Wednesday, April 26, 2017

Nifty chart: a midweek technical update (Apr 26 ‘17)

FIIs were net sellers of equity worth Rs 5.9 Billion during the first three days of trading in F&O expiry week. DIIs were net buyers of equity worth a huge Rs 29.9 Billion, as per provisional figures.

The combination of reduced selling by FIIs and increased buying by DIIs sent Nifty soaring to lifetime intra-day (9367) and closing (9352) highs. 

Q4 (Mar '17) results declared so far have been better than expectations. An appreciating Rupee will help reduce India's trade deficit.


The daily bar chart pattern of Nifty crossed above its previous (Apr 5) top of 9274 with good volume support, and closed above 9350 for the first time ever. The bearish 'head and shoulders' pattern that was developing on the chart has been negated.

(The Sensex closed above 30000 for the first time ever. The event was celebrated with exchange participants cutting a 30 kg cake.)

Investors should not get swayed by bullish euphoria. There are a few dark clouds on the horizon.

All three daily indicators are in bullish zones, but showing negative divergences by touching lower tops while the index rose higher. 

Nifty's TTM P/E has touched 23.75 - much above its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its overbought zone.

The index is trading above its three EMAs in a bull market. However, the distance between the index and its rising 200 day EMA is more than 700 points. That indicates overbought conditions (as per empirical observations).

The upside appears limited. Think about partial profit booking and re-balancing of asset allocation.

Tuesday, April 25, 2017

Gold and Silver charts: bulls fight back but bears refusing to give up

Gold chart pattern


The daily bar chart pattern of Gold bounced up sharply after receiving support from its rising 20 day EMA and crossed above the 1290 level to a 5 months high on Apr 17.

The 'golden cross' of the 50 day EMA above the 200 day EMA has technically confirmed a return to a bull market. Gold's price stopped just short of the 1300 level and closed lower to form a 'doji' candlestick pattern. 

Negative divergences visible on MACD and Slow stochastic - which failed to touch new highs with gold's price - triggered a correction that received good support from the 20 day EMA.

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

On longer term weekly chart (not shown), gold’s price is trading above its three weekly EMAs in bull territory. The 20 week and 50 week EMAs need to cross above the 200 week EMA if bulls are to regain control. Weekly technical indicators are in bullish zones but not showing any upward momentum.

Silver chart pattern


The daily bar chart pattern of Silver crossed above the 18.60 level intra-day on Apr 17 but failed to close convincingly above the resistance level of 18.50. That was a signal for bears to mount an attack. 

Silver's price corrected below its 20 day and 50 day EMAs, only to bounce up and close exactly at its 50 day EMA after receiving good support from its 200 day EMA.

Bulls will feel encouraged by a 'hammer' candlestick pattern that has formed at the end of the corrective move, and can trigger the next leg of the rally.

Daily technical indicators are looking bearish. MACD is falling below its signal line in positive zone. RSI has fallen below its 50% level. Slow stochastic has dropped to the edge of its oversold zone. 

On longer term weekly chart (not shown), silver’s price corrected down to its 50 week EMA after facing strong resistance from its sliding 200 week EMAWeekly MACD and RSI are in neutral zones. Slow stochastic has formed a 'double top' reversal pattern inside its overbought zone. 

Expect some consolidation or correction before silver's price can cross above its 200 week EMA into bull territory.

Monday, April 24, 2017

S&P 500 and FTSE 100 charts (Apr 21 '17): bears dominate but bulls try to fight back

S&P 500 index chart pattern


The (purple) down trend line continues to dominate the daily bar chart pattern of S&P 500. Another attempt at a rally faced resistance from the down trend line.

The index is trading well above its rising 200 day EMA in a bull market, and closed about 20 points higher for the week. The fact that the previous (Mar 27) low of 2322 has not been breached should encourage bulls.

Daily technical indicators are in bearish zones. MACD and RSI are not showing any upward momentum. Strong volumes on down days mean bears remain active.

Expect some more consolidation or correction below the down trend line before an upward break out can occur.  

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

FTSE 100 index chart pattern


Note the following comments from last week's post on the daily bar chart pattern of FTSE 100: "... the index may break out either above or below the 'rectangle'. Since a 'rectangle' is often a continuation pattern, the logical break out is downwards."

After the long Easter break, the index succumbed to bear selling and dropped sharply below the 'rectangle' to 7150 on Tue. Apr 18. Over the next couple of days, the index dropped further to 7100. 

The possibility of a 130 points move from the breakout point was mentioned in an earlier post

At the time of writing this post, the index pulled back sharply to the lower edge of the 'rectangle' - only to face considerable resistance from the falling 20 day and 50 day EMAs. Such pullbacks offer selling opportunities to those who may have missed selling on the downward breakout on Apr 18.

Daily technical indicators are correcting oversold conditions but remain in bearish zones.

On longer term weekly chart (not shown), the index closed below its 20 week EMA for the first time in 5 months, but above its rising 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are looking bearish and showing downward momentum.

Sunday, April 23, 2017

Sensex, Nifty charts (Apr 21, 2017): profit booking near lifetime highs stops bulls on their tracks

Net selling in equities by FIIs touched Rs 30 Billion, as global uncertainties and lacklustre corporate earnings cast a shadow over the market. DIIs were net buyers of equity worth Rs 24.9 Billion, as per provisional figures.

Q4 (Mar '17) results of HDFC Bank, IndusInd Bank and Yes Bank showed good bottomline growth but with rising NPAs and provisions. Credit growth has been at its lowest level in 60 years for the banking sector as a whole.

To counter visa restrictions being imposed by USA, UK, Australia, Singapore on Indian tech workers, the government is considering reimposing a ceiling on royalty payments to overseas principals by MNCs operating in India. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex had formed an upward 'gap' on Mar 14 '17, but has failed to make much headway since then. 

The 'gap' has provided good support to the index so far; but the lower edge of the 'gap' may be turning into the 'neckline' of a 'head and shoulders' reversal pattern.

The 50 day EMA is just below the 'gap' zone, and can provide additional support if the index slips further.

Note that the right 'shoulder' of the 'head and shoulders' pattern hasn't formed yet - and may not form at all, if bulls manage to propel the index above the previous top of 30007 (touched on Apr 5).

However, the possibility of formation of a reversal pattern near an index top should be treated with respect and caution.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. ROC has dropped inside bearish zone but its downward momentum has stalled. RSI has slipped inside its bearish zone. Slow stochastic has entered its oversold zone.

There can be a technical bounce, but a resumption of the up move is unlikely in F&O expiry week. The index may rise to form the right 'shoulder' of the 'head and shoulders' pattern - providing short-term players an exit opportunity.

The index is trading well above its rising 200 day EMA in a bull market. If a 'head and shoulders' pattern does get formed and the index breaks down below it, the correction should end with a test of support from the 200 day EMA at worst.

Why? The 50% Fibonacci retracement level of the entire rally from the Dec 26 '16 low to the Apr 5 '17 top is at about 27880 - 20 points above the current level of the 200 day EMA. Bull market corrections often end near the 50% Fibonacci retracement level.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty failed to close above the psychological level of 9200 for the 6th week in a row. The index is trading above its two rising weekly EMAs in a bull market, with the upward 'gap' formed on Mar 14 '17 providing good support.

Three of the four weekly technical indicators - MACD, RSI, Slow stochastic - are inside their respective overbought zones, but have started to slide down. ROC has already slipped down from its overbought zone.

Nifty's TTM P/E remains above 23 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is hesitating near the lower edge of its neutral zone.

Some more correction, and a complete filling of the upward 'gap' are possibilities. The formation of a 'head and shoulders' reversal pattern is also a possibility.

In other words, waiting on the sidelines instead of rushing in to buy or sell may be a good idea.

Bottomline? Sensex and Nifty charts appear to be forming reversal patterns that may lead to deeper corrections. Both indices are overvalued. Unless earnings catch up with expectations, don't expect runaway rallies. Stay invested and continue your SIPs.  

Friday, April 21, 2017

Why a stop-loss is the difference between gambling and investing

Many small investors - particularly old timers - prefer to invest in 'safe' options. Like bank fixed deposits, tax free bonds, national savings certificates. They get a fixed rate of return - regardless of the state of the economy or volatility in the stock market. Plus, they rest assured that their principal amount will be returned intact on maturity.

For 'safe' investors, investing in stocks is nothing short of gambling. A company one invests in can go out of business. Even if they remain in business, they may make losses and not pay any dividends. In other words, there are no guarantees of any returns, plus there is a risk that the invested principal may get  depleted. (The same logic applies for equity mutual funds.)

In some ways, investing is gambling if you have no idea of what you are doing. If you buy a company's stock without doing adequate research about its background, competition, business outlook, management capabilities then the possibility of making any money through capital gains or dividends will be like betting on a cricket or football match. You will either win, or lose.

Since you have no control over the outcome of a sporting contest, you will lose your entire wagered capital if your team loses. You won't have much control over the performance of a company either - specially if you hold only 200 or 500 shares.

However, you may use a stop-loss - set 3% (or 8%) below your invested amount in a company's share. If a share's price falls more than 3% (or 8%), you can sell the share at a small loss and recover more than 90% of your invested capital.

This loss mitigation technique is the major difference between gambling and investing. One would think that most investors would be disciplined about setting stop-losses for each of their purchases, and sell when the stop-losses get hit.

Experience says otherwise. Setting a stop-loss (or a trailing stop-loss) is an art that few investors learn and even fewer investors practice. 

There is another important difference between gambling and investing: regular dividends. Only long-term investors benefit from it. If you do proper research before buying a stock and then hold on to it for 5 years or more, reinvesting the dividends that a company pays can add up to substantial returns.

In gambling, there are no dividend payments for betting over long periods. Since each bet usually has a short time limit, you either win or lose quickly. Then you place your next bet, with similar results.

You can read more here.

Wednesday, April 19, 2017

Nifty chart: a midweek technical update (Apr 19 ‘17)

FIIs were net sellers of equity worth Rs 18.5 Billion during the first three trading days this week. DIIs were net buyers of equity worth Rs 13.5 Billion, as per provisional figures.

Nifty is sliding down towards the 85 points upward 'gap' formed on Mar 14 '17. The 'gap' had provided good support twice - on Mar 22 and Mar 27.

India's WPI-based inflation fell to 5.7% in Mar '17 from a two-and-a-half years high of 6.5% in Feb '17, mainly due to a fall in mineral and fuel prices, while food prices continued to rise.



The daily bar chart pattern of Nifty is bearing the brunt of FII selling. The index has corrected below its 20 day EMA, but managed to close just above the 9100 level.

Nifty is 40 points above the 'gap' that had twice provided support earlier - and may do so again. The index is trading well above its rising 200 day EMA in a bull market

If the index finds support from the 'gap' and bounces up, it may proceed to form the 'right shoulder' of a 'head and shoulders' reversal pattern. Such a pattern - when formed at an index top - should be treated with extreme caution.

Note that the 'left shoulder' has already formed, and the 'head' formation is nearly complete, with a 'neckline' at about 9020. Completion of the pattern may cause a downward breakout towards 8800.

Can the index fall even further? Sure it can - specially if FIIs continue to sell. Will it? That will depend on how Q4 (Mar '17) results pan out. They haven't been that great thus far.

Daily technical indicators are looking bearish. MACD is falling below its signal line in positive zone. RSI is seeking support from its 50% level. Slow stochastic is poised to enter its oversold zone. 

All three indicators have dropped lower than their Mar 27 lows, while the index has touched a higher bottom. The negative divergences can cause some more correction.

Nifty's TTM P/E is still above 23 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has fallen towards the lower edge of its neutral zone.

Bull market corrections provide buying opportunities. However, the likely formation of a reversal pattern means it is better to be circumspect than brave.

Tuesday, April 18, 2017

WTI and Brent Crude Oil charts: bull rallies stop just short of their previous tops

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil had formed a 'triple-bottom' reversal pattern at 47 last month. Reversal patterns had also formed on daily technical indicators. 

That was a trigger for a sharp rally that took oil's price well above its three EMAs into bull territory. The 20 day EMA has crossed above the 50 day EMA, and all three EMAs are moving up - which is a bullish sign.

However, on Apr 12, oil's price rose above 53.50 but fell just short of its previous (Mar 7) top and the 54 level. It formed a 'reversal day' bar (higher high, lower close) that often marks an intermediate top.

Daily technical indicators are in bullish zones, but not showing any upward momentum. RSI has started correcting after facing resistance from the edge of its overbought zone. Slow stochastic is sliding down inside its overbought zone.

A fall below 52 can take oil's price down below its 20 day and 50 day EMAs to the next support level of 50.

US shale oil output is expected to post the biggest monthly increase in two years, raising concerns of undermining efforts to cut oversupply by OPEC countries.

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

Brent Crude Oil chart


After forming a small 'double bottom' reversal pattern at 50, the daily bar chart pattern of Brent Crude Oil rallied sharply to climb above its three EMAs into bull territory.

On Apr 12, oil's price rose to test its previous (Mar 7) top but fell just short and closed lower - forming a 'reversal day' bar (higher high, lower close) that appears to have ended the rally.

Daily technical indicators are in bullish zones, but have started to correct. Oil's price can drop below its 20 day and 50 day EMAs to the support level of 53.

With financial companies investing billions to increase US shale oil production, Arab Sheikhs may be gradually losing control of the oil market.

On longer term weekly chart (not shown), oil's price has closed 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 only Slow stochastic is showing some upward momentum.

Monday, April 17, 2017

S&P 500 and FTSE 100 charts (Apr 13 '17): consolidating after touching lifetime highs

S&P 500 index chart pattern


The following remarks were made in last week's post on the daily bar chart pattern of S&P 500: "Bears will have the upper hand till the index can move convincingly above the trend line. Daily technical indicators are moving sideways in neutral zones. Some more consolidation below the trend line is possible."

Bears continued to flex their muscles in a trading week truncated by Easter holidays. The index faced resistance from the (purple) down trend line and dropped to close below its 50 day EMA for the first time in 5 months.

The index is trading above its rising 200 day EMA in a bull market. However, daily technical indicators are in bearish zones and showing downward momentum. Some more consolidation or correction is likely.

A fall below the Mar 27 low of 2322 will extend the bearish pattern of 'lower tops, lower bottoms' and open up further downside towards the support zone between 2280 and 2300.

A hit-and-run foreign 'policy' - a few cruise missiles here, a MOAB there - has created jitters in world markets. North Korea is a wild card that may get 'Trump'ed next.

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators have corrected overbought conditions, and are showing downward momentum.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 made a couple of abortive attempts to break out above the 'rectangle' pattern within which it has been consolidating for the past four weeks.

The index dropped to its rising 50 day EMA, only to bounce up and close just below its 20 day EMA. The 200 day EMA is rising, and the index closed well above it in a bull market.

As mentioned in last week's post, the index may break out either above or below the 'rectangle'. Since a 'rectangle' is often a continuation pattern, the logical break out is downwards.

Daily technical indicators are not giving clear signals. MACD and Slow stochastic are in bullish zones. RSI has slipped into bearish zone. A test of support from the lower edge of the 'rectangle' is a possibility.

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but showing slight downward momentum.

Sunday, April 16, 2017

Sensex, Nifty charts (Apr 13, 2017): forming reversal patterns?

FIIs turned net sellers of equity worth Rs 24.5 Billion in another holiday-shortened trading week. DIIs were net buyers of equity worth Rs 17.9 Billion. Sensex and Nifty closed lower for the week.

Exports jumped 27.6% in Mar '17. However, trade deficit rose to a 4 month high of $10.43 Billion - thanks to surge in imports (particularly of gold). Has black money turned into white and then to yellow?

Infosys Q4 results were below expectations. Despite announcing a Rs 130 Billion bonanza for investors through dividends and buyback, the stock tanked and pulled down other IT stocks and the market with it. 

BSE Sensex index chart pattern

After touching a 52 week high of 30007 on Apr 5 (just short of its lifetime high of 30025 touched in Mar '15), the daily bar chart pattern of Sensex has formed a bearish pattern of 'lower tops, lower bottoms'. 

The index closed below up trend line '2' on Apr 10, followed by a pullback to the trend line on the next two days - giving another selling opportunity. It dropped to close below its 20 day EMA by the end of the week.

Breach of trend line '2' is a clear warning that the bull rally has stalled. But it is too early to call a trend reversal. Why? 

As per theory of 'fan lines', breach of a third up trend line (which has not been drawn yet) will technically confirm the beginning of a down trend.

The index may be in the midst of forming a 'head and shoulders' reversal pattern. A bit more correction may be followed by a rally that can go on to form the right 'shoulder' - and provide a profit-booking opportunity.

If the 'head and shoulders' pattern plays out - and there are no guarantees that it will - Sensex may correct down to 28300. 

All four daily technical indicators are looking bearish and showing downward momentum. MACD has crossed below its signal line in bullish zone. ROC has crossed below its 10 day MA and seeking support from its '0' line. RSI and Slow stochastic have dropped close to their respective 50% levels.

The index is trading well above its rising 200 day EMA in a bull market. So, no need to panic and sell. Short-term players can hold with a stop-loss at 29000. Long-term investors can use any fall below 29000 as a buying opportunity.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty failed to close above the psychological level of 9200 for the 5th week in a row. The index is trading within a small 'rising wedge' pattern from which the likely break out is downwards.

All four weekly technical indicators are showing signs of correcting overbought conditions. MACD's upward momentum has stalled. ROC is falling below its 10 week MA. RSI and Slow stochastic have started sliding down inside their respective overbought zones.

Nifty's TTM P/E remains well above its long-term average at 23.2. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone. Some more correction is likely.

Keep a close watch on Q4 (Mar '17) results. Stock picking skills will be tested. Use any rallies to rebalance your portfolio by getting rid of non-performers.

Bottomline? Sensex and Nifty charts may be forming reversal patterns after sharp rallies on hopes of better corporate earnings. Both indices are looking overvalued. Stay invested and continue your SIPs. Don't jump in to buy (or sell). 

Friday, April 14, 2017

Is the FMCG sector a good place to hide?

Sensex and Nifty are consolidating near their lifetime highs - moving up one day and down the next. FIIs have stared selling. Market experts are voicing concerns about near-term fundamental and technical headwinds.

What should small investors do? Stay on the sidelines, or continue to invest regularly? Where to invest? Everything appears so expensive!

At times like these, the best place to hide is the FMCG sector. Why? Because companies from the sector have visible earnings, generate a ton of cash, have negligible debt, don't require frequent capital expenditure and pay decent dividends. 

The sector is likely to benefit from GST and pent-up demand following demonetisation. If you have a long-term investment outlook (you should!) then you need to invest in this sector. If FMCG stocks appear expensive now - so did they five years back.

Brittania



The stock has been consolidating in a broad range for two years, but looks poised to break out upwards. The gradually rising 200 day EMA indicates a bull market.

Colgate-Palmolive



Colgate has gone nowhere in the past two years. A strong move above 1037 will be required for bulls to get the upper hand. It may be able to do so after a bit of correction.

Dabur India



Dabur's stock appears to be forming a large 'rounding bottom' pattern that can lead to an upward break out above 308. But it may take 2-3 months more to complete the bullish pattern.

Emami



Emami is trading below its three EMAs in bear territory. The correction may continue till it reaches the support level of 955.

Glaxo Healthcare



Glaxo is trading within a 'flag' pattern below its falling 200 day EMA in a bear market. A convincing move above its Mar '17 top of 5532 is required for bulls to regain control.

Godrej Consumer



The stock is consolidating within an 'ascending triangle' pattern near its lifetime high. The expected break out from the 'triangle' is upwards.

Hindustan Unilever



HUL has been stuck in a broad range for two years. The 200 day EMA is forming a 'rounding bottom' pattern that can propel the stock to a new high.

ITC



The stock is consolidating after touching a lifetime (bonus-adjusted) high. It has entered the dairy business, and plans to enter healthcare business - in an effort to reduce dependence on tobacco.

Marico



Marico is correcting overbought conditions after touching a lifetime high. It should continue to move higher.

Nestle



The stock has been in a down trend for almost 9 months. A false break out above the blue down trend line can lead to some more correction or consolidation.

[So, which of these stocks would be worth adding at current market price? Do a bit of due diligence during the long weekend.]

Thursday, April 13, 2017

India's near-term stock market outlook is not rosy

Last week, I had posted a link to an article about excellent long-term prospects of investing in the Indian stock market.

The near-term market outlook is not looking great - as per the following interview with Goldman Sachs' Rajiv Jain:

https://www.bloombergquint.com/global-economics/2017/04/12/indian-stock-optimism-is-all-hype-to-goldman-sachs-s-rajiv-jain

Wednesday, April 12, 2017

Nifty chart: a midweek technical update (Apr 12 ‘17)

FIIs turned net sellers of equity worth Rs 20.5 Billion during the first three days of trading this week. DIIs were net buyers of equity worth Rs 17.3 Billionas per provisional figures.

Nifty appears to be in 'wait and watch' mode around 9200 - prior to the beginning of Q4 results season.

Macroeconomic news wasn't great. India's CPI inflation rose to 3.81% in Mar '17 against 3.65% in Feb '17. The IIP number fell to -1.2% in Feb '17 against a revised +3.3% in Jan '17.

India's passenger vehicle sales grew 7% in 2016 - making it the 5th largest passenger vehicles market in the world (behind China, US, Germany and Japan). 



The daily bar chart pattern of Nifty has been consolidating sideways with a downward bias after touching a life time high of 9274 on Apr 5. 

All three EMAs are rising, and the index has closed above them in a bull market. Daily technical indicators are in bullish zones, but not showing much upward momentum.

As per several market experts, Q4 (Mar '17) corporate results are not going to be good due to the adverse impact of demonetisation. FIIs have turned sellers in anticipation.

Nifty's TTM P/E remains high at 23.33. The breadth indicator NSE TRIN (not shown) is oscillating near the upper edge of its neutral zone.

Some more consolidation or correction can be expected.

Stay invested. Check out Q4 results before making stock-specific buy/sell decisions.

Tuesday, April 11, 2017

Gold and Silver charts: bears stall bull rallies

Gold chart pattern


The daily bar chart pattern of Gold has failed to make much headway during the past two weeks. The rising 20 day EMA has provided good support as gold's price consolidated sideways with an upward bias.

On Fri. Apr 7, gold's price crossed above the Feb 27 top and the 1270 level intra-day to touch its highest level in nearly 5 months; but despite strong volume support, it dropped to close below 1260.

In candlestick parlance, a 'shooting star' pattern - that often marks an intermediate top - got formed.

Gold is trading above its three EMAs in bull territory. The 'golden cross' of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market. Bears may try to prevent that.

Daily technical indicators are in bullish zones, but showing negative divergences by failing to touch new highs with gold's price. Slow stochastic is showing strong downward momentum that is hinting at a correction.

On longer term weekly chart (not shown), gold’s price is facing resistance from its 200 week EMA. The long-term bear market is intact. Weekly MACD and RSI are in neutral zones and not showing any upward momentum. Slow stochastic has formed a 'double top' reversal pattern inside its overbought zone.

Silver chart pattern


The following comment was made in the previous post on the daily bar chart pattern of Silver: "A convincing move above 18.50 - where multiple tops were formed in Feb '17 - is required if bulls wish to retain control."

On Fri. Apr 7, silver's price tried but failed to overcome resistance from the 18.50 level, and corrected sharply below its 20 day EMA. Bullish hopes may remain alive as long as silver's price trades above its 200 day EMA.

Daily technical indicators are in bullish zones, but looking bearish and showing downward momentum. Expect some consolidation or correction.

On longer term weekly chart (not shown), silver’s price closed above its 20 week and 50 week EMAs, but below its sliding 200 week EMA in a long-term bear market. Weekly MACD and RSI are in neutral zones. Slow stochastic is about to drop from its overbought zone.

Monday, April 10, 2017

S&P 500 and FTSE 100 charts (Apr 07 '17): bears put up strong road blocks

S&P 500 index chart pattern


The following comment had appeared in last week's post on the daily bar chart pattern of S&P 500: "A convincing move above the purple down trend line (currently at about 2375) is required for bulls to regain complete control."

On Wed. Apr 5, the index crossed above the purple down trend line intra-day and touched a high of 2380, but dropped down to close below its 20 day EMA. The index closed about 7 points lower for the week.

The purple down trend line has been acting as a strong resistance after the index touched a lifetime high of 2401 on Mar 1 '17. Bears will have the upper hand till the index can move convincingly above the trend line.

Daily technical indicators are moving sideways in neutral zones. Some more consolidation below the trend line is possible.

Lower than expected US job growth and cruise missile attack on a Syrian airfield helped the cause of bears.

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 corrected overbought conditions, and are showing downward momentum.

FTSE 100 index chart pattern



After touching a lifetime high of 7447 on Mar 17, the daily bar chart pattern of FTSE 100 corrected 190 points (2.5%), and has been consolidating sideways within a 'rectangle' (shaded) pattern for the past three weeks.

A 'rectangle' is usually a continuation pattern. Since the index entered the 'rectangle' from above, it should eventually break down below the 'rectangle'. 

However, a 'rectangle' can also act as a 'reversal' pattern. So, an upward break out can't be ruled out. Either way, a 130 points move (height of the 'rectangle') can be expected from the break out point.

Daily technical indicators are in neutral zones. Only Slow stochastic is showing upward momentum.

On longer term weekly chart (not shown), the index closed 26 points higher for the week - well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones. Slow stochastic formed a 'double top' reversal pattern inside its overbought zone - which is a bearish sign.

Sunday, April 9, 2017

Sensex, Nifty charts (Apr 07, 2017): 'Trump'ed-up corrections or technical weakness?

Activity remained muted in a holiday-shortened trading week. FIIs were net buyers of equity worth Rs 7.55 Billion; DIIs were also net buyers of equity worth Rs 0.48 Billion, as per provisional figures. Sensex and Nifty gained marginally on weekly closing basis.

Nikkei India Services PMI rose to a 5 month high of 51.5 in Mar '17 against 50.3 in Feb '17. A figure above 50 indicates expansion. "(India’s) rapid recovery from the demonetisation-related downturn was accompanied by job creation and softer inflationary pressures.”

To check excess liquidity in the system, narrow down money market rates and control inflation in FY18, RBI on Thu. Apr 6 increased the reverse repo rate by 25 basis points to 6% from 5.75% earlier.

BSE Sensex index chart pattern



The following were concluding comments in last week's post on the daily bar chart pattern of Sensex: "Announcement of FY 16-17 corporate results is expected to start in about two weeks. Some hesitation among bulls is only to be expected till then."

On Apr 5, the index rose to touch a new 52 week intra-day high of 30007 - testing, but falling just short of, the lifetime intra-day high of 30025 touched in Mar '15. Sensex ended the day at a lifetime closing high 29974.

Three of the four technical indicators - MACD, ROC, RSI - showed negative divergences by touching lower tops. That was a signal for a corrective move. Trump's cruise missile barrage at a Syrian airport exacerbated the index slide.

Note that the index closed just below trend line 2 - within the 3% 'whipsaw' limit, but it should be treated as a second warning about a possible trend change. (The first warning was a close below trend line 1.)

Sensex has formed a small 'rising wedge' pattern from which the likely break out is downwards. It is also possible that the index has formed the left shoulder and head of a 'head and shoulders' reversal pattern.

The index is trading above its three EMAs in a bull market, but is more than 2000 points above its 200 day EMA (an empirical observation of an overbought condition). Daily technical indicators are showing downward momentum. Some more correction or consolidation may follow.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty touched a new high of 9274, but closed at 9198. For the 4th straight week, the index failed to close above the psychological level of 9200.

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

Nifty's TTM P/E remained above 23 during the week - well above its long-term average. The breadth indicator NSE TRIN (not shown) is rising in neutral zone - hinting at more consolidation or correction.

India's manufacturing and services PMI numbers are showing growth. Whether that growth will get reflected in India Inc's Q4 numbers or not may be keeping bulls on tenterhooks.

Bottomline? Sensex and Nifty charts are consolidating after sharp rallies triggered by hopes of better corporate earnings. Both indices are looking overvalued. Some more consolidation or correction is possible. Don't be in a rush to buy or sell. Try to look at the big picture.

Friday, April 7, 2017

Sensex is near its lifetime high - which sectors will lead the next leg of the rally?

What a difference a year can make! Sensex was recovering after a year long down trend when the previous post was written. Since then, the index has taken investors on a a topsy-turvy ride - 4 months of up trend followed by 4 months of down trend and then another 4 months of up trend. 

Some sectors that were doing well a year back are not doing so well now. A few sectors that were in complete doldrums have made excellent recoveries. A couple of sectors have remained unaffected by Sensex gyrations.

A smart move will be to stay with the sectors that have not been affected much and look for opportunities in sectors that appear to be on the road to recovery. Partial profit booking can be done in sectors where stock prices have run ahead of fundamentals. 

BSE Auto Index


BSE Auto touched a new high in Sep '16 and corrected with the broader market. The subsequent recovery has not kept pace with Sensex - thanks to strong headwinds. First, demonetisation affected sales. Then, Supreme Court strictures on sale of BS III vehicles dealt a body blow. It may take a couple of quarters to recover.

BSE Bankex


Fortunes of BSE Bankex got a sharp boost from demonetisation - with huge inflows of low cost cash. Loan growth remains muted and NPA problems of PSU banks are far from over. Strong action against habitual loan defaulters is a plus; farm loan waivers by state governments is a minus. Negative divergences on technical indicators hint at some correction or consolidation.

BSE Capital Goods Index


BSE Capital Goods has made an excellent recovery - though still 1000 points short of its Mar '15 peak. Technical indicators are looking quite overbought and are suggesting a correction.

BSE Consumer Durables Index


BSE Consumer Durables remains in a bull market after recovering from a sharp demonetisation-induced correction in Nov '16. The last leg of the rally has been too sharp. Overbought technical indicators may trigger a correction.

BSE FMCG Index


BSE FMCG corrected with Sensex from Sep '16 to Dec '16, and has since moved up to touch new highs.  The index is correcting after forming what looks like a 'double top' reversal pattern. Any dips can be used to buy into this perennial favourite sector of savvy investors.

BSE Healthcare Index


BSE Healthcare is feeling the adverse effects of a double whammy - US FDA strictures against pharma exporters, and DPCA keeping a lid on domestic pharma prices. The days of windfall gains from reverse-engineered generic drugs are over. Those who spend the time, effort and money on R&D and marketing will emerge victorious. 

BSE IT Index


BSE IT is reaping what it had sowed - an over-dependence on 'body-shopping'. New US visa rules may finally put an end to easy money. A lot of small and medium sized IT companies will disappear. The larger ones will survive only if they move up the value chain by strengthening their consultancy activities. 

BSE Metal Index


BSE Metal has had a nice bull ran - thanks to 'anti-dumping' actions against China in US and Europe. An expected pick up in infrastructure projects in India will sustain growth. A consolidation within a 'rectangle' pattern for the past three months may lead to an upward breakout.

BSE Oil & Gas Index


BSE Oil & Gas has done very well - mainly due to low international oil prices. Negative divergences on technical indicators can initiate some correction or consolidation. The sector should continue to do well.

BSE Power Index


BSE Power has run a bit ahead of its fundamentals, and looks ripe for a correction. The government's emphasis on renewable energy may put the future of coal-based power plants in jeopardy.

BSE Realty Index


BSE Realty index may appear to have reversed its fortunes - but remains 500 points short of its Jun '14 peak. Technical indicators are looking overbought. If you are holding stocks from this sector, booking profits and making a down payment on an apartment may be a good idea.