Monday, October 31, 2016

S&P 500 and FTSE 100 charts (Oct 28 '16): on the verge of breaking down from descending triangle patterns

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 crossed above its falling 20 day and 50 day EMAs on Mon. Oct 24, but fell short of the down trend line of the 'descending triangle' pattern (within which it has been consolidating for the past 2 months).

The index dropped and closed below its 20 day and 50 day EMAs the next day and fell further to test support from the 2120 level before bouncing up a bit. The index closed 15 points lower for the week. 

Strong and rising volumes on four consecutive down days are suggesting bear domination. A breakdown below the 'descending triangle' pattern and a test of support from the rising 200 day EMA appears imminent.

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

On longer term weekly chart (not shown), the index formed a 'reversal week' bar (higher high, lower close) and dropped below its 20 week EMA, but closed well above its 50 week and 200 week EMAs in a long-term bull market for the 34th week in a row. Weekly technical indicators are looking bearish, and showing downward momentum.

FTSE 100 index chart pattern

The structure of the daily chart pattern of FTSE 100 has become a little bearish. The index has formed a small 'descending triangle' pattern by testing support from the 6940 level on each of the last three days of the trading week.

Frequent tests of a support (or resistance) level weakens it. A breakdown below 6940 and a test of support from the rising 50 day EMA may be on the cards.

Note that the 'descending triangle' pattern formation was preceded by negative divergences visible on all three daily technical indicators - which touched lower tops while the index rose to touch a higher top (marked by long blue arrows).

MACD is falling below its signal line in positive zone. RSI is seeking support from its 50% level. Slow stochastic formed a head-and-shoulders pattern and is falling towards its oversold zone.

On longer term weekly chart (not shown), the index formed a 'reversal week' bar (higher high, lower close) but closed above its three weekly EMAs in a long-term bull market for the 18th week in a row. Weekly technical indicators are correcting overbought conditions. 

Sunday, October 30, 2016

BSE Sensex and NSE Nifty charts (Oct 28, 2016): consolidating within bullish 'flag' patterns

For the first time since Feb '16, FIIs have been net sellers during a month. Till Oct 28, their net selling in equities exceeded Rs 56.6 Billion, as per provisional figures. DIIs turned net buyers of equity worth Rs 78.9 Billion.

During the week, FIIs were net sellers of equity worth Rs 36.3 Billion while DIIs were net buyers of equity worth Rs 36.9 Billion. However, both Sensex and Nifty closed around 0.5% lower for the week.

For Samvat 2072 (Diwali 2015 to Diwali 2016), Sensex has gained more than 2000 points (~8%) while Nifty has gained more than 800 points (~10.5%). Samvat 2073 will begin with a traditional 'muhurat' trading session between 6:15 pm and 7:30 pm today.

Three senior executives of Tata Sons have resigned - exacerbating corporate governance woes of Tata Group that has cast a pall of gloom on the stock market.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex made a couple of futile attempts on Mon. and Tue. to breakout above the 'flag' pattern, within which it has been correcting for almost two months.

The index dropped below its entangled 20 day and 50 day EMAs and remained below them for the rest of the week. The support level of 27600 provided good support.

Can the index correct some more? The possibility can't be ruled out. But there are a number of downside supports - viz. 'Gap1' formed on Jul 11, the rising 200 day EMA, 'Gap2' formed on Jun 30 - which should deter the index from a big fall.

All four daily technical indicators are at or near their neutral zones, and not showing much upward momentum. However, ROC's 10 day MA has formed a 'rounding bottom' pattern and both RSI and Slow stochastic have formed 'double bottom' reversal patterns inside their oversold zones.

These are bullish signs that can trigger an upward breakout from the 'flag'. It is also possible that the index may continue to consolidate and form a 'rounding bottom' pattern - in which case a new high may be two months down the road.

There is no choice but to wait for the current phase of consolidation/correction to play out. The long-term structure of the chart remains bullish. Buy wherever you can find value, but do so gradually.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty broke out above the downward-sloping channel (also called a 'flag') intra-week but slipped down to its 20 week EMA inside the channel as there wasn't enough buying support.

The index bounced up and closed just below the 'support-resistance' level of 8650, and remained within the 'flag' pattern for the 8th week in a row.

Weekly technical indicators are looking bearish. MACD has crossed below its signal line and dropped from its overbought zone. ROC is below its 10 week MA and moving sideways in neutral zone. RSI is falling towards its 50% level. Slow stochastic has dropped below its 50% level.

Nifty's TTM P/E remains high at 23.34. The breadth indicator NSE TRIN (not shown) is falling deeper inside its overbought zone. Some more correction within the channel is possible.

FIIs appear concerned about an impending interest rate hike by the US Fed and recession fears due to BrExit. They may remain sellers and keep the index under downward pressure till the concerns are alleviated.

Bottomline? Sensex and Nifty charts are consolidating within bullish 'flag' patterns, from which the eventual breakouts should be upwards. The corrections have somewhat improved valuations. Buy gradually.

Friday, October 28, 2016

3 Secrets of Successful Companies

When small investors enter the stock market for the first time, they often make the mistake of buying individual stocks based on a friend's tip or a relative's recommendation. 

Such initial steps usually end up with a loss of the invested capital - either because the entry is at an inopportune time, or the stocks selected are of the cheaper/riskier variety, or both.

For the novice investor, the better way to start investing in the stock market is to select a couple of good equity and balanced funds and invest regularly - leaving stock selection to experienced fund managers.

At some point of time however - may be two or three years down the road - it may be a good idea to start selecting your own stocks. 

Why? Because fund managers tend to have a herd-like mentality - selecting from the same group of well-researched stocks for different funds. That leads to steady but average returns.

For above-average returns, one needs to select a few mid-cap and small-cap stocks for a 'satellite portfolio' - along with a 'core portfolio' of large-cap stocks.

Selecting under-researched mid-cap and small-cap stocks is not a trivial task. It requires knowledge and experience to choose from thousands of listed companies.

So, where should one start? Look for three essential characteristics that make a company successful. These are:

1) Barriers to entry
2) Management quality
3) Market leadership

What about other important metrics like Profit Margin, P/E, P/BV, RoE, Debt/Equity ratio, Interest Coverage ratio, Cash Flow, Growth rate and so forth? Those need to be looked at also for a more detailed study and analysis.

Learn more about the '3 Secrets of Successful Companies'. 

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

Wednesday, October 26, 2016

Nifty chart: a midweek technical update (Oct 26 '16)

News of the surprisingly unceremonious sacking of the Tata Sons Chairman sent a shock wave through the Indian stock market. The initial reaction was a sell-off in most of the stocks of Tata companies.

As Cyrus Mistry refused to back down without a fight and chastised the Tata Sons board of directors for their unprofessional attitude, FIIs voted with their feet.

Their total net selling in equities touched nearly Rs 24 Billion during the first three trading days of the week. As per provisional figures, DIIs were net buyers of equity worth Rs 17 Billion - not enough to prevent Nifty from dropping below its 20 day and 50 day EMAs.

The daily bar chart pattern of Nifty made an unsuccessful attempt to break out above the downward-sloping channel within which it has been trading for the past 8 weeks.

Many small investors - particularly those who entered the market last month - may be wondering whether this is the early stage of another bear phase. 

The chart structure doesn't suggest that. As long as the 200 day EMA is rising and the index is trading above it, bulls remain in the driver's seat.

As suggested in last week's post, the index appears to be forming a 'flag' pattern, which is quite a reliable 'continuation' pattern.

That means the current corrective phase should end with an upward breakout from the downward-sloping channel.

Can the index correct some more? How much further can it fall? What will be a good level to start buying?

Daily technical indicators are looking bearish and showing downward momentum. Nifty's TTM P/E remains higher than its long-term average at 23.30. The breadth indicator NSE TRIN (not shown) has dropped inside its overbought zone. Some more correction is likely. 

Downside supports can be expected from the 8500 level; the lower edge of the 'flag'; the 'gap' formed on Jul 11 '16; and the rising 200 day EMA.

Support levels can get washed away in a wave of selling. FIIs have turned bears, which should be a worrying sign for bulls. However, buying is likely to emerge in the zone between 8500 and 8300 - which has four strong supports.

Quit worrying about when and at what level to start buying. It requires skills that elude even experienced investors. Small investors should not even bother to try.

Just select fundamentally strong companies that have delivered good and steady performance over many years. Accumulate them slowly and dispassionately. 

If you haven't yet mastered stock-picking skills, SIP into an equity fund or a balanced fund.

Tuesday, October 25, 2016

WTI and Brent Crude Oil charts: correcting after sharp rallies

WTI Crude Oil chart

The daily bar chart pattern of WTI Crude Oil corrected below the 50 level, formed a small 'double bottom' pattern and then rose with good volume support to touch a new 52 week intra-day high above the 52 level on Oct 19.

Oil's price subsequently corrected below 50 on Oct 24, but bounced up a bit after receiving good support from its rising 20 day EMA. All three EMAs are rising, and oil's price is trading above them in a bull market.

Note that all three daily technical indicators are in bullish zones, but touched lower tops (marked by blue arrows) when oil's price rose higher. The combined negative divergences triggered a correction.

The entire rally since the Aug '16 low may be forming a large 'rising wedge' pattern from which the likely breakout is downwards.

On longer term weekly chart (not shown), oil's price is trading above its 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 not showing any upward momentum.

Brent Crude Oil chart

The following comments appeared in the previous post on the daily bar chart pattern of Brent Crude Oil: "Fundamentally, not much has changed on the supply front. Some correction or consolidation can be expected."

Since then, oil's price has been correcting within a downward-sloping channel. On Oct 24, it dropped below its 20 day EMA intra-day, but bounced up after receiving good support from the 50.50 level.

Daily technical indicators are looking bearish and showing downward momentum. Some more correction/consolidation within the channel is likely.

There is a possibility that the downward channel may turn out to be a 'flag' or a 'falling wedge' - both of which have bullish implications. 

On longer term weekly chart (not shown), oil's price is trading above its 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 showing a bit of downward momentum.

Monday, October 24, 2016

S&P 500 and FTSE 100 charts (Oct 21 '16): consolidating after bouncing up from support levels

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 dropped towards the support level of 2120 on Mon. Oct 17, but bounced up. However, bulls couldn't make much headway during the rest of the week as the index faced strong resistance from its falling 20 day EMA.

The index closed 8 points higher for the week, and is trading above its rising 200 day EMA in a bull market - but the longer it consolidates within the 'descending triangle' pattern the greater is the possibility of a sharp breakdown below the 2120 level.

Higher volumes on the last two days of the week (both down days) indicate that bears are unlikely to release their grip in a hurry.

Daily technical indicators are in bearish zones and not showing much upward momentum. The sideways consolidation may continue a bit longer before a likely drop to test support from the 200 day EMA can occur.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 33rd week in a row. The index is correcting after forming a bearish 'rounding top' pattern. Weekly technical indicators are looking bearish, though MACD and RSI are still in bullish zones.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 bounced up weakly after receiving good support from the 6940 level, and closed with a token weekly gain of 7 points.

Note that 6940 had acted as a resistance level during Aug-Sep '16. On Oct 3, the resistance level was breached convincingly and has turned into a support level.

All three EMAs are rising and the index is trading above them in a bull market. However, bulls may have to wait for a while before the index can touch a new high.

Daily technical indicators are in bullish zones but not showing any upward momentum. Expect some sideways consolidation in the near term.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 17th week in a row. Weekly technical indicators are looking overbought and not showing any upward momentum. 

Sunday, October 23, 2016

BSE Sensex and NSE Nifty charts (Oct 21, 2016): form bullish flag patterns

FIIs remained net sellers of equity during the week gone by. Their net selling was worth Rs 6.6 Billion, as per provisional figures. DIIs were net buyers of equity worth Rs 22.2 Billion. 

Sensex gained 1.46% and Nifty gained 1.3% on a weekly closing basis. Both indices broke down below 'descending triangle' patterns - as mentioned in last week's post.

However, subsequent recoveries from support levels have negated the triangle patterns. Both indices appear to have formed bullish 'flag' patterns - from which the likely breakouts should be upwards.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex dropped and closed below the long-term support level of 27600 on Mon. Oct 17 but bounced up sharply the next day, only to face resistance from its entangled 20 day and 50 day EMAs.

The index oscillated about its two shorter-term EMAs for the rest of the week. The upper down trend line (of the redrawn 'flag')  - which was earlier part of the 'descending triangle' pattern - provided resistance on the upside.

Can the index correct some more, or will it breakout upwards right away? That will depend on how Q2 (Sep 16) results pan out. 

Last week's FII selling was well absorbed by the DIIs. Still the index failed to make much headway.

Daily technical indicators are not looking strongly bullish, though all four are showing some upward momentum. MACD and ROC are still inside their respective negative zones. RSI and Slow stochastic have crossed above their 50% levels.

The lower edge of the 'flag' is inside 'Gap1' formed on Jul 11, and should provide good support if the index corrects some more. An upward breakout may face resistance from the 28600 level.

Sensex is trading well above its rising 200 day EMA in a bull market. A 'flag' pattern is a fairly reliable 'continuation' pattern. So, expect the index to breakout upwards. 

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty dropped below the 8550 level and the 20 week EMA, but bounced up strongly after receiving good support from the 8500 level.

In a mid-week technical update, the earlier bearish 'descending triangle' pattern was redrawn as a bullish 'flag' pattern. Why the switch? Because technical analysis is not a science, and is based on price action that reflects the combined greed and fear of market participants.

Chart patterns evolve and change and don't always play out as expected - just as market mood changes from bullish to bearish and back to bullish during the same day.

Weekly technical indicators are looking bearish. MACD, RSI, Slow stochastic are showing downward momentum in bullish zones. ROC is in neutral zone - trying to recover after slipping into negative territory.

Nifty's TTM P/E at 23.23 remains higher than its long-term average. The breadth indicator NSE TRIN (not shown) is hovering above its overbought zone. Some more correction within the 'flag' pattern is possible before the eventual upward breakout.

Bottomline? Sensex and Nifty charts appear to have formed bullish 'flag' patterns, from which the likely breakouts should be upwards. The correction is providing adding opportunities. Be stock specific and buy in small lots.

Wednesday, October 19, 2016

Nifty chart: a midweek technical update (Oct 19 '16)

FIIs were net sellers of equity worth Rs 4 Billion during the first three days of trading this week, as per provisional figures. DIIs were net buyers of equity worth Rs 11.3 Billion.

Q2 (Sep '16) results declared so far have been more or less as per expectations. There has not been any indication of significant earnings improvements.

The news of Essar Oil's sale to Rosneft has come as a boost for the beleaguered banking sector, which has been reeling under the weight of mounting NPAs. Hopefully, a major portion of the sale proceeds will be used to retire debt.


The ongoing 7 weeks long correction on the daily bar chart pattern of Nifty now appears to be forming a 'flag' pattern, which has bullish implications.

Why bullish? Because 'flag' patterns are 'continuation' patterns that move in a direction opposite to the previous price move. Since the previous move was a bull rally, the 'flag' is a small pause before the rally can resume.

What happened to the bearish 'descending triangle' patterns that were being discussed in previous posts? 

The expected breakdown below 8650 on Sep 29 was immediately followed by an upward bounce - negating the first (smaller) 'descending triangle'. The expected breakdown below 8550 on Oct 17 was also followed immediately by an upward bounce, which negated the second (larger) 'descending triangle'.

Chart patterns evolve continuously and do not always play out as expected. The 'flag' pattern appears to be more plausible now - so we will stay with it till a breakout occurs. 

The fact that Nifty received support from the 8500 level without testing the lower edge of the 'flag' on Oct 17 also raises the possibility of an upward breakout.

Can the index drop below 8500 and fall below the 'flag'? Nothing can be ruled out on price charts. If it does fall, support can be expected from the 'gap' formed on Jul 11 and below it, from the rising 200 day EMA.

Since 'flag' patterns are quite reliable 'continuation' patterns, a fall below the 'flag' has low probability. However, the index may continue to correct within the 'flag' for a while longer.

A 'flag' has measuring implications, since it often forms in the middle of an up (or down) move. Since the rally from the Feb '16 low covered about 2150 points to the Sep '16 top, the index has an upward target of 2150 points from the upward breakout level.

Remember that an upward breakout should be accompanied by a significant increase in volumes for the breakout to be technically valid.

Daily technical indicators are in bearish zones, and not showing any upward momentum - except Slow stochastic, which has recovered sharply from its oversold zone.

Nifty's TTM P/E remains high at 23.35. The breadth indicator, NSE TRIN (not shown), has dropped sharply towards its overbought zone - hinting at a correction.

Any dip should be used to buy. 

Tuesday, October 18, 2016

Gold and Silver charts: break down below 'descending triangle' patterns into bear territories

Gold chart pattern

The daily bar chart pattern of Gold broke down sharply below the 'descending triangle' pattern on Oct 4. After receiving only brief support from its 200 day EMA, gold's price dropped below the support level of 1260 on Oct 6.

The next day, gold's price dropped below the 1250 level intra-day -  meeting the downward target of 60 points below the 1310 level (refer previous post). A sideways consolidation between 1250 and 1260 ensued thereafter. 

Gold's price is trading below its three EMAs in bear territory. All three daily technical indicators are in their respective oversold zones. An upward bounce may occur at any time. 

Now that bears have regained control of the chart, they are likely to sell on every rise in price.

On longer term weekly chart (not shown), gold’s price has dropped and closed below its three weekly EMAs for 2 weeks in a row. The 'golden cross' of the 50 week EMA above the 200 week EMA was prevented. Weekly technical indicators are looking bearish and showing negative divergences by touching lower bottoms. The 10-months long bear market rally may be ending.

Silver chart pattern

The daily bar chart pattern of Silver broke down sharply below the 'descending triangle' pattern with strong volume support on Oct 4. The 200 day EMA provided brief downside support.

Silver's price dropped below its 200 day EMA and the support level of 17.50 on Oct 6, and has been consolidating sideways below its three EMAs in bear territory since then.

All three daily technical indicators are looking oversold. That can trigger a technical bounce. Bears will probably use the bounce to sell.

On longer term weekly chart (not shown), silver’s price has dropped and closed below its three weekly EMAs for 2 weeks in a row. Weekly technical indicators are looking bearish and showing negative divergences by touching lower bottoms. More correction is likely.

Monday, October 17, 2016

S&P 500 and FTSE 100 charts (Oct 14 '16): bears keep bulls in check

S&P 500 index chart pattern

The following comments were made in the previous post on the daily bar chart pattern of S&P 500: "Daily technical indicators are in neutral zones, and showing a bit of downward momentum. Some more consolidation, or a correction towards the 2120 level can be expected."

The index dropped below the 2120 level intra-day on Thu. but bounced up to close inside the 'descending triangle' pattern within which it has been consolidating for the past 8 weeks.

The 20 day EMA has crossed below the 50 day EMA, and the index is trading below them. However, the 200 day EMA is still rising - keeping bullish hopes alive.

Higher volumes on recent down-days indicate bears have the stronger hand. All three daily technical indicators are in bearish zones  but are showing positive divergences by failing to touch lower bottoms with the index.

An upward bounce towards the blue down trend line is a possibility. Bears are likely to use the opportunity to sell again.

On longer term weekly chart (not shown), the index closed below its 20 week EMA but above its 50 week and 200 week EMAs in a long-term bull market for the 32nd week in a row. The index may be correcting after forming a bearish 'rounding top' pattern. Weekly technical indicators are still in bullish zones but showing downward momentum.

FTSE 100 index chart pattern

The following comments appeared in last week's post on the daily bar chart pattern of FTSE 100: "Daily technical indicators are in bullish zones, but their upward momentum have stalled. Expect some consolidation, and a possible pullback towards the top of the 'ascending triangle' before the index attempts to touch a new high."

Both the expected index movements occurred, but in reverse order. The index rose to touch a new lifetime high of 7130 on Tue. Oct 11 - only to form a 'reversal day' pattern (higher high, lower close) and pulled back to the top of the 'ascending triangle' pattern on Thu.

The index bounced up after receiving good support from its rising 20 day EMA, but closed about 0.5% lower for the week. All three daily technical indicators are in bullish zones but showing a bit of downward momentum.

Expect some consolidation or a correction before bulls can resume control.

On longer term weekly chart (not shown), the index formed a weekly 'reversal bar' (higher high, lower close) but closed above its three weekly EMAs in a long-term bull market for the 16th week in a row. Weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index. 

Saturday, October 15, 2016

BSE Sensex and NSE Nifty charts (Oct 14, 2016): breakouts below descending triangles appear imminent

In a 3 day trading week (with holidays on Tue. & Wed.), FIIs were net sellers of equity worth Rs 24 Billion while DIIs were net buyers of equity worth Rs 17 billion. Both Sensex and Nifty closed about 1.3% lower for the week.

There was good and bad news on the macro-economic front. First the good. Both CPI and WPI inflation numbers in Sep '16 were lower than in Aug '16. Indirect tax collections grew 26% and direct tax collections grew 9% during the Apr-Sep '16 period.

Now, the bad. The IIP number in Aug '16 was -0.7% due to decline in manufacturing, mining and capital goods sectors. Stressed loans in India's banking sector increased by 15% in the Jan-Jun '16 period.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex shows a breakdown (marked by light blue circle) below the 'descending triangle' pattern. The breakdown is not technically valid yet. Why?

Two reasons. The index has closed within the 3% 'whipsaw' limit below the 27700 level (support level of the 'descending triangle' pattern). Also, the long-term support level of 27600 has not been breached on a closing basis.

The respite for bulls may be temporary. With FIIs in selling mood, a filling of the 'gap' formed on Jul 11 '16 (marked Gap1) and a test of support from the rising 200 day EMA seems almost inevitable.

Can the index bounce up from current level? The possibility can't be ruled out entirely. All four daily technical indicators are in bearish zones, with RSI and Slow stochastic looking oversold.

A likely scenario can be a drop to Gap1, followed by a pullback towards the 27700 level and then a bigger drop towards Gap2. (If such a scenario does play out, the pullback will be a shorting opportunity and the drop towards Gap2 will be a good buying opportunity.)

The long-term structure of the chart continues to remain bullish.

NSE Nifty index chart pattern


The following remark was made in last week's post on the weekly bar chart pattern of Nifty: "Some more consolidation within the triangle is likely till a downward break out can occur." 

Though the support level of the 'descending triangle' (at 8550) was breached intra-week, the index received good support from its 20 week EMA, and bounced up to close within the triangle.

Weekly technical indicators are turning bearish. MACD has crossed below its signal line and is about to drop from its overbought zone. ROC has slipped into its negative zone. RSI and Slow stochastic are falling towards their respective 50% levels.

A fall below the 20 week EMA appears imminent. Expect downside support from the 8350 level and the rising 50 week EMA.

Nifty's TTM P/E has dropped to 22.98, but is still above its long-term average. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone. Some more correction is likely.

Bottomline? Both Sensex and Nifty are poised to drop below bearish 'descending triangle' patterns. The likely dips will provide buying opportunities. Be stock specific. Accumulate slowly instead of jumping in feet first.

Thursday, October 13, 2016

Stock Chart Pattern - Tata Motors (An Update)

The following were the concluding comments in the previous post on Tata Motors on Feb 7 '13: "The stock chart pattern of Tata Motors is in a bull market, but facing both fundamental and technical headwinds. However, the correction may be a good opportunity to enter the stock..."

The stock had corrected further and touched a closing low of 255 a couple of months later. Since then, it had almost a one-way bull rally that culminated with a small 'double top' reversal pattern - when the stock touched a lifetime closing high of 605.10 on Jan 27 '15 and a slightly lower top of 602 on Feb 3 '15.

Those who may have bought the stock after reading my previous post would have more than doubled their investment in two years.


The 'double top' triggered a year long correction. The stock dropped below its three EMAs and touched a closing low of 285.25 on Sep 28 '15 - wiping out all the gains made between Feb '13 and Feb '15. 

In a classic 'double bottom' reversal pattern formation, the stock price had a sharp 'V' shaped recovery that rose briefly above its 200 day EMA, formed a small 'double top' at 423 in end-Nov '15, and dropped to a lower bottom of 275.65 on Feb 11 '16.

The subsequent bull rally is still going strong. The stock touched a closing high of 589.35 on Sep 6 '16 - more than doubling in 7 months - but has been in a corrective mode that is providing an adding opportunity.

Daily technical indicators are in bullish zones but their upward momentum is not looking strong. Some more correction or a consolidation around current levels can be expected.

The recent sharp fall in UK's Pound against the US Dollar will make JLR cars cheaper in the largest car market in the world. Commercial vehicles have been selling well in the domestic market. Even domestic passenger cars business seems to be turning around.

Long-term investors with 2-3 years time frame can accumulate with a stop-loss at 475.

Tuesday, October 11, 2016

WTI and Brent Crude Oil charts: breakout upwards after OPEC production freeze understanding

WTI Crude Oil chart

The daily bar chart pattern of WTI Crude Oil broke out above the blue down trend line with strong volume support on Sep 28 - negating the 'descending triangle' pattern (refer previous post).

Oil's price continued to rally and touched a 4-months high on Oct 10. All three EMAs are rising in tandem, and oil's price is trading above them in a bull market.

Daily technical indicators are in bullish zones and looking overbought. Some correction or consolidation is likely.

A tentative agreement on a production freeze by OPEC members at their informal meeting in end-September gave speculators a free run in the futures market. Whether an actual agreement takes place or not remains to be seen.

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.

Brent Crude Oil chart

The daily bar chart pattern of Brent Crude Oil broke out above the blue down trend line with strong volume support on Sep 28. After a brief pullback that received good support from the trend line, oil's price rallied to touch a new 52 week high on Oct 10.

The 'descending triangle' pattern - mentioned in the previous post - was negated by speculative fervour as OPEC countries announced a tentative production freeze at their end-Sept. meeting in Algiers.

Oil's price is trading above its three rising EMAs in a bull market. Daily technical indicators are looking a bit overbought.

Fundamentally, not much has changed on the supply front. Some correction or consolidation can be expected. 

On longer term weekly chart (not shown), oil's price is trading above its 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.

Monday, October 10, 2016

S&P 500 and FTSE 100 charts (Oct 07 '16): consolidating near lifetime highs

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 appears to have lost its sense of direction. The index consolidated within a 22 points range, as it oscillated about its 20 day and 50 day EMAs, and closed 15 points lower for the week.

The index is trading above its rising 200 day EMA in bull territory, but may be forming a bearish 'descending triangle' pattern from which the likely breakout is downwards.

Daily technical indicators are in neutral zones, and showing a bit of downward momentum. Some more consolidation, or a correction towards the 2120 level can be expected.

A convincing breakout above the blue down trend line will negate the near-term bearishness. The current technical signals are not conducive for such an upward breakout.

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market for the 31st week in a row. The index may be forming a 'symmetrical triangle' pattern, from which a breakout can occur in either direction. Weekly technical indicators are in bullish zones but showing slight downward momentum.

FTSE 100 index chart pattern

The following comment was made in last week's post on the daily bar chart pattern of FTSE 100: ".. .a bullish 'ascending triangle' pattern may be forming - from which an upward break out above 6940 is likely."

The index broke out above the 'ascending triangle' on Oct 3, and touched a new 52 week high of 7122 the next day - testing its Apr '15 high of 7123. It consolidated sideways for the rest of the week, closing with a gain of 2.1% for the week.

A sharp fall in the exchange rate of the UK Pound against the US Dollar triggered the upward breakout. All three EMAs are rising, and the index is trading above them in a bull market. 

Daily technical indicators are in bullish zones, but their upward momentum have stalled. Expect some consolidation, and a possible pullback towards the top of the 'ascending triangle' before the index attempts to touch a new high.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 15th week in a row. Weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index. A correction may be in the offing.

Sunday, October 9, 2016

BSE Sensex and NSE Nifty charts (Oct 07, 2016): consolidating within bearish descending triangle patterns

FIIs were net buyers of equity on all five trading days, but their total buying was worth only Rs 1030 Crores. DIIs were net sellers on three days, but their net buying on Mon. and Fri. exceeded their net selling by Rs 280 Crores, as per provisional figures.

Both Sensex and Nifty gained about 1% on a weekly closing basis, but stopped short of testing resistance from their respective blue down trend lines. That increases the probability of both indices dropping below the descending triangle patterns within which they have been consolidating for the past six weeks.

The telecom spectrum auction was a bit of a disappointment. Though Rs 658 Billion was bid by 7 service providers, it was much less than the targetted Rs 5390 Billion. There were no takers for the expensive 700 and 900 MHz bands.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex has been consolidating sideways within a 'descending triangle' pattern for the past 6 weeks. Such a pattern, when formed at or near a market top, can be a trend reversal pattern.

A downward breach of a 'descending triangle' pattern has measuring implications. The downside target below the triangle is equal to the height of the triangle (which is about 1400 points). So, the index can fall to (27700 - 1400 =) 26300.

Support can be expected from 'Gap1' (formed on Jul 11), the rising 200 day EMA and 'Gap2' (formed on Jun 30). In other words, the index is likely to find buying support before it can fall to 26300. 

All four daily technical indicators are in bearish zones and showing downward momentum. Trading activities may remain low due to a couple of holidays this week (on Sep 11 & 12). Expect some more consolidation within the triangle before a downward break out can occur.

The long-term structure of the chart remains bullish, though bears seem to have the upper hand in the near term. Be patient, and use dips to buy.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty has formed a bearish 'descending triangle' pattern, from which the likely break out is downwards.

The height of the triangle is about 420 points. That gives a downward target of 420 points below the triangle - i.e. 8130. The 20 week and 50 week EMAs, and the long-term 'support-resistance' level of 8350 are likely to provide support on the way down.

Can the index bounce up and breach the blue down trend line? It is possible, but has a low probability in the near term. A more likely outcome is a fall below the triangle, followed by an upward bounce from 8350.

Three of the four weekly technical indicators - ROC, RSI, Slow stochastic - have corrected overbought conditions. MACD is in the process of doing so. Some more consolidation within the triangle is likely till a downward break out can occur.

Nifty's TTM P/E is still higher than its long-term average at 23.49. The market breadth indicator, NSE TRIN (not shown), is in neutral zone.

Q2 (Sep '16) results are being announced. That may provide the next trigger for the index to make a decisive move.

Bottomline? Both Sensex and Nifty charts are consolidating within bearish 'descending triangle' patterns. Some more correction will provide good buying opportunities. Be stock specific. Wait for Q2 (Sep '16) results before buying.

Friday, October 7, 2016

Two Common Misconceptions about the Stock Market

Listening to experts and analysts on business TV channels (in fact, watching any TV channel) is mostly a waste of time, but can be a source of entertainment also.

Leave aside the odd attempts at levity after close of trading on a given day. It is what they say during trading hours that can be quite funny.

One example is: "There is a lot of money waiting on the sidelines to enter the stock market." 

So, where is this money? Stashed under a mattress? Temporarily parked in a liquid fund/savings account? To be borrowed from a rich uncle? It doesn't really matter.

What happens when this money does enter the stock market? It is exchanged for shares of one or more companies. (That is why the market is called a Stock Exchange.)

What happens to the money thereafter? It changes hands. From the buyers of the stocks to the sellers. Now the buyers are 'in the market' and the sellers are 'sitting on the sidelines'.

In other words, the 'money waiting on the sidelines to enter the market' remains on the sidelines. 

(In the primary market, i.e. during an IPO or FPO or rights issue, 'money waiting on the sidelines to enter' goes to the share issuing company and no longer remains on the sidelines.)

Another popular misconception is: "The stock market is a zero-sum game." 

What is a 'zero-sum game'? A game or transaction in which there are one or more winners and one or more losers - with the gains of the winners exactly equalling the losses of the losers.

Let us say two friends buy a stock for Rs 80. They sell it for a gain of Rs 20 a couple of months later. That means, the buyers pay Rs 100 for the same stock. What have the buyers lost? May be an opportunity to buy earlier at Rs 80 - but no real loss.

In fact, if they manage to sell the same stock for Rs 110, they will also gain. They will lose only if they sell the stock at a price below Rs 100. If they sell at Rs 90, their losses will not equal the gain of Rs 20 made by the original sellers.

The reverse also holds true. If some one buys a stock at Rs 100 and later sells it for Rs 80, he loses Rs 20, but the buyer doesn't gain anything. (By the way, any ideas where the lost Rs 20 goes?)

Not really a 'zero-sum game', is it? 

Moral of the story? Take everything experts say on business TV channels with a pinch of salt. (That particularly includes their buy/sell recommendations.)

Wednesday, October 5, 2016

Nifty chart: a midweek technical update (Oct 05 '16)

FIIs were net buyers of equity worth Rs 6.20 Billion during the first three days of trading in Oct '16. DIIs were net buyers on Mon. but turned net sellers thereafter - their total net selling in equity was worth Rs 3.20 Billion, as per provisional figures.

India's manufacturing activity slipped in Sep '16 as per Nikkei's Manufacturing PMI of 52.1 against 52.6 in Aug '16. The Services PMI dropped to 52 in Sep '16 against 54.7 in Aug '16. However, both figures were above 50, indicating growth.

In the monetary policy review on Oct 4, RBI's new Governor surprisingly cut repo and reverse repo rates by 25 bps (0.25%), leaving CRR unchanged. The news should have boosted bullish sentiment in the market but didn't.

In last week's post on the daily bar chart pattern of Nifty, a 'descending triangle' pattern was drawn with the support level at 8690. Surgical strikes by the Indian Army on terrorist camps across the Line of Control in J&K triggered a sharp fall below 8690 on Thu. Sep 29.

The index found good support at 8550, and the subsequent rally took the index above its 20 day and 50 day EMAs to an intra-day high of 8807 today. But it faced strong resistance from the blue downtrend line and dropped to seek support from its 20 day EMA.

The 'descending triangle' pattern has been redrawn - with the support level now at 8550 and a downward target at 8130. Between 8550 and 8130 are 'Runaway Gaps 2&3' and the rising 200 day EMA at 8250.

A likely breach of 8550 should lead to a filling of 'Runaway Gap3' but Nifty may find support from 'Runaway Gap2'.

Nifty closed above its three EMAs in bull territory today. But the bearish reaction to an interest rate cut and the formation of a reversal pattern means that bears have the upper hand in the near term.

Daily technical indicators are giving conflicting signals. MACD is below its falling signal line and just managed to remain in positive zone. RSI is seeking support from its 50% level. Slow stochastic has moved above its 50% level. Expect the index to consolidate within the redrawn 'descending triangle' for a while.

Nifty's TTM P/E remains well above its long-term average at 23.43. The breadth indicator NSE TRIN (not shown) is in neutral zone and moving down towards its overbought zone.

An upward breach of the 8800 level with good volume support can negate the 'descending triangle' pattern. The probability of that happening in the near term is low.

The longer term structure of the chart is bullish. Any correction should be used as a buying opportunity.
  

Tuesday, October 4, 2016

Gold and Silver charts: form bearish 'descending triangle' patterns

Gold chart pattern

For the past two months, the daily bar chart pattern of Gold received strong support from the 1310 level, but touched a series of lower tops - forming a 'descending triangle' pattern from which the likely breakout is downward.

A 'descending triangle' has measuring implications. The height of the triangle above the support level of 1310 (60 points) becomes the downward target below the support level, i.e. 1250. 

Gold's price may not fall that far. The rising 200 day EMA (at 1270) is likely to provide good support.

Since triangles are unreliable patterns - though descending (and ascending) triangles are usually exceptions - an upward breakout above the downward-sloping trend line can negate the triangle pattern.

All three daily technical indicators are in bearish zones and showing downward momentum. A breach of the 1310 level is on the cards.

Can the 1310 level provide support again? It can. But unlike trend lines, which get strengthened with each test, a support (or resistance) level gets weakened by each subsequent test.

On longer term weekly chart (not shown), gold’s price is seeking support from its 20 week EMA, but managed to close above its three weekly EMAs in long-term bull territory for the 17th week in a row. The 'golden cross' of the 50 week EMA above the 200 week EMA is still awaited. Weekly technical indicators are looking bearish and showing downward momentum.

Silver chart pattern

Note the following comment in the previous post on the daily bar chart pattern of Silver: "Silver's price may make an attempt to cross above its Sep 6 top of 20.25."

On Sep 22, silver's price broke out and closed above the downward-sloping trend line but fell short of the 20.25 level.

Bears struck immediately and dropped silver's price below its 20 day and 50 day EMAs. A brief rally to test resistance from the down trend line failed.

Though silver's price is trading above its rising 200 day EMA in bull territory, the formation of a 'descending triangle' pattern (flat bottom, lower tops) is likely to cause a drop towards 16.25.

Daily technical indicators are looking bearish. MACD has crossed below its signal line and re-entered negative zone. RSI is below its 50% level and moving down. Slow stochastic is about to enter its oversold zone. 

RSI and Slow stochastic have formed bearish 'double top' patterns in bullish zones - hinting at more correction. 

On longer term weekly chart (not shown), silver’s price closed below its 200 week EMA, but is seeking support from its 20 week EMA. Weekly technical indicators are looking bearish and showing downward momentum.