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Wednesday, June 28, 2017

Nifty chart: a midweek technical update (Jun 28 ‘17)

After Monday's Eid holiday, FIIs were net buyers of equity on Tuesday but net sellers today. DIIs were net sellers of equity on Tuesday but net buyers today.

As per provisional figures, FII were net sellers of equity worth Rs 1.77 Billion and DIIs were net buyers of equity worth Rs 0.2 Billion during the two days of trading this week.

According to a Nomura report, India's GDP growth is expected to improve gradually from Q1 (Jun '17) onwards as consumption has recovered from the demonetisation shock.


The daily bar chart pattern of Nifty, which had been consolidating sideways within a 'rectangle' pattern (shaded in grey) for 4 weeks, broke out below the 'rectangle' on Tue. Jun 27.

The possibility of such a downward breakout, with a target of 9390, was mentioned in last week's updateThe index is seeking support from its 50 day EMA, but the support may not hold. 

Daily technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in bullish zone. RSI has fallen below its 50% level. Slow stochastic has entered its oversold zone and can trigger a pullback towards the 'rectangle'. 

All three indicators are showing negative divergences by falling below their respective Apr '17 lows. 

Nifty's TTM P/E has slipped a bit to 24.15, which is still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is deep inside its overbought zone - hinting at some more correction.

Concerns about GST implementation from July 1, plus F&O expiry on Jun 29 has turned market participants cautious.

Mid-cap and small-cap stocks are facing strong selling pressure. Those with clean balance sheets and earnings visibility should be added to one's 'buy list' for acquisition after the correction plays out. 

Tuesday, June 27, 2017

WTI and Brent Crude Oil charts: bears continue to rule

WTI Crude Oil chart


The following comment had appeared in the previous post on the daily bar chart pattern of WTI Crude Oil: "Strong volumes on recent down days show that bears are in no mood to relinquish control."

Since the beginning of the month, resistance from the falling 20 day EMA has proven to be insurmountable for bulls. 

Oil's price dropped below the May 5 low of 43.75 and touched a low of 42 on Jun 21 with a strong surge in volumes. The bearish pattern of 'lower tops, lower bottoms' remains intact.

Daily technical indicators are looking oversold, and triggered a technical bounce. Oil's price is trading below its three falling EMAs in a bear market. Expect bears to resume selling if bulls try to engineer a rally.

A fuel glut in China, a hangover from demonetisation in India, and an ageing, declining population in Japan are holding back crude oil demand growth in three of the world's top four oil buyers.

On longer term weekly chart (not shown), oil's price closed below its three weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil shows total bear domination. The 'death cross' of the 50 day EMA below the 200 day EMA has technically confirmed a return to a bear market.

Oil's price fell below its May 5 low - keeping the bearish pattern of 'lower tops, lower bottoms' intact. 

After touching a low of 44.35 on Jun 21, a short-covering rally was triggered by oversold technical indicators.

Despite production cuts by OPEC members, a supply glut in the oil market has kept a lid on prices. Expect bears to sell again if the rally continues a little longer.

On longer term weekly chart (not shown), oil's price remains well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are bearish.

Monday, June 26, 2017

S&P 500 and FTSE 100 charts (Jun 23 '17): bears refusing to yield ground

S&P 500 index chart pattern


The closing chart pattern of S&P 500 has been consolidating within a narrow 'rectangle' pattern between 2429 and 2440 (marked in grey) during June '17.

On Mon. Jun 19, the index broke out sharply from the 'rectangle' to close at a new high of 2453. However, it turned out to be a 'false' breakout.

There was no surge in volumes that would have technically validated the breakout. (The two volume surges visible on the chart occurred on two Fridays - Jun 16 & 23).

All three technical indicators showed negative divergences by failing to touch new highs with the index. Bears took the opportunity to sell.

The index dropped back inside the 'rectangle' on Tue. Jun 20 and remained there - closing with just a 5 point gain for the week.

Technical indicators are in bullish zones, but not showing any upward momentum. Some more consolidation within the 'rectangle' is likely before another attempt at an upward breakout occurs.

All three EMAs are rising, and the index is trading above them in a bull market. But bears are selling on every rise - so caution should be the watchword.

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 overbought, but not showing any upward momentum.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 closed above its three EMAs in bull territory on Mon. Jun 19. The next day, it formed a 'reversal day' bar (higher high, lower close) that triggered selling by bears. 

The index received support from the 7400 level, and just about managed to close at its 50 day EMA - with a 0.5% weekly loss.

Bulls may try to defend the previous week's low of 7375. Daily technical indicators are looking bearish and showing downward momentum.

The index is trading well above its rising 200 day EMA - which means there is no immediate threat to the bull market. (On the daily closing chart - not shown - the index is receiving strong support from its 50 day EMA and the 7425 level.)

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

Sunday, June 25, 2017

Sensex, Nifty charts (Jun 23, 2017): consolidating before GST implementation

After the previous week's heavy selling, FIIs were net sellers of equity worth only Rs 2.5 Billion - thanks to their net buying on the last two days of the week. DIIs were net buyers of equity worth Rs 13.7 Billion, as per provisional figures.

The battle between bulls and bears remained unresolved. Sensex closed marginally higher (by 0.2%) while Nifty closed marginally lower (by 0.1%) for the week.

Trading activity may remain muted next week. Monday's Eid holiday will be followed by F&O expiry on Thursday. Market participants appear somewhat jittery about GST implementation from July 1.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex has been consolidating sideways within a 'rectangle' pattern for the past four weeks. Such a pattern is unreliable, because a breakout can occur in either direction.

The index received good support from 'fan line 3' during the first four days of the week, and rose to touch a new high of 31523 on Thu. Jun 22. However, all four technical indicators touched lower tops.

The combined negative divergences led to a sharp drop below 'fan line 3' towards the lower edge of the 'rectangle' on Fri. Jun 23. Like in the previous week, the 20 day EMA provided support to the index.

In case supports from the 20 day EMA and the lower edge of the 'rectangle' get breached, the index can drop to test support from its rising 50 day EMA.

Daily technical indicators are looking bearish. MACD is sliding down below its signal line in bullish zone. ROC, RSI and Slow stochastic are re-entering their respective bearish zones.

Some more consolidation is likely. The index may try to pullback towards 'fan line 3'. But only a convincing breakout above the 'rectangle' will restore control to bulls.

Stay invested, but maintain a stop-loss.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty closed lower for the second week in a row, but stayed well above its two rising weekly EMAs in a bull market. 

For the past four weeks, the index has been consolidating sideways within a 'rectangle' pattern - from which a breakout can occur in either direction. An upward breakout is more logical in a bull market. But markets often defy logic.

Weekly technical indicators are inside their respective overbought zones, but MACD, RSI and Slow stochastic are showing downward momentum.

Nifty's TTM P/E is at 24.37 - much above its long-term average. The breadth indicator NSE TRIN (not shown) has fallen deep inside its overbought zone.

Some more consolidation within the 'rectangle' is likely before a breakout occurs. Bulls may feel encouraged that FIIs were net buyers of equity on Thu. & Fri. (Jun 22 & 23).

Bottomline? Sensex and Nifty charts are consolidating after touching new highs. Some more consolidation or correction will improve valuations and enable the indices to climb higher. Stay invested. Avoid impulsive buying or selling.

Friday, June 23, 2017

Behavioural biases that affect investment success

An interesting topic came up for discussion during a recent family lunch. Electric vehicles - and how they were going to bring a paradigm shift not only for passenger and goods transportation but also for the oil industry.

The logic went like this: Global warming is being caused by auto emissions. Oil resources are getting depleted. Alternative bio-fuel experiments haven't worked. Electric vehicles are the obvious viable and environment-friendly solution.

Prices of electric cars are high because of lack of volumes. Batteries need to be recharged after travelling fairly short distances. But battery technology is improving. Vehicle prices will fall as demand increases.

A few years back, wind turbine maker Suzlon came out with its IPO. Wind power was touted as the future of energy. Investors piled into the stock and lost their shirts. Why? 

Oil prices came down from well above the $100 mark to $40. Wind power was no longer the talk of the town. It didn't help that Suzlon's technology was faulty.

Aren't these classic cases of judgement influenced by what happened or was heard in the recent past?

Investing success requires a planned and dispassionate approach. Emotions like greed, fear, euphoria, despondency lead to poor decisions. Buying or shorting a huge quantity of stock on 'gut-feel' can lead to disastrous consequences.  

The study of behavioural finance enables us to be aware of some of the common emotional and cognitive biases that affect decision making, like:

1. Anchoring
2. Confirmation
3. Loss aversion
4. Disposition effect
5. Hindsight
6. Familiarity
7. Self attribution
8. Trend chasing

Learn more about these behavioural biases from the following article:
8 Common Biases that impact Investment Decisions

Wednesday, June 21, 2017

Nifty chart: a midweek technical update (Jun 21 ‘17)

FIIs continued to sell equity shares. Their net selling during the first three days of the week was worth Rs 7.2 Billion.

DIIs were net buyers of equity worth Rs 9.6 Billion, as per provisional figures. Nifty consolidated sideways within a trading range.

SEBI has announced tightened regulations on P-notes and offshore derivatives while easing registration rules for foreign investors. Hedge funds will now be able to participate in commodity derivatives


The daily bar chart pattern of Nifty has been consolidating sideways within a 'rectangle' (shaded in grey) for nearly 4 weeks.

A 'rectangle' is usually a continuation pattern. Since the index entered the 'rectangle' from below during an up trend, the eventual breakout should be upwards.

However, sometimes a 'rectangle' can act as a 'reversal' pattern. So, a downward breakout is also a possibility.

In either case, the upward or downward target following the eventual breakout should equal the height of the 'rectangle' (about 160 points). That gives an upward target of 9870 and a downward target of 9390.

Technical targets are rarely exact. Let us work with an upward target of 9900 and a downward target of 9400 - provided the 'rectangle' pattern plays out as expected.

Nifty has received good support from its rising 20 day EMA while consolidating within the 'rectangle' and is trading above its three EMAs in a bull market.

Daily technical indicators are in bullish zones, but giving conflicting signals. MACD and RSI are showing downward momentum. Slow stochastic is showing upward momentum. MACD and Slow stochastic are showing negative divergences by touching lower bottoms.

Nifty's TTM P/E is at 24.31 - much above its long-term average. Chances of earnings catching up with index valuation appears slim in the near term. Rollout of GST from July 1 will bring its own set of challenges and teething problems.

The breadth indicator NSE TRIN (not shown) is falling inside its overbought zone, limiting index upside. FII selling will also keep Nifty's rally in check.

It is better to look at individual stocks than worrying about index movements. Several stocks have touched new highs in June while the index has gone nowhere.

Tuesday, June 20, 2017

Gold and Silver charts: bears pour cold water on month-long bull party

Gold chart pattern


The following comments appeared in the previous post on the daily bar chart pattern of Gold: "A convincing move above 1296 is required for the bullish pattern of 'higher tops, higher bottoms' to continue. Bears will try to prevent such a move."

Gold's price rallied to a slightly higher top of 1299 on Jun 6, but MACD and RSI touched slightly lower tops. The negative divergences was just the trigger the bears needed to pounce.

A sharp correction dropped gold's price below its 20 day and 50 day EMAs. (At the time of writing this post, gold's price is testing support from its 200 day EMA.)

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. RSI has slipped below its 50% level. Slow stochastic has dropped like a stone into its oversold zone. 

A technical bounce from the 200 day EMA is a possibility. Bears may use the opportunity to sell again.

On longer term weekly chart (not shown), gold’s price formed a 'reversal' bar (higher high, lower close) and corrected below its 200 week EMA in long-term bear territory. Weekly technical indicators are in bullish zones, but showing downward momentum.

Silver chart pattern


The following comments appeared in the previous post on the daily bar chart pattern of Silver: "Silver's rally may continue a bit longer, but expect bears to pounce at any time."

Silver's price touched an intra-day high of 17.75 on Jun 6 and closed at 17.71. Bears attacked the very next day. A sharp correction dropped silver's price below its three EMAs into bear territory.

(At the time of writing this post, silver's price has bounced up a bit after finding some support at 16.45.)

Daily technical indicators are in bearish zones, and showing downward momentum. Slow stochastic is well inside its oversold zone, and can trigger a technical bounce.

A test of the May 9 low may be on the cards.

On longer term weekly chart (not shown), silver’s price closed below its three weekly EMAs in a long-term bear marketWeekly technical indicators are in bearish zones, and showing downward momentum.

Monday, June 19, 2017

S&P 500 and FTSE 100 charts (Jun 16 '17): tug-of-war between bulls and bears continues

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 consolidated sideways within a 25 points range during the week. 

The index touched a slightly lower top of 2444 on Wed. Jun 7. The rising 20 day EMA prevented a fall below the Jun 9 low of 2416.

The large volume spurt on Fri. Jun 16 ensured a flat close for the week. Neither bulls nor bears managed to wrest any advantage.

Daily technical indicators are in bullish zones, but not showing any upward momentum. RSI is moving sideways. MACD and Slow stochastic are displaying a bit of downward momentum.

The index continues to trade above its three rising EMAs in a bull market. Some more consolidation is possible before the index decides to move higher.

(On the daily closing chart - not shown - the index has been consolidating since the beginning of June within a narrow 'rectangle' pattern between 2429 and 2440. A breakout from the 'rectangle' can occur in either direction.)

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, but not showing any upward momentum.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 had touched a new high of 7599 on Jun 2 before breaking out below a bearish 'rising wedge' pattern (refer last week's post).

The index has formed a bearish pattern of 'lower tops, lower bottoms' since then. FTSE dropped sharply below its 50 day EMA to a low of 7378 on Thu. Jun 15, followed by a pullback to its 20 day EMA but closed about 0.8% lower for the week.

(At the time of writing this post, the index has bounced up above its three EMAs - regaining most of its previous week's loss. However, the bearish pattern of 'lower tops, lower bottoms' is intact.)

Daily technical indicators are giving mixed signals. MACD is below its falling signal line in bullish zone. RSI has moved above its 50% level after falling below it.  Slow stochastic has bounced up from the edge of its oversold zone but remains below its 50% level.

Expect the tug-of-war between bulls and bears to continue a little longer before one side can wrest the advantage.

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

Sunday, June 18, 2017

Sensex, Nifty charts (Jun 16, 2017): bears stop charging bulls

FIIs were net sellers of equity worth a huge Rs 20.5 Billion for the week. DIIs more than matched them with their net buying of equity worth Rs 20.6 Billion, as per provisional figures.

Both Sensex and Nifty closed lower for the week - Sensex by about 0.7% and Nifty by 0.8%.

The NDA government has initiated two long awaited banking sector reforms. 12 corporate entities with huge outstanding debts from PSU banks are being wound up. Several smaller PSU banks are going to get merged with larger PSU banks.

BSE Sensex index chart pattern

The following comments appeared in last week's post on the daily bar chart pattern of Sensex: "It is important that the index receives support from 'fan line 3' if the correction continues. In case 'fan line 3' is breached, a deeper correction towards 30000 may ensue."

On Fri.Jun 16, the index closed just below 'fan line 3'. Technically, it is not a convincing breach because of the 3% 'whipsaw' rule. Also, the index is receiving good support from its 20 day EMA, and can bounce up from here.

Note what happened back on Mar 8, when 'fan line 1' was initially breached. The index recovered and moved back above 'fan line 1', but subsequently breached 'fan line 1' more convincingly on Mar 21.

Any breach of a trend line - even if unconvincing at first - should be treated with caution. It is a warning about things to come. In other words, don't jump in to buy the dip just yet.

Daily technical indicators are looking bearish and hinting at some more correction. MACD is sliding down below its signal line in bullish zone. ROC, RSI and Slow stochastic have dropped inside their respective bearish zones, and showing downward momentum.

Sensex continues to trade above its three EMAs in a bull market. Stay invested. Let the correction play out.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty broke its 7 week stretch of touching higher tops. Last week's 'doji' candlestick pattern may have marked an intermediate top.

The index is trading well above its two rising weekly EMAs in a bull market. Some more correction will improve the technical 'health' of the chart.

Weekly technical indicators are inside their respective overbought zones, but showing downward momentum.

Nifty's TTM P/E is at 24 - lower than last week but much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has bounced up a bit after dropping sharply into its overbought zone.

The correction may continue a bit longer - specially with FIIs in sell mode.

Bottomline? Sensex and Nifty charts have started to correct after touching new highs in the previous week. The corrections will enable the indices to gather strength to climb to new highs. Stay invested. Wait for the correction to play out before buying.

Friday, June 16, 2017

Does large debt on the Balance Sheet make a company's stock a risky investment?

It is that time of the year when Annual Reports of companies will be hitting mailboxes. Instead of just checking the dividend amount and tossing the report in the recycle bin, it may be worthwhile to go through the report.

At the very least, the balance sheet, P&L, cash flow statement and the notes to accounts should be studied. These will reveal the financial health of a company.

One of the things that get many companies into trouble is trying to grow too fast, too soon. Many tech companies had fallen prey to the syndrome of 'grabbing eyeballs' instead of having a solid business plan that would lead to cash generation.

They had taken on a huge amount of debt to gain market share quickly by expanding globally or by acquiring competitors. Their subsequent bankruptcies were caused by the inability to service their debts.

Even the well-established houses of Tatas and Birlas made gross errors of judgement by financing their acquisitions of overseas competitor companies through large debt.

But what if taking on large debt to buy out a competitor actually results in increasing market share and enabling a move up the value chain? Tata Motors did that successfully by acquiring Jaguar-Land Rover from Ford.

So, how does a small investor decide if large debt on the Balance Sheet of a company makes investment in its stock risky or not? 

One way is to look at the Interest Coverage ratio. Another is to look at the Return on Capital Employed (RoCE) ratio. The higher the ratios the better. Both these ratios should be compared with other companies in the same sector.

Read more

Thursday, June 15, 2017

10 Books Every Investor Should Read

When it comes to learning about investment, the internet is one of the fastest, most up-to-date ways to make your way through the jungle of information out there. 

But if you're looking for a historical perspective on investing or a more detailed analysis of a certain topic, there are several classic books on investing that make for great reading. 

Here we give you a brief overview of our favorite investing books of all time and set you on the path to investing enlightenment. (To find more recommended books, see Investing Books It Pays To Read.)

Read more here.

Wednesday, June 14, 2017

Nifty chart: a midweek technical update (Jun 14 ‘17)

FIIs have turned net sellers of equity again. Their total net selling during the first three days of the trading week was worth Rs 6.4 Billion. DIIs were net buyers of equity worth Rs 3.1 Billion, as per provisional figures. Nifty has corrected about 1.3% from its Jun 6 top of 9709.

India's CPI inflation dipped to a record low of 2.18% in May '17 against 2.99% in Apr '17, mainly due to lower food prices. RBI will now be under pressure to reduce the repo and reverse repo rates.

The IIP number for Apr '17 slipped to 3.1% against the revised figure of 3.75% for Mar '17. The manufacturing sector, which constitutes more than 77% of the index, grew only 2.6% in Apr '17 against 5.4% in Apr '16.


The following comments were made in the previous mid-week update on the daily bar chart pattern of Nifty

"The rally from the Dec 26 '16 low features several corrective moves towards the rising 20 day EMA that has kept the chart technically 'healthy'. Another correction towards the 20 day EMA will provide Nifty the technical strength to move convincingly above 9700."

Nifty's corrective move from the Jun 6 top of 9709 is now testing support from the 20 day EMA. Will the support hold - as it has done for the past 6 months?

There is no reason why not. Despite FII selling this week, the index has managed to cling on to the 9600 level on a closing basis.

However, if FIIs continue with their selling, a fall towards 9500 can't be ruled out. The index is trading above its three EMAs in a bull market. The dip is providing an adding opportunity.

Daily technical indicators are in bullish zones, but looking a bit bearish. MACD has formed a 'rounding top' reversal pattern and crossed below its signal line in bullish zone. RSI is moving sideways in bullish zone after falling from its overbought zone. Slow stochastic has fallen sharply from its overbought zone.

Nifty's TTM P/E has slipped a little to 24.29, still much above its long-term average. The breadth indicator NSE TRIN (not shown) has nose-dived into its overbought zone - limiting index upside.

Stay invested, and continue with planned SIPs. Avoid any impulsive buying near a market top.

Tuesday, June 13, 2017

WTI and Brent Crude Oil charts: bears clearly on top

WTI Crude Oil chart


The following remarks appeared in the previous post on the daily bar chart pattern of WTI Crude Oil: "Since the beginning of the year, oil's price has formed a bearish pattern of 'lower tops, lower bottoms'. Till that pattern gets reversed, expect bears to sell on every rise."

Bears took charge and pushed oil's price down to 45. Bulls may feel relieved that the May low of 43.75 was not breached. Bears will point out that the 50 day EMA has crossed below the 200 day EMA - the 'death cross' that technically confirms a return to a bear market.

Daily technical indicators are looking oversold and triggered a technical bounce on Monday (Jun 12). The bounce was aided by inventory declines in US and news that Saudi Arabia will limit supplies to some Asian buyers and deepen supply cuts to USA.

Strong volumes on recent down days show that bears are in no mood to relinquish control.

On longer term weekly chart (not shown), oil's price closed below its three weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones and showing downward momentum.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil shows bears are very much on top. Oil's price dropped to 47.50 before bouncing up a bit. 

The imminent 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a return to a bear market.

A fall below the May '17 low of 46.50 will keep the bearish pattern of 'lower tops, lower bottoms' intact.

Oversold technical indicators may encourage bulls to turn Monday's (Jun 12) technical bounce into a pullback rally. Note that Slow stochastic is showing negative divergence by falling lower.

Expect bears to keep selling on every rise.

On longer term weekly chart (not shown), oil's price closed below its three weekly EMAs in a long-term bear market. Strong volumes on recent down weeks may lead to a re-test of the Jan '16 low. Weekly technical indicators are looking bearish.

Monday, June 12, 2017

S&P 500 and FTSE 100 charts (Jun 09 '17): bears flex their muscles

S&P 500 index chart pattern


The following remark appeared in last week's post on the daily bar chart pattern of S&P 500: "Some consolidation, and a correction towards 2420 are possibilities."

The index consolidated within a 15 points range (2425-2440) during the first four days of the trading week. 

On Fri. Jun 9, the index touched a new high of 2446, dropped below 2420 to seek support from its rising 20 day EMA, only to bounce up and close at 2432 - losing 7 points on a weekly closing basis.

Friday's trading formed a 'spinning top' candlestick pattern which indicates indecision among bulls and bears. When formed at an index top, it has the potential to reverse the up trend.

Daily technical indicators are in bullish zones, but not showing any upward momentum. All three are showing negative divergences by failing to touch new highs with the index.

The index is trading above its three rising EMAs in a bull market. Bulls are using dips to buy. Some more consolidation and/or correction can't be ruled out. Stay invested, but maintain a trailing stop-loss.

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

FTSE 100 index chart pattern


The following remarks appeared in last week's post on the daily bar chart pattern of FTSE 100: "The index continued to trade within a bearish 'rising wedge' pattern. A downward breakout from the pattern - towards the rising 20 day EMA - is likely."

On Mon. Jun 5, the index dropped and closed below the 'rising wedge' pattern. On Wed. Jun 7, a pullback to wards the lower edge of the 'wedge' provided another selling opportunity to bears. The index closed exactly at its 20 day EMA.

On Thu. Jun 8, the index dropped below its 20 day EMA and closed lower at 7450, but on Fri. Jun 9, it bounced up to close at 7527 - losing about 20 points for the week. 

(At the time of writing this post, the index tested support from its 20 day EMA and is trading just below 7500.)

Daily technical indicators are looking bearish. MACD has crossed below its signal line (which has formed a 'rounding top' reversal pattern). RSI bounced up from its 50% level but is moving down again. Slow stochastic is falling below its 50% level.

Expect some more consolidation and/or correction. 

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

Sunday, June 11, 2017

Sensex, Nifty charts (Jun 09, 2017): pause after touching new highs again

FIIs and DIIs were net buyers of equity during the week, as per provisional figures. FII net buying was worth Rs 6 Billion, which included net selling worth Rs 1 Billion on Fri. Jun 9. DII net buying was worth Rs 8.8 Billion.

Both indices closed flat for the week. The Sensex closed marginally lower. Nifty closed slightly higher. On weekly charts, 'doji' candlestick patterns got formed, which indicate indecision among bulls and bears.

According to RBI, India's forex reserves surged by $2.4 Billion to reach a life-time high of $381.2 Billion in the week ending June 2 on account of rise in foreign currency assets. 

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex touched a new high of 31430 on Tue. Jun 6, but formed a 'reversal day' bar (higher high, lower close) that triggered a corrective move towards 'fan line 3'.

It is important that the index receives support from 'fan line 3' if the correction continues. In case 'fan line 3' is breached, a deeper correction towards 30000 may ensue.

Daily technical indicators are in the process of correcting overbought conditions. MACD has formed a 'rounding top' reversal pattern and is about to cross below its signal line. 

ROC has crossed below its 10 day MA and is falling rapidly towards its neutral zone. RSI and Slow stochastic have dropped to the edge of their respective overbought zones.

All three EMAs are rising, and Sensex is trading above them in a bull market. The correction will improve the technical 'health' of the chart, enabling it to rise higher.

A further dip can be used to add to existing positions. Stay invested.

NSE Nifty index chart pattern



For the 7th week in a row, the weekly bar chart pattern of Nifty touched a new high (9709) but closed just 15 points higher on a weekly closing basis - forming a 'doji' candlestick pattern that has the potential of reversing the up trend.

The two weekly EMAs are rising, and the index is trading well above them in a bull market. However, lower volumes during the week indicate bulls are getting a bit weary.

Weekly technical indicators are looking overbought - as they have done for almost 4 months. ROC and RSI are showing negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E is at 24.38 - slightly lower than last week but much higher than its long-term average. The breadth indicator NSE TRIN has dropped sharply from its oversold zone - hinting at some more upside.

Bottomline? Sensex and Nifty charts touched new highs again. Both indices may consolidate or correct a bit before resuming their up moves. Foreign investors are pouring money into emerging market bond funds, as per Wall Street Journal. Stay invested, but maintain a trailing stop-loss.

Saturday, June 10, 2017

Emerging Market ETFs Rising

International stocks and their corresponding ETFs in both developed and emerging markets are crushing their U.S. counterparts this year.

Year-to-date, the widely followed MSCI EAFE Index and the MSCI Emerging Markets Index are up 19.1% and 15.8%, respectively. The S&P 500 is higher by “just” 9.6%. Predictably, this is prompting investors to pour billions of dollars of capital into international ETFs.

Read more: 
http://www.investopedia.com/news/emerging-market-etfs-rising-remember-differences-vwo-eem/

Friday, June 9, 2017

Technical updates – Maharashtra Seamless and Ratnamani Metals

The global economic slowdown - particularly in China - had severely affected the metals sector. Prices plummeted due to lower demand. Stocks of steel and aluminium companies were hit hard. Stocks of metal pipes and tubes sector also suffered badly. 

But with the government beginning to open its purse strings for infrastructure projects and removing hurdles for stuck projects, things are beginning to look up for the metals sector.

The 3 year closing charts of Maharashtra Seamless and Ratnamani Metals clearly show that all the losses during their respective bear phases have been recovered. Both stocks are poised to rise to new highs.

Maharashtra Seamless


The stock had closed at a high of 358 on Sep 9 '14, but formed a 'triple top' reversal pattern during Aug-Sep '14 that triggered a bear phase that lasted almost 18 months. 

The stock closed at a low of 132 on Feb 29 '16. Note that all four technical indicators showed positive divergences by touching higher lows inside their oversold zones.

A sharp price spike on Apr 4 '16 took the stock above its three EMAs into bull territory. The subsequent rally received good support from the 200 day EMA. The previous top of 358 was touched on Mar 6 '17, but the stock formed a 'double top' reversal pattern by touching 357 on Apr 5 '17.

A bull market correction/consolidation is under way. The company declared decent Q4 (Mar '17) numbers but for FY 16-17, top line and bottom line were lower by 17% and 5% respectively. Valuation looks a bit high.

Ratnamani Metals


The stock had closed at a high of 783 on Mar 3 '15 before dropping into a bear phase that ended almost a year later when the stock closed at a low of 404 on Feb 19 '16.

Oversold technical indicators and positive divergences on RSI and Slow stochastic triggered a rally that took the stock to a new high of 811 on May 3 '17. Disappointing Q4 (Mar '17) results led to a sharp sell off.

The stock dropped below its 20 day and 50 day EMAs to a low of 705 on May 23 '17. Oversold technical indicators have initiated a partial price recovery. For FY 16-17, top line grew by 17.5% and bottom line by 6.1%.

Valuation is on the expensive side. Another dip towards the 200 day EMA may provide a better entry opportunity.

Wednesday, June 7, 2017

Nifty chart: a midweek technical update (Jun 07 ‘17)

FIIs were net buyers of equity on all three days of trading this week. Their total net buying was worth Rs 6.1 Billion. 

DIIs were net sellers of equity worth Rs 3.6 Billion on Tue, but were net buyers worth Rs 1.8 Billion on Mon. and Wed. as per provisional figures.

RBI's monetary policy announcement today came as no surprise. Status quo was maintained for repo and reverse repo rates. CRR was also unchanged, but SLR was reduced by 50 bps (0.5%) to 20%.


The daily bar chart pattern of Nifty rose to touch a new high of 9709 on Tue. Jun 6, but closed near the low point of the day at 9637 - forming a 'reversal day' bar (higher high, lower close) that often marks an intermediate top.

All three EMAs are rising, and the index is trading above them in a bull market. However, overbought technical indicators that are showing negative divergences by failing to touch new highs with the index may be triggering a correction.

The rally from the Dec 26 '16 low features several corrective moves towards the rising 20 day EMA that has kept the chart technically 'healthy'. Another correction towards the 20 day EMA will provide Nifty the technical strength to move convincingly above 9700.

Nifty's TTM P/E is at 24.48, which is well above its long-term average. The breadth indicator NSE TRIN (not shown) has reversed direction from the edge of its oversold zone and dropped sharply into neutral zone - hinting at some more index upside.

With FIIs turning buyers again, any correction is likely to be a shallow one. 

The Indian Meteorological Dept has reconfirmed a normal monsoon this year. That should give a boost to rural consumption. 

Implementation of GST from July 1 should benefit the economy over the long term, but there may be a temporary slowdown due to teething problems. SME companies may not be ready yet with their systems and processes.

Stay invested, and think long-term. 

Tuesday, June 6, 2017

Gold and Silver charts: bulls striving to regain control

Gold chart pattern


The following remarks were made in the previous post on the daily bar chart pattern of Gold"A convincing move above 1265 can lead to a test of the Apr 17 top. Bears may use the rise to sell again."

The rally in gold's price continued past 1265 and touched a high of 1286 on Mon. Jun 5 - still about 10 points short of the Apr 17 top - but formed a 'doji' candlestick pattern that indicates indecision among bulls and bears.

Daily technical indicators are in bullish zones, with MACD and RSI showing upward momentum. However, Slow stochastic is well inside its overbought zone, but its upward momentum has stalled.

A convincing move above 1296 is required for the bullish pattern of 'higher tops, higher bottoms' to continue. Bears will try to prevent such a move.

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators are in bullish zones and showing upward momentum.

Silver chart pattern


The following comment appeared in the previous post on the daily bar chart pattern of Silver: "Silver's price will require a strong move above its sliding 200 day EMA to escape from the bear stranglehold on the chart."

Silver's price faced resistance from its 200 day EMA and dropped down to seek support from its rising 20 day EMA. A strong volume surge on Fri. Jun 2 propelled silver's price above its 200 day EMA into bull territory.

Daily technical indicators are looking bullish. Slow stochastic is inside its overbought zone, but its upward momentum has stalled.

Silver's rally may continue a bit longer, but expect bears to pounce at any time.

On longer term weekly chart (not shown), silver’s price closed above its entangled 20 and 50 week EMAs, but below its sliding 200 week EMA in a long-term bear marketWeekly technical indicators are in neutral zones, with Slow stochastic showing upward momentum.