robbers who flee to Bolivia when the US Marshals get too close to catching them.

There is a scene where Harvey - a member of Butch and Sundance's gang - decides to take control of the gang by ousting Butch. They get involved in a knife fight. Before the fight can start, Butch wants to straighten out the rules.

Harvey says: "Rules? In a knife fight? No rules!" At which point, Butch just walks up to him and kicks him in the groin.

There are no (money-making) rules in the stock market. If you have a  'get in - get out - make a killing' mentality, and are not careful about learning the basic guiding principles of long-term investing, you are likely to get kicked where it hurts most (i.e. in your wallet).

What about the Jhunjhunwalas and the Damanis? Aren't they making a killing every day by short-term trading? Sure they are. But they are seasoned pros. You don't want to get into a fight with them!

A simple and sensible way to build wealth from the stock market is to take a long-term view by investing small sums of money on a regular basis, and letting the amazing power of compounding do its magic over the years. 

Without any further digression, here are the ten guiding principles (do's and don'ts) of successful long-term investing:

1.  Sell the Losers and let the Winners ride (easier said than done)
2.  Don't chase 'sure shot tips' 
3.  Don't worry about intra-day and short-term price movements
4.  Don't give undue importance to the P/E ratio 
5.  Resist the impulse to buy penny stocks
6.  Invest according to a clearly-defined strategy and stick with it
7.  Focus on the future potential of a company, not just its past data
8.  Always think long-term (not just 1 or 2 years)
9.  Be open-minded about market-cap
10. Be concerned, but don't worry, about taxes (Hint: Long-term investing is more tax efficient)

So there, you have it. By following these simple guidelines, any one can make money from the stock market.

Read more in this article by the staff of investopedia.com.  

Wednesday, September 7, 2016

Nifty chart: a midweek technical update (Sep 07 '16)

FIIs returned with renewed buying vigour after Monday's holiday. On Tue. Sep 6, their net buying in equities touched Rs 1440 Crores, while DIIs were net sellers of equity worth only Rs 270 Crores, as per provisional figures.

Nifty opened with a 24 points 'gap' and gained more than 130 points. But this 'gap' may be a concern for bulls (reasons explained below). Today, FIIs were net buyers of equity worth Rs 850 Crores while DIIs were net sellers of equity worth Rs 770 Crores.

The Nikkei India Services PMI, which tracks monthly changes in activity in services sector companies, rose to 54.7 in Aug '16 - up from 51.9 in Jul '16 - its 14th straight month of expansion and highest level in 42 months. New business was the main driver of activity growth.


Since touching its Feb 29 low that marked the end of a year-long bear phase, the daily bar chart pattern of Nifty has formed several 'gaps', starting with the
'breakaway gap' (marked by blue circle as Gap1 on the lower left of chart).

Gap2 that formed on May 25 '16 has been marked 'Runaway gap1'. Gaps 3&4 formed on Jun 30 and Jul 11 respectively have been marked 'Runaway gaps 2&3'. 

'Runaway gap4' occurred on Aug 30 but has not been marked on the chart for two reasons: (a) to avoid cluttering up the chart; (b) because it is technically less significant because it has formed within a consolidation zone.

A few other 'gaps' (upward and downward) had also formed on the chart - but have been ignored because they have been filled either partly or completely, and hence are technically less significant.

A 'runaway gap' has measuring implications, and hence is also called a 'measuring gap'. It usually occurs at the mid-point of a price move (up or down).

Here, we have a situation - not unique, but unusual - of three such 'runaway gaps'. Unfortunately, there are no measuring 'rules' for such unusual occurrences. 

So, we need to use our common sense and chart position of the 'gaps' to arrive at a suitable mid-point of the bull rally. Using approximations instead of exact calculations (because a price chart doesn't move according to arithmetic or logic), we arrive at the following figures:

i) the 'breakaway gap' occurred at about 7250;
ii) 'runaway gaps 2&3' occurred at about 8225 and 8375; close enough, so we can combine them and consider the average level of 8300;
iii) 'runaway gap1' occurred at about 7800;
iv) the mid-point is then the average of 'runaway gap1' and 'runaway gaps 2&3', i.e. at (7800+8300)/2 = 8050;
v) the distance from the 'breakaway gap' to the calculated mid-point of the rally is (8050 - 7250 =) 800 points;
vi) the upward target of the rally is, therefore, (8050 + 800 =) 8850.

This target has already been exceeded. In one of those strange coincidences that keep happening on price charts and make technical analysis fun, 8850 also happens to be a long-term 'support-resistance' level (refer last week's post).

Now we come to the most crucial 24 points 'gap' formed on Tue. Sep 6. The reasons for considering it as an 'exhaustion gap' that signals the end of a price move are two fold: (a) it has formed just below our price target of 8850 before moving higher by 100 points; and (b) it has been followed by a 'reversal day' bar (higher high, lower close) that often signals the end of an intermediate up move.

So, should you sell all your stocks first thing tomorrow and move to cash? That will be akin to timing the market, and is not recommended.

Whether yesterday's 'gap' is an 'exhaustion gap' or not will be technically confirmed when it gets filled. That should happen within the next three or four trading sessions. Even after that, there is no reason to believe that the bull market is over even before it has started properly. 

What is likely to happen is either a decent (5-10%) correction - which will provide the adding opportunity for all those who missed the rally of the past 6 months - or a period of consolidation, following which the next leg of the up move should resume.

Daily technical indicators are looking overbought. Breadth indicator NSE TRIN (not shown) is falling deeper inside its overbought zone. Nifty TTM P/E is well above its long-term average at 24.45. All these are technical signals suggesting a correction.

No need to panic. Part-profit booking - particularly in mid-caps and small-caps that are trading at very high valuations - can release some cash for investing at lower levels. Alternatively, stay invested with a trailing stop-loss.