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Tuesday, November 21, 2017

WTI and Brent Crude Oil charts: consolidating within symmetrical triangle patterns

WTI Crude Oil chart


The following remarks appeared in the previous post on the daily bar chart pattern of WTI Crude Oil: "Daily technical indicators are looking quite overbought. Slow stochastic is showing negative divergence by failing to touch a new high with oil's price. A pullback towards 55 is a possibility."

Oil's price rose to touch a new intra-day high of 57.92 on Nov 8, but formed a 'reversal day' bar (higher high, lower close) that triggered a correction to an intra-day low of 54.81 on Nov 14.

Good support from the 20 day EMA prevented a deeper correction. Oil's price rose to touch a lower top of 56.77 on Nov 20 and formed another 'reversal day' bar (higher high, lower close).

Another test of support from the 20 day EMA is a possibility. If the support breaks, oil's price can drop to the zone between 52 & 53.

The entire trading during Nov '17 has formed a 'symmetrical triangle' pattern from which a breakout can occur upwards or downwards. Daily technical indicators are in bullish zones after correcting overbought conditions, but are not showing much upward momentum.

Increase in US crude oil production due to recent higher oil prices has become a matter of concern for OPEC and non-OPEC producers, who will be meeting on Nov 30 to discuss their production restriction deal that is going to expire in Mar '18.

On longer term weekly chart (not shown), oil's price slipped down after facing resistance from its sliding 200 week EMA, but closed well above its 20 week and 50 week EMAs. Weekly technical indicators are in bullish zones, but showing signs of correcting down.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil touched an intra-day high of 64.65 on Nov 7, but formed a 'reversal day' bar (higher high, lower close) that triggered a correction to the zone between 61 & 62. (The possibility was mentioned in the previous post.)

After receiving good support from its 20 day EMA, oil's price bounced up to touch a lower top of 62.92 on Fri. Nov 17 - only to slip down and close just above 62 on Nov 20.

The entire trading during Nov '17 has formed a 'symmetrical triangle' pattern from which a breakout can occur upwards or downwards. The fact that oil's price failed to test resistance from the upper edge of the 'triangle' has increased the chances of a downward breakout.

Daily technical indicators have corrected overbought conditions, and are showing slight downward momentum. A downward breakout from the 'triangle' can drop oil's price to the zone between 58 & 59.

On longer term weekly chart (not shown), oil's price slipped down below its 200 week EMA but managed to close above itWeekly technical indicators are correcting overbought conditions. Slow stochastic has formed a 'double top' reversal pattern inside overbought zone, and can trigger a correction.

Monday, November 20, 2017

S&P 500 and FTSE 100 charts (Nov 17 '17): bears flexing their muscles again

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 made a couple of attempts on Mon. (Nov 13) and Thu. (Nov 16) to pullback to the lower edge of the 'rising wedge' (refer last week's post), but faced resistance from the 2590 level.

The index has been in a down trend (marked by purple down trend line) since touching a high of 2597 on Nov 7. The pullbacks were used by bears to sell. Strong volumes on recent down days mean that bears may not retreat in a hurry.

The index managed to close above its three EMAs in bull territory, with just a 3 points loss for the week. Bulls are fighting hard to maintain their dominance.

Daily technical indicators are looking bearish. MACD and RSI are showing downward momentum in bullish zones. Slow stochastic has slipped into bearish zone. All three indicators are showing negative divergences by touching lower bottoms on Wed. (Nov 15) while the index touched a higher bottom.

The index is trading well above its rising 50 day and 200 day EMAs in a bull market. However, this bull market is a little long in the tooth, and hasn't faced a decent 8-10% correction in quite a while. So, part profit booking and waiting for a convincing breakout above the (purple) down trend line may be good ideas.

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators have started correcting inside their respective overbought zones. 

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 had dropped and closed below its 20 day and 50 day EMAs and the (purple) down trend line in the previous week. Bearish technical indicators had hinted at some more correction (refer last week's post).

The index continued to fall towards its 200 day EMA, but appears to have found some support near the 7350 level. Daily technical indicators are in bearish zones, but RSI and Slow stochastic have stopped falling.

Negative divergence visible on the Slow stochastic, which touched a lower bottom inside its oversold zone while the index touched a much higher bottom, has left the door open for the index to test support from its 200 day EMA. 

However, an oversold Slow stochastic can also trigger a pullback towards the (purple) down trend line. (At the time of writing this post, the index is again testing support from the 7350 level.)

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. Weekly technical indicators are looking bearish and showing downward momentum.

Sunday, November 19, 2017

Sensex, Nifty charts (Nov 17, 2017): bulls regaining control

FIIs were net buyers of equity on Tue. (Nov 14) & Fri. (Nov 17), but net sellers on the other three days. DIIs were net sellers of equity on Mon. (Nov 13) and Tue. but net buyers on the other three days.

For the week, FIIs were net buyers of equity worth Rs 27.9 Billion; DIIs were also net buyers of equity worth Rs 29.1 Billion, as per provisional figures. 

Sensex eked out a gain of 28 points while Nifty lost 38 points on a weekly closing basis. More importantly, both indices bounced up from important support levels - helping bulls to regain the initiative.

The initial euphoria of bulls on Fri. - due to the ratings upgrade of India's sovereign bonds by Moody's - appeared to diminish as trading drew to a close.

BSE Sensex index chart pattern


The following comments appeared in last week's post on the daily bar chart pattern of Sensex: "Some more correction towards the top of the downward-sloping channel is a possibility. Note that the 50 day EMA is just above the channel, and should provide additional support."

As expected, the index corrected below its 20 day EMA, but bounced up after finding twin supports from the 50 day EMA and the top of the downward-sloping channel.

By touching a low of 32684 on Wed. Nov 15, the index tested its Aug 2 top of 32686 and retraced 42.5% of its rally from the Sep 28 low of 31082 to the Nov 7 top of 33866. That is a little less than the 50% Fibonacci retracement level used by technical traders as a trend deciding level.

Daily ROC, RSI and Slow stochastic are in bearish zones, but showing signs of upward momentum. MACD is below its signal line in bullish zone, but has stopped falling.

The bull market correction - more of a time-wise correction than a price-wise correction - seems to be over. The index should rise to new highs soon, though India Inc.'s Q2 earnings growth is nothing to write home about.

If you hold fundamentally strong stocks in your portfolio, add to them instead of searching for new ideas near an index top. The 'easy money' in 'cheap' stocks has already been made. 

NSE Nifty index chart pattern


The following comments appeared in last week's post on the weekly bar chart pattern of Nifty: "The index may correct a bit more. Expect strong support from the 'support zone' between 10100 and 9700."

The index bounced up from the 'support zone' to close near its opening level for the week, forming a 'hammer' candlestick pattern with bullish implications

Note that the 10100 level, which had acted as a resistance level in Jul '17 and Sep '17 has now turned into a support level.

By touching an intra-week low of 10094, the index retraced 49.4% of its 802.9 points rally - from the low of 9687.55 (week ending Sep 29) to the high of 10490.45 (week ending Nov 10). That is almost equal to the 50% Fibonacci retracement level used by technical traders as a trend deciding level.

The index is trading above its three rising weekly EMAs in a bull market. Weekly technical indicators are looking bullish and overbought. Some consolidation is possible before the index rises to a new high.

Nifty's TTM P/E has slipped further to 26.14, but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling in neutral zone and hinting at some index upside.

Bottomline? Sensex and Nifty charts have bounced up from important support levels. The corrections provided adding opportunities. Bulls are regaining control. Stock picking skills will now be tested, so be very choosy about what you buy.

Saturday, November 18, 2017

Reality check about Moody's ratings upgrade and Why investors should avoid IPOs

Moody's Ratings Upgrade - a reality check

"Moody's Investors Service upgraded its ratings on India's sovereign bonds for the first time in nearly 14 years on Friday (Nov 17 '17), saying continued progress on economic and institutional reform will boost the country's growth potential.

The agency said it was lifting India's rating to Baa2 from Baa3 and changed its rating outlook to stable from positive as risks to India's credit profile were broadly balanced."

The Finance Minister and various government functionaries wasted no time in appearing on various TV channels to tom-tom the 'achievement' as an endorsement of the NDA government's financial reforms and fiscal prudence by an 'internationally reputed ratings organisation'.

Now, here is the reality check (from a Reuter's article):


"Moody's upgrade, its first since January 2004, moves India's rating to the second lowest level of investment grade. Standard & Poor's has kept India at the lowest investment grade just above junk status for a decade and Fitch Ratings for one year longer."

There is no guarantee that S&P or Fitch will follow Moody's in upgrading India's sovereign bonds ratings. In other words, as of now, two out of three 'internationally reputed ratings organisations' have kept India's sovereign bonds ratings just above junk status.

The ratings upgrade by Moody's is definitely a positive sign - but not a huge deal just yet. Expecting FDI to pour in may be a bit premature. However, FIIs did join DIIs as net buyers of equities on Friday (Nov 17). The rally in the stock market is likely to continue next week. 


Why investors should avoid IPOs


A recent article in bloombergquint.com mentioned that 32 companies have cumulatively raised Rs 50,000 Crores from IPOs so far this year - the highest on record. "Promoters and (existing) shareholders walked away with the bulk of the gains by offloading stakes."


"Shares of 23 of the 32 companies that have gone public this year either declined or gave low returns since the close on the first day of trading." 

20 companies have provided negative returns from the closing level on the first day of listing till Nov 15. 3 companies have gained less than 5%. 5 companies have gained between 10% & 49%. The balance 4 companies - Avenue Supermarts, PSP Projects, Apex Frozen Foods and Shankara Building Products - have gained between 72% & 132%.

If you have been thinking about jumping on to the IPO bandwagon in the hope of making gains on listing, think again. The odds are not in your favour. 

Friday, November 17, 2017

Technical updates – Gayatri Projects and IRB Infrastructure

With the economy showing signs of settling down after absorbing the double-whammy of demonetisation and GST implementation, focus of investors and analysts is shifting towards the neglected infrastructure sector once again.

Fortunes of shareholders of two companies from the construction sector - Gayatri Projects and IRB Infrastructure - have taken divergent paths. The stock of Gayatri Projects has gained 47% in the past two years, while the stock of IRB Infra has lost 7%.

On the financial front, Gayatri Projects has a debt/equity ratio of 2.22 and its financial expenses are 200% higher than its net profit. IRB Infra has a lower debt/equity ratio of 1.23 and its financial expenses are 50% higher than its net profit.

Gayatri Projects is trading at a P/E of 9.2. IRB Infra is trading at a four times higher P/E of 39.9. 

Gayatri Projects


The closing stock price of Gayatri Projects formed a 'triple bottom' reversal pattern below its three EMAs during Feb '16 and May '16. That triggered a price recovery that faced strong resistance from its Nov '15 top of 151.50.

A breakout with good volume support above 151.50 on Apr 17 '17 failed to sustain above the resistance level. Another breakout on Jun 5 '17 managed to keep the stock price above the resistance level, which was subsequently tested on Jul 5 '17 and Aug 10 '17 and turned into a support level.

The stock rose to touch a new high of 201.75 on Nov 16 '17 (note that the stock's face value was split from Rs 10 to Rs 2 in Feb '17). Daily technical indicators are looking bullish but showing negative divergences by failing to touch new highs with the stock's price.

Some correction or consolidation may occur. For the past two months, bulls are buying every dip, so corrections have been shallow.

IRB Infrastructure


The closing stock price chart of IRB Infrastructure has frustrated long-term investors but given plenty of opportunities to short-term traders. The chart shows three bearish phases and three bullish phases during the past two years.

Light blue ovals have marked every crossing of the 50 day EMA below (death cross) or above (golden cross) the 200 day EMA. The 200 day EMA itself has meandered sideways for the past two years - giving no advantage to bulls or bears.

Daily technical indicators are looking bearish after correcting overbought conditions. The stock price touched a higher bottom of 200.60 on Aug 10 '17, and may attempt to rise past its May 2 '17 top of 266.80.

(If you wish to enter either of these stocks, or any other stocks from the construction sector, you are on your own. The sector typically has high debt and uneven cash flows and profits.)

Wednesday, November 15, 2017

Nifty chart: a midweek technical update (Nov 15 ‘17)

FIIs and DIIs were both net buyers of equity during the first three days of trading this week - worth Rs 19.6 Billion and Rs 6 Billion respectively as per provisional figures. Still Nifty lost 204 points (almost 2%).

Interestingly, FIIs were net sellers on Mon. (Nov 13) & Wed. (Nov 15), while DIIs were net sellers on Mon. & Tue. (Nov 14).

Inflation is inching up again because of higher food and fuel prices. CPI rose to 3.58% - a 7 months high - in Oct '17 against 3.28% in Sep '17. WPI rose to 3.59% - a 6 months high - in Oct '17 against 2.6% in Sep '17. RBI is likely to maintain status quo on interest rates.

Exports declined 1.12% to US $23 Billion while imports grew 7.6% to US $37.1 Billion in Oct '17. The trade deficit widened to $14.1 Billion from $11.1 Billion in Oct '16.



The daily bar chart pattern of Nifty continued its correction from the Nov 6 top of 10490. The index has fallen below its 20 day and 50 day EMAs and is near the lower edge of the 'support/resistance zone' between 10100 & 10200.

Bullish hopes of an intermediate bottom formation have been raised because the index touched an intra-day low of 10094 today - retracing almost 50% of its entire 802 points rally from the Sep 28 low of 9688. (The 50% Fibonacci retracement level is treated by many technical traders as a trend deciding level.)

The facts that two small upward 'gaps' formed on Oct 13 & 25 have been filled and the 10100 level wasn't breached on a closing basis have improved the chances of a recovery by the index.

Daily technical indicators are looking bearish and showing strong downward momentum. MACD is falling below its signal line in bullish zone. RSI is falling below its 50% level. Slow stochastic is well inside its oversold zone, and may trigger a pullback.

Nifty's TTM P/E has moved down to 25.72 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply in its neutral zone and looks ready to enter its oversold zone. That may limit index downside.

The index is trading well above its rising 200 day EMA in a bull market, and has corrected less than 4% from its Nov 6 top. Many fundamentally sound stocks have corrected much more because their Q2 (Sep '17) results disappointed the market. Those are the ones to put on a 'buy list'.

Investors would do well to remain circumspect. If the 10100 level gets breached - and the possibility can't be ruled out entirely - the index can fall another 100 points, where support from the 61.8% Fibonacci retracement level may kick in. A fall below 10000 can drop the index to 9700 (its previous support level in Aug '17 & Sep '17).

Tuesday, November 14, 2017

Gold and Silver charts: battle between bulls and bears reach a stalemate

Gold chart pattern


The following comments appeared in the previous post on the daily bar chart pattern of Gold: "Another test of support from the 200 day EMA seems on the cards. A possible breach of the 200 day EMA can drop gold's price to the zone between 1240 & 1250."

There were several tests of support, and even a few intra-day breaches of the 200 day EMA between Oct 26 and Nov 6. However, bulls put up a good fight as gold's price failed to close below the 200 day EMA even for a single day.

Technically, the 200 day EMA did not get breached, giving bulls the upper hand. On Nov 9, gold's price rose above its 20 day and 50 day EMAs to touch a lower top of 1289.50. Bears used the 'sell on rise' strategy, and are not showing any signs of giving up. 

Daily technical indicators are sending mixed signals - which is often the case during periods of consolidation. MACD is above its signal line - moving sideways in bearish zone. RSI is also in bearish zone - just below its 50% level. Slow stochastic is in bullish zone, but showing downward momentum.

On longer term weekly chart (not shown), gold’s price closed below its 20 week EMA but above its 50 week and 200 week EMAs in long-term bull territory.  Weekly MACD and Slow stochastic are looking bearish and showing downward momentum. RSI is in neutral zone.

Silver chart pattern


The following comments appeared in the previous post on the daily bar chart pattern of Silver: "It (silver's price) has been oscillating about its three EMAs, which have converged together. A sharp move is likely to follow. Odds are better for a downward move."

On Oct 27, the expected downward move touched a higher intra-day low of 16.62 and bounced up above its three EMAs. Bears used the 'sell on rise' strategy, pushing down silver's price below its 200 day EMA and gaining a slight advantage.

For the past 5 weeks, silver's price has been consolidating sideways within a 'symmetrical triangle' pattern, from which a breakout can occur upwards or downwards.

Since silver's price entered the 'triangle' after a corrective move, the likelihood of a downward breakout is greater. However, it may be prudent to wait for the breakout before deciding to buy or sell.

Daily technical indicators are giving conflicting signals. MACD has merged with its signal line and is moving sideways in bearish zone. RSI is at its neutral zone. Slow stochastic is falling towards its 50% level.

On longer term weekly chart (not shown), silver’s price closed between its 20 week and 50 week EMAs, and below its sliding 200 week EMA in a long-term bear marketWeekly MACD and RSI are in neutral zones. Slow stochastic is in bearish zone.

Monday, November 13, 2017

S&P 500 and FTSE 100 charts (Nov 10 '17): bears stall bull rallies

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 touched another new high of 2597 on Tue. Nov 7, but formed a small 'reversal day' pattern (higher high, slightly lower close).

Negative divergences on daily technical indicators triggered a correction below a bearish 'rising wedge' pattern (the possibility was mentioned in last week's post) that dropped the index below its 20 day EMA and the 2570 level intra-day on Nov 9. 

The index pulled back to close at the lower edge of the 'wedge' - forming a bearish 'hanging man' candlestick pattern. The stock closed the week below the 'wedge' but above its three EMAs and the 2580 level, losing just 5 points (0.2%) for the week.

Daily technical indicators are showing downward momentum in bullish zones. Some more correction is possible. Bulls have been 'buying the dips' - so the advantage remains with them.

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market, but formed a weekly 'reversal bar' (higher high, lower close). Weekly technical indicators are showing signs of correcting from their respective overbought zones. 

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 touched a 5 months high of 7583 on Tue. Nov 7 but formed a 'reversal day' bar (higher high, lower close) that triggered a sharp correction.

Negative divergences visible on the daily technical indicators (which touched lower tops while the index rose higher) helped the cause of bears. The index closed below its 20 day and 50 day EMAs and the (purple) down trend line - losing 1.7% for the week.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. RSI and Slow stochastic are falling in bearish zones. Some more correction is likely.

The index is trading above its rising 200 day EMA. That means the bull market is intact despite the correction.

On longer term weekly chart (not shown), the index received support from its 20 week EMA and closed above its 50 week and 200 week EMAs in a long-term bull market. Weekly MACD and Slow stochastic are showing downward momentum in bullish zones. Weeky RSI is seeking support from its 50% level.

Sunday, November 12, 2017

Sensex, Nifty charts (Nov 10, 2017): bears make their presence felt

FIIs were net sellers of equity worth Rs 40.4 Billion during the week; DIIs were net buyers of equity worth Rs 28.8 Billion, as per provisional figures. Their roles were reversed during the first two days of the week, as FIIs were net buyers of equity while DIIs turned net sellers.

Sensex and Nifty touched new highs but faced profit booking and closed lower for the week - by 1.1% and 1.25% respectively. Some more correction can't be ruled out.

Continuing impact of demonetisation and GST slowed industrial growth in Sep '17. The IIP number was 3.8% against 4.5% (revised from 4.3%) in Aug '17 and 5.7% in Sep '16. For the Apr-Sep '17 period, IIP was down 11.7% from the same period last year.

BSE Sensex index chart pattern



The following remarks were made in last week's post on the daily bar chart pattern of Sensex: "...negative divergences in three of the four indicators should be treated as a warning sign. A pullback towards the top of the sideways consolidation channel is a possibility."

The index touched a new high of 33866 on Tue. Nov 7, but formed a 'reversal day' bar (higher high, lower close) that triggered a correction. The 20 day EMA is providing good support, raising bullish hopes of a shallow correction. 

Daily technical indicators have dropped from their overbought zones. MACD has crossed below its signal line. ROC formed a 'triple top' reversal pattern and crossed below its 10 day MA. RSI slipped down from its overbought zone but is trying to re-enter it. Slow stochastic is falling towards its 50% level.

Some more correction towards the top of the downward-sloping channel is a possibility. Note that the 50 day EMA is just above the channel, and should provide additional support.

The index is trading above its three rising EMAs in a bull market. The correction is providing an adding opportunity.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty touched a new intra-week high (10490) but formed a 'reversal bar' (higher high, lower close) that often signals an intermediate top.

The index is trading above its three rising weekly EMAs in a bull market. Weekly MACD and Slow stochastic are moving sideways inside their respective overbought zones. ROC and RSI are sliding down in bullish zones.

The index may correct a bit more. Expect strong support from the 'support zone' between 10100 and 9700. The rising 20 week EMA is inside the 'support zone' and should provide additional support.

Nifty's TTM P/E has slipped down to 26.35, but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is poised to re-enter its overbought zone and can limit immediate upside.

GST on several items have been brought down from the highest slab rate of 28%. That may lead to some buoyancy in the index next week.

Bottomline? Sensex and Nifty charts show the effects of profit booking after touching new highs again. The corrections are expected to be shallow, and can be used as adding opportunities. But don't bet the farm.

Friday, November 10, 2017

Top 7 Technical Analysis Tools

Many analysts try to convey the impression that technical analysis is an esoteric practice not meant for investors at large. The more jargon one uses, the more it helps to obfuscate the uninitiated.

Contrary to its name, there is nothing 'technical' about technical analysis. So, what is it? 

A graphical representation of stock prices (or index level) over time leads to certain well-identified price patterns that reveal the underlying supply and demand for the stocks (or index).

But aren't graphs used in mathematics and physics and chemistry? In other words, graphs equals science equals technical, right? That is the mistake that many investors make (probably because they had a bad science teacher in school).

Observing and identifying price patterns as they are forming, and using a few tools/indicators that help to suggest likely changes in the patterns (i.e. the underlying supply and demand) is all that is involved in technical analysis.

May be that's a bit over-simplified. Understanding which combination of tools to use, and identifying which patterns are more reliable in helping to estimate future price changes require lots of practice and real-world experience.

In other words, technical analysis is quite simple but not easy. That should not deter an investor from learning the basics and applying the learning in actual trading and investing.

Fundamental analysis involves detailed study of Annual Reports, the economy, sectoral growth, competitive environment, management competence and integrity to identify which company stocks are investment-worthy.

Just because a stock is investment-worthy doesn't mean it has to be bought at the current price. This is where technical analysis can help. If the price pattern shows supply is exceeding demand, the stock's price may be getting ready for a fall.

If the supply and demand seems equally matched, the stock price may meander sideways for weeks or months. Only when demand exceeds supply can a stock's price start moving up.

A problem faced by many small investors - who have taken the brave step to venture into studying price patterns - is which technical tools/indicators to use when and how.

The KISS principle works well. The fewer indicators you can use to get reliable results the better. Three or four indicators taken together can be adequate.

In the following investopedia.com article, the top 7 technical tools - from the hundreds that have been developed over the years - have been listed. Try them out:
https://www.investopedia.com/slide-show/tools-of-the-trade/

Wednesday, November 8, 2017

Nifty chart: a midweek technical update (Nov 08 ‘17)

During the first three days of trading this week, FIIs were net sellers of equity worth Rs 28 Billion while DIIs were net buyers of equity worth Rs 7.3 Billion, as per provisional figures.

Their roles had reversed during the first two days when FIIs were net buyers of equity worth Rs 10.4 Billion while DIIs were net sellers of equity worth Rs 23.1 Billion.

One year after demonetisation of Rs 1000 and Rs 500 notes by the Modi government, the benefits and demerits of the experiment are being assessed. Reduction of corruption, terror financing and currency in circulation have been some of the benefits.

More than 2% drop in India's GDP growth, loss of 1.5 million jobs in the unorganised sector and severe stress in the rural economy leading to Rs 880 Billion worth of farm loan waiver have been major demerits.

Only time will tell whether longer term economic gains will outweigh the near-term pain.


The daily bar chart pattern of Nifty touched a new high of 10490 on Mon. Nov 6, but formed a small 'reversal day' bar (higher high, slightly lower close) that often marks an intermediate top.

Heavy selling by DIIs on Tue. and FIIs on Wed. sent the index plummeting 200 points to seek support from its 20 day EMA. A combination of rising oil prices, falling Rupee and several IPOs seems to have taken the sheen off the secondary market.

Daily technical indicators have corrected overbought conditions, and are showing downward momentum in bullish zones. Some more correction is possible.

The index had rallied 802 points from its Sep 28 low of 9688. A 38.2% Fibonacci retracement of the entire rally will drop the index to 10184. A 50% Fibonacci retracement could see the index touch 10089.

Since an index doesn't understand arithmetic and technical levels are rarely precise, a reasonable estimate is that Nifty may find support from the zone between 10100 & 10200. 

The 50 day EMA is near the lower end of the support zone, and should provide additional support. What if the index falls below 10100? Strong support can be expected from the long-term 'support-resistance' level of 9700.

Nifty's TTM P/E has slipped down to 26.37 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen almost vertically from its overbought zone to enter neutral zone, hinting at some more correction.

Sharp corrections - like the ones in Aug '17 and Sep '17 - are typical of bull markets and can be used for adding to existing positions. Choose fundamentally sound stocks that have faced corrections after declaring Q2 (Sep '17) results that disappointed the market. 

Tuesday, November 7, 2017

WTI and Brent Crude Oil charts: bulls charging ahead but may pause to catch their breath

WTI Crude Oil chart


The following comments were made in the previous post on the daily bar chart pattern of WTI Crude Oil: "A likely move above 52.86 will restore the bullish pattern of 'higher tops, higher bottoms' from the Jun '17 low of 42. Oil's price may test its Apr '17 top of 54."

Oil's price sought support from its rising 20 day EMA before soaring past the Sep 28 top of 52.86 to close just below 54 on Oct 27. 

After a brief sideways consolidation between 54 & 55, oil's price rose sharply past 57 to touch a 52 week high on Nov 6 '17.

All three EMAs are rising, and oil's price is trading above them in a bull market. However, bulls may have run a bit ahead of themselves.

Daily technical indicators are looking quite overbought. Slow stochastic is showing negative divergence by failing to touch a new high with oil's price. A pullback towards 55 is a possibility.

On longer term weekly chart (not shown), oil's price closed well above its 20 week and 50 week EMAs but is facing resistance from its sliding 200 week EMA. Weekly MACD is rising above its signal line in bullish zone. RSI and Slow stochastic are looking overbought.

Brent Crude Oil chart


The following comments appeared in the previous post on the daily bar chart pattern of Brent Crude Oil: "A likely move above 59 will restore the bullish pattern of 'higher tops, higher bottoms' from the Jun '17 low of 44. Oil's price may face resistance from a long-term unfilled weekly downward 'gap' between 60 & 61 (formed back in Jun '15)."

Oil's price moved smartly past 59 on Oct 27, only to consolidate sideways between 60 & 61 for the next four trading sessions. On Nov 3, oil's price broke out upwards to close just above 62. On Nov 6, it touched a new 52 week high, and closed above 64.

All three EMAs are rising, and oil's price is trading above them in a bull market. A crackdown on corrupt officials by the Saudi crown prince may have triggered the sudden surge in oil's price.  

Technical indicators are looking overbought. Slow stochastic is showing negative divergence by touching a lower top while oil's price rose higher. A pullback towards the zone between 61 & 62 is likely.

On longer term weekly chart (not shown), oil's price closed above its sliding 200 week EMA for the first time in more than 3 years. Weekly technical indicators are showing upward momentum but looking overbought. A correction or consolidation may be around the corner.

Monday, November 6, 2017

S&P 500 and FTSE 100 charts (Nov 03 '17): bulls on top but bears refusing to give up

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 rose to touch a new high of 2588 on Fri. Nov 3. All three EMAs are rising, and the index is trading above them in a bull market.

Bulls used a brief intra-day drop to the 20 day EMA on Oct 25 '17 to buy. They have successfully used the 'buy the dips' strategy for the past couple of months.

The trading pattern from Oct 23 onwards has formed a bearish 'rising wedge' pattern - from which a downward breakout is likely.

Daily technical indicators are looking overbought, and showing negative divergences by touching lower tops while the index touched a new high.

The combination of a bearish pattern at an index top and negative divergences on technical indicators should be treated with caution. A quick 2-3% correction - like the one that occurred in Aug '17 - is a possibility.

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are looking overbought, and can trigger a correction. 

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 dropped sharply below its 20 day EMA and the (purple) down trend line on Oct 25 '17, but bounced up after finding good support from its 50 day EMA.

The index touched an intra-day high of 7581 on Fri. Nov 3, and is trading above its three EMAs in a bull market. However, it continues to struggle to close convincingly above its Aug 8 top of 7552.

Daily technical indicators are looking bullish, but showing negative divergences by touching lower tops while the index touched a higher top. Some correction or consolidation can follow. 

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market. Weekly RSI and Slow stochastic are moving sideways. Weekly MACD is rising above its signal line in bullish zone. The entire trading from Apr '17 onwards may be forming a bullish 'ascending triangle' pattern.

Sunday, November 5, 2017

Sensex, Nifty charts (Nov 03, 2017): bulls continue their domination

For the month of Oct '17, FIIs were net sellers of equity worth Rs 78.3 Billion while DIIs were net buyers of equity worth Rs 100.9 Billion, as per provisional figures.

During the first three trading days in Nov '17, both FIIs and DIIs were net sellers of equity - worth Rs 76.2 Billion and Rs 10.9 Billion respectively. Interestingly, FIIs were net buyers of equity on Nov 1 & 2 but were net sellers worth a huge Rs 96.9 Billion on Nov 3. 

Nikkei India Manufacturing PMI slipped to 50.3 in Oct '17 from 51.2 in Sep '17, indicating stagnation in the growth of India's manufacturing sector. The Services PMI rose to 51.7 in Oct '17 - its highest level since Jun '17 - from 50.7 in Sep '17, due to higher demand despite price pressures.

BSE Sensex index chart pattern


Heavy selling by FIIs on Fri. Nov 3 failed to deter bulls. The daily bar chart pattern of Sensex rose to touch new intra-day (33734) and closing (33686) highs. All three EMAs are rising, and the index is trading above them in a bull market.

Daily technical indicators are inside their respective overbought zones. MACD touched a new high, but ROC, RSI and Slow stochastic are showing negative divergences by failing to touch new highs.

An index can remain technically overbought for long periods. However, negative divergences in three of the four indicators should be treated as a warning sign. A pullback towards the top of the sideways consolidation channel is a possibility.

Q2 (Sep '17) results of India Inc. declared so far have been as per analysts' expectations. Earnings growth remains tepid. The stock market appears to be betting on a pickup in earnings from Q3 (Dec '17) onwards due to a low base effect.

Stay invested, maintain a trailing stop-loss for long positions, and ride the bull wave. 

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty touched new intra-week (10462) and closing (10452) highs, and continues to trade above its rising weekly EMAs in a long-term bull market.

Weekly MACD, ROC and Slow stochastic are in their respective overbought zones. RSI is moving sideways in bullish zone. All four are showing negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E has moved up to 26.87 - well above its long-term average. The breadth indicator NSE TRIN (not shown) has plunged deep inside its overbought zone, and may trigger a correction.

A Morgan Stanley analyst has proffered a view that the index may appear overvalued from the high P/E ratio but is looking reasonably valued from the P/BV ratio. Such justifications of high index levels usually appear near market tops.

Experienced investors may remember the 'replacement cost' justification of Harshad Mehta before the 1992 crash and the 'gaining eyeballs' justification before the 2000 dot.com crash. 

A market crash may or may not be in the offing. But investors should remain wary of an over-valued market, till earnings show definite signs of catching up. 

Bottomline? Sensex and Nifty charts have risen to touch new highs again. Bulls are continuing to dominate. Avoid getting caught up in the euphoria. Use any corrections as adding opportunities. 

Friday, October 27, 2017

Sensex, Nifty charts (Oct 27, 2017): bulls dominating again

Both DIIs and FIIs were net buyers of equity during F&O expiry week. DIIs were net buyers on 3 days and net sellers on 2 days. Their total net buying was worth Rs 2.8 Billion, as per provisional figures. 

FIIs were net buyers worth Rs 11.8 Billion. On Wed. Oct 25, they bought equity worth a huge Rs 35.8 Billion - probably due to short-covering of PSU bank stocks - following the recapitalisation announcement by the Finance Minister. They were net sellers on the other 4 days.

Sensex gained 2.4% while Nifty gained 1.7% on weekly closing basis. Both indices touched new highs.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex had been consolidating sideways along the upper edge of the downward-sloping channel since an unconvincing upward breakout on Oct 16. 

On Wed. Oct 25, Sensex broke out with an upward 'gap' above the narrow consolidation zone on the back of heavy FII buying, and rose to touch new intra-day (33287) and closing (33157) highs on Fri. Oct 27. 

All three EMAs are rising, and the index is trading above them in a bull market. However, daily technical indicators are looking overbought, which can trigger a pullback towards the downward-sloping channel. 

Note that ROC, RSI and Slow stochastic are not only showing negative divergences by failing to touch new highs with the index, but may also be forming bearish 'double top' reversal patterns inside their respective overbought zones.

The index recently completed a 10 weeks long sideways consolidation. So, there is no reason to expect a deep correction. The economy is in the process of recovery from the stresses caused by demonetisation and GST implementation.

Nevertheless, caution is advised near a market top. If you are ready to jump in due to a 'left-out' feeling - don't. The 'low-hanging fruits' have already been picked. Stock selection skills will separate the men from the boys.

If you have savings that need to be invested, follow your asset allocation plan and a gradual accumulation process rather than buying in a lump-sum.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty touched new intra-week (10366) and closing (10323) highs, and continues to trade above its rising weekly EMAs in a long-term bull market.

Weekly technical indicators are in bullish zones, and looking a bit overbought. All four are showing negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E has moved up to 26.67 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is trying to move up inside its overbought zone, which can limit index upside.

Q2 (Sep '17) results of India Inc. declared so far have shown some top line growth, but bottom line growth is still weak. Without earnings growth, index valuation will remain high. That is one of the main reasons why FIIs have been selling Indian equity.

Bottomline? Sensex and Nifty charts have risen to touch new highs. Bulls are dominating. Any corrections should be welcomed as buying opportunities. This is not the time to be greedy or fearful. Be sensible.

(Note for blog visitors: I intend to take a brief break from a big city to a more tranquil place, where access to the Internet will be limited. My next blog post will be next week's Sensex and Nifty update.)