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Friday, August 18, 2017

How Stock Market returns are affected by GDP growth and Inflation

"For stock market investors, annual growth in the GDP is vital. If overall economic output is declining or merely holding steady, most companies will not be able to increase their profits, which is the primary driver of stock performance.

However, too much GDP growth is also dangerous, as it will most likely come with an increase in inflation, which erodes stock market gains by making our money (and future corporate profits) less valuable."

In a recent article in investopedia.com, Ryan Barnes explains the importance of GDP and inflation for investors. Read the article here.

Wednesday, August 16, 2017

Nifty chart: a midweek technical update (Aug 16 ‘17)

FIIs were net sellers of equity worth Rs 27.3 Billion on Mon. Aug 14 & Wed. Aug 16. The intervening Independence Day holiday on Aug 15 made no difference to their determination to book profits.

DIIs more than matched them. Their net buying in equities was worth Rs 29.6 Billion. Nifty recovered more than 200 points from last week's low, but is facing resistance from its 20 day EMA and the 9900 level.

Inflationary pressure is back after GST roll-out. CPI inflation rose to 2.36% in Jul '17 from the record low of 1.5% in Jun '17. WPI inflation doubled to 1.88% in Jul '17 against 0.9% in Jun '17.


The following comments were made in last week's update on the daily bar chart pattern of Nifty: "Some more correction is possible. Expect support from the 50 day EMA (at 9780), and stronger support from the 9700 level. A fall below 9700 seems unlikely as both FIIs and DIIs are buying."

The index received brief support from its 50 day EMA on Thu. Aug 10 and bounced up after getting much stronger support from the 'support-resistance' level of 9700 on Fri. Aug 11 - even though FIIs had turned sellers.

So, is the correction over? Technical indicators are hinting at some more upside.
Nifty's TTM P/E is at 25.28 - much higher than its long-term average, but that didn't prevent Nifty from moving higher during Jul '17. The breadth indicator NSE TRIN (not shown) is falling in its neutral zone (it usually moves in a direction opposite to the index).

MACD is below its signal line, but has stopped falling. RSI is in neutral zone, and showing upward momentum. Slow stochastic has emerged from its oversold zone. (The last time Slow stochastic emerged from its oversold zone was in end-Jun '17. A month-long rally had followed. Will the pattern repeat?)

The formation of a small 'diamond' pattern (which is like a head-and-shoulders pattern with a bent neckline) at the index top may prevent such a rally. The breakdown below the 'diamond' can lead to a deeper correction.

How will we know for sure? The index had corrected 452 points from its Aug 2 top of 10138. It has already retraced 48% of the fall (which is close to the 50% Fibonacci retracement level) by touching a high of 9904 today.

A 61.8% Fibonacci retracement will take Nifty to 9965. So, a convincing move above 9965 should send the bears packing, right? 

Here comes the catch about the 'diamond' pattern. The breakdown point from the 'diamond' is at about 10000 - which is likely to act as a resistance level to future up moves.

In other words, only a convincing index move above 10000 will negate the 'diamond' and bring bulls back to the fore. 

Remember that technical analysis is not a science. It only gives indications based on past investor behaviour following formation of different patterns. If FIIs decide to resume buying, the flood of liquidity can change all the analysis.

What should small investors do? Watch the 9700 and 10000 levels closely. A fall below 9700 will lead to a deeper correction. A move above 10000 should lead to new highs.

The index may just consolidate sideways between 9700 and 10000 for a while. May be till Diwali - by which time Q2 (Sep '17) results will give a better idea about the corporate health of India Inc.

Tuesday, August 15, 2017

Gold and Silver charts: bull rallies hit the pause button

Gold chart pattern


The following remarks appeared in the previous post on the daily bar chart pattern of Gold: "The pullback rally is probably on its last legs. Profit booking can begin at any time."

Gold's price rose to 1280.30 on Tue. Aug 1. Profit booking started from the next day. Gold's price dropped to its rising 20 day EMA on Tue. Aug 8.

The falling US Dollar index and nuclear war rhetoric from North Korea gave a boost to gold bulls. Gold's price bounced up to touch a slightly lower top of 1298.10 on Fri. Aug 11 - testing but failing to overcome the strong resistance level of 1300.

Daily technical indicators are in bullish zones, but looking overbought. RSI and Slow stochastic are showing negative divergences by failing to rise higher with gold's price.

The US Dollar index has subsequently risen to its highest level since Jul 27. Bears have taken the opportunity to sell. At the time of writing this post, gold futures are trading lower around 1281.

The resistance level of 1300 has been tested twice. A resistance (or support) level gets weakened by each subsequent test. Expect bears to defend the 1300 level strongly.

Any fall below the Jul 10 low of 1204 will be very bearish because it will turn the Apr, Jun and Aug '17 tops into a 'triple top' reversal pattern. So, the battle lines between bulls and bears are clearly drawn.

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, but their upward momentum is reducing.

Silver chart pattern


The daily bar chart pattern of Silver appears to have formed a bullish 'inverse head and shoulders' pattern with a 'neckline' at 16.90.

Note that silver's price broke out above the 'neckline' and its 200 day EMA with good volume support - which technically validates the breakout .

However, silver's price has failed to rise higher after touching a high of 17.24 on Thu. Aug 10. Daily technical indicators are looking bullish, but Slow stochastic is showing negative divergence by touching a lower top while silver's price rose higher.

Bears are using the opportunity to sell. At the time of writing this post, silver futures are trading lower at 16.85 - below its 200 day EMA, and testing support from the 'neckline' at 16.90.

A deeper fall below its 20 day and 50 day EMAs will negate the 'inverse head and shoulders' pattern - giving back control of the chart to bears. Bulls may defend the 16.90 level to try and prevent a deeper fall.

On longer term weekly chart (not shown), silver’s price closed above its 20 week and 50 week EMAs, but below its 200 week EMA in a long-term bear marketWeekly MACD has crossed above its signal line in bearish zone. RSI is in neutral zone. Slow stochastic is rising towards its overbought zone and showing upward momentum.

Monday, August 14, 2017

S&P 500 and FTSE 100 charts (Aug 11 '17): bears strike as bulls get spooked by North Korea's war rhetoric

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 rose to a new high of 2491 on Tue. Aug 8 but closed lower than the previous day's close - forming a 'reversal day' bar that often marks an intermediate top.

War rhetoric from North Korea spooked bulls. Bears used the opportunity to attack. The index dropped sharply below its 20 day and 50 day EMAs, and easily breached the 'support zone' between 2450 and 2460.

The 'support zone' may turn into a 'resistance zone' for some time. (Regular readers were given adequate warning in last week's post - particularly the 'sell' signal given by MACD.)

Daily technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in bullish zone. RSI has fallen into its bearish zone. Slow stochastic has entered its oversold zone.

On Fri. Aug 11, the index formed a 'doji' candlestick, which indicates indecision among bulls and bears that can potentially lead to a technical bounce towards the 'support/resistance zone'.

Some more correction or consolidation is possible. RSI and Slow stochastic are showing negative divergences by falling lower than their Jul '17 lows. 

Note that the index is trading well above its rising 200 day EMA in a bull market. Bulls may use any further dips to buy.

On longer term weekly chart (not shown), the index formed a large 'reversal week' bar (higher high, lower close), but closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are correcting overbought conditions and showing downward momentum, but remain in bullish zones.

FTSE 100 index chart pattern



The following comments from last week's post on the daily bar chart pattern of FTSE 100 are worth noting: "The breakout above the down trend line was not accompanied by any significant increase in volumes (not shown). That can lead to a pullback towards the down trend line before the index can rise to a new high."

The index rose to touch a lower top of 7552 on Tue. Aug 8. Bears struck the next day as war rhetoric from North Korea created concern in global stock markets. The index pulled back towards the down trend line on Wed. Aug 9 and then fell sharply down to the 'support/resistance level' of 7300.

Daily technical indicators are looking bearish and showing downward momentum. MACD has crossed below its signal line in bullish zone. RSI and Slow stochastic have fallen below their respective 50% levels.

Some more correction or consolidation around current levels is possible. Note that the index is trading above its rising 200 day EMA in a bull market. Also, all three technical indicators are showing positive divergences by touching higher bottoms than their Jul '17 lows. Expect some short covering by bears, which can lead to a technical bounce.

On longer term weekly chart (not shown), the index formed a large 'reversal week' bar (higher high, lower close), and closed below its 20 week EMA but is trading 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, August 13, 2017

Sensex, Nifty charts (Aug 11, 2017): bears use North Korea's war threats as an excuse to sell

FIIs were net buyers of equity on Tue. Aug 8 but net sellers on the other four days of the week. Their total net selling was worth Rs 26.2 Billion. DIIs were net buyers of equity on all five days - their total net buying was worth Rs 45 Billion.

However, bears ruled the roost - in global and local stock markets. Sensex lost more than 1100 points (3.4%) and Nifty lost more than 350 points (3.5%) on a weekly closing basis.

Three reasons can be cited for the sharp sell-off: (1) geopolitical tensions between US/North Korea and China/India; (2) SEBI restrictions on 331 'shell' companies; (3) disappointing Q1 (Jun '17) results.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex had already started correcting after touching a lifetime high of 32686 on Aug 2 (refer last week's post). 

Technically overbought conditions, negative divergences on three of the four technical indicators, and index valuation well above its long-term average had combined to trigger the correction.

FIIs got spooked by the heightened war rhetoric from USA and North Korea and decided to book profits in global markets.

The index has fallen below its 20 day and 50 day EMAs, but is trading above its rising 200 day EMA in a bull market. The overdue correction will improve the technical 'health' of the chart. 

Daily technical indicators are showing strong downward momentum and looking oversold. MACD is falling below its signal line and about to drop into bearish zone. ROC, RSI and Slow stochastic have entered their respective oversold zones.

The selling appears a bit overdone. A technical bounce can occur at any time. However, some more correction or consolidation can't be ruled out. 

If the index falls more, expect support from the zone between 29220 and 30040 (which happen to be the 50% and 38.2% Fibonacci retracement levels of the entire rally of 6932 points from the Dec 26 '16 low to the Aug 2 '17 top). Note that the 200 day EMA is inside the support zone between 29220-30040.

It is possible that a technical bounce from current level will face resistance from the falling 20 day or 50 day EMA, and the index will then correct towards the support zone.

So, don't be in a tearing hurry to buy. Let the correction play out.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty corrected sharply during the week, but found support at the 9700 level (which had acted as a resistance level during Jun '17).

The index is trading above its two weekly EMAs in a bull market. So, dips can be used to add/buy.

Weekly technical indicators have started to correct overbought conditions, and are showing downward momentum in bullish zones. Some more correction or consolidation is likely. If the 9700 level gets breached, the rising 20 week EMA may provide support. 

Expect stronger support from the zone between 9015 and 9285 (which happen to be the 50% and 38.2% Fibonacci retracement levels of the entire rally of 2244 points from the low touched in the week ending Dec 30 '16 to the high touched in the week ending on Aug 4 '17). Note that the 50 week EMA is inside the support zone between 9015-9285.

Nifty's TTM P/E has come down to 24.8 - still much above its long-term average. The breadth indicator NSE TRIN (not shown) has moved up sharply inside its neutral zone, and is likely to limit index downside.

Bottomline? Along with global stock indices, Sensex and Nifty charts faced sharp corrections as FIIs got spooked by the war rhetoric of USA and North Korea. DIIs are continuing to buy, so the correction may not be too deep. This is a bull market correction, which means it is providing an opportunity to buy. Be selective.

Friday, August 11, 2017

Technical updates – Tata Chemicals and Tata Steel

The Tata Group hasn't been the quite the same after Ratan Tata decided to hang-up his boots. Cyrus Mistry ruffled feathers of the Tata Sons board, and his short tenure ended in litigation and acrimony. N. Chandrasekaran's tenure has started off more cautiously.

Low inflation and oil prices, and a stronger Rupee has helped keep India's current account deficit in control. Demonetisation and GST implementation led to a slowdown in growth. 

A slew of reforms introduced by the NDA government is likely to bring economic growth back on track from FY 2018-19. The stock market has been rallying in anticipation. The stock prices of Tata Chemicals and Tata Steel have benefitted from the rally.

Tata Chemicals


The stock price of Tata Chemicals touched a 2 yr low in Feb '16 and has been in an up trend since then. The 'golden cross' (of the 50 day EMA above the 200 day EMA) in May '16 technically confirmed a return to a bull market.

Note the consolidation within 'Rectangle 1' during Aug-Nov '16. A 'rectangle' is usually a continuation pattern - so the eventual breakout should have been upwards.

Negative divergences (marked by blue arrows) visible on all four technical indicators led to a breakdown below the 'rectangle'. However, the up trend resumed thereafter.

A breakdown below 'Rectangle 2' has now occurred - triggered by weak Q1 (Jun '17) results. Note that the stock had already corrected below its 20 day and 50 day EMAs following negative divergences visible on three of the four technical indicators. 

All four indicators are looking oversold. The up move is likely to resume after some consolidation around current levels.

Tata Steel


Tata Steel's stock was trading in a bear market below its falling 200 day EMA till
Feb '16. The 'golden cross' (of the 50 day EMA above the 200 day EMA) in Mar '16 technically confirmed a return to a bull market.

The stock price has tested support from, but not fallen below, its rising 200 day EMA since then. The company is gradually extricating itself from the leveraged mess created by its Corus acquisition back in 2008.

Daily technical indicators are looking overbought. The stock can correct some more. The dip is providing an adding opportunity. The stock may have 20-25% more upside left in the current rally.

Wednesday, August 9, 2017

Nifty chart: a midweek technical update (Aug 09 ‘17)

FIIs were net sellers of equity on Mon. & Wed., but their net buying on Tue. exceeded their net selling by Rs 5 Billion. DIIs were net buyers of equity on all three days - worth Rs 16.6 Billion.

Despite all the buying, Nifty corrected 245 points (2.4%) from its Aug 2 top of 10138 before managing to close just above the 9900 level.

After a strong bull rally in Jul '17, the index became technically overbought and was poised for a correction. SEBI's strictures on 331 'shell' companies provided just the trigger bears wanted.


The following remark was made in last week's update on the daily bar chart pattern of Nifty: "Aug '17 may well turn out to be a month of correction or consolidation." 

The index has dropped and closed below its 20 day EMA after 5 weeks, but is trading well above its rising 200 day EMA in a bull market.

Daily technical indicators are showing downward momentum after correcting overbought conditions. MACD is falling below its signal line in bullish zone. RSI and Slow stochastic have slipped into their respective bearish zones.

Nifty's TTM P/E has reduced a bit to 25.31, but remains much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is about to emerge from its overbought zone.

Some more correction is possible. Expect support from the 50 day EMA (at 9780), and stronger support from the 9700 level. A fall below 9700 seems unlikely as both FIIs and DIIs are buying.

Remain cautious. No need to jump into the market yet. Keep a watch on good mid-cap and small-cap stocks, which tend to correct more than the index during corrections. Some value-buys may become available. 

Tuesday, August 8, 2017

WTI and Brent Crude Oil charts: bears forced to yield ground

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil soared past its 50 day and 200 day EMAs with good volume support, and closed above 50 (on Jul 31) after 10 weeks.

Bears decided that they had yielded enough ground. On Aug 1, oil's price touched a slightly higher top, but pulled back to its 200 day EMA before bouncing up to close just above 49.

The 'reversal day' bar (higher high, lower close) with a spurt in volumes led to a sideways consolidation between the 50 level and the 200 day EMA.

Oil's price is back in bull territory above its three EMAs, but the bearish pattern of 'lower tops, lower bottoms' from the small 'double top' at 55 (formed back in Feb '17) remains intact. A convincing move above the May 25 top of 52 is required to release the strong bear grip.

Daily technical indicators are in bullish zones after correcting overbought conditions, and showing positive divergences by touching higher tops while oil's price touched a lower top (than the one in May '17).

Bulls may make an attempt to cross above 52. Strong volumes on two down days last week indicate bears will try to prevent it. A recovery in output at Libya's largest oil field may encourage bears to sell.

On longer term weekly chart (not shown), oil's price closed above its 20 week and 50 week EMAs but below its falling 200 week EMA in a long-term bear market. Weekly MACD and RSI are in neutral zones. Slow stochastic is showing upward momentum, but looking overbought.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil continued to move in lock-step with WTI Crude oil's chart. After bouncing up above its 50 day and 200 day EMAs, oil's price closed just a little below 53 on Jul 31.

The next day, a large 'reversal day' bar (slightly higher high, lower close) was formed - triggering a sideways consolidation between 51 and 53.

The 20 day EMA is about to cross above the 200 day EMA. The 50 day EMA has formed a bullish 'rounding bottom' pattern. The 'golden cross' of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market.

Daily MACD and Slow stochastic are inside their overbought zones and not showing much upward momentum. RSI is moving sideways below its overbought zone.

Bulls may make an attempt to push oil's price above the May 25 top of 54.67 to breakout of the bearish pattern of 'lower tops, lower bottoms'. Strong volumes on recent down days mean bears will resist any such attempt. 

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

Monday, August 7, 2017

S&P 500 and FTSE 100 charts (Aug 04 '17): consolidating before the next leg of the rally

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 was in pause mode after touching a new high on Jul 27. The index consolidated sideways above the 'support zone' (refer last week's post) and its three rising EMAs during the week.

The index gained barely 5 points on a weekly closing basis, and formed a 'doji' candlestick pattern on Fri. Aug 4 that can sometimes trigger a corrective move.

Daily technical indicators have corrected overbought conditions, but remain in bullish zones. MACD has crossed below its signal line, which is a 'sell' signal. (Note the three previous occasions in Mar, May & Jun '17). RSI is moving sideways with slight downward bias. Slow stochastic is showing downward momentum.

Bulls are buying every dip - so expect the index to resume its up move soon. However, strong volumes on down days indicate that bears continue to remain active. Some more consolidation or correction will improve the technical 'health' of the chart. 

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 inside their respective overbought zones.

FTSE 100 index chart pattern


The (purple) down trend line that had been dominating the daily bar chart pattern of FTSE 100 for the past two months was finally breached last week.

Bears tried their best to contain bulls as the index consolidated sideways above the 'support-resistance' level of 7385 during the first three days of trading. 

On Thu. Aug 3, the index bounced up and just managed to close above the down trend line. The index continued to rally on Fri. Aug 4, and closed above the 7500 level after 7 weeks - gaining nearly 2% on a weekly closing basis.

The breakout above the down trend line was not accompanied by any significant increase in volumes (not shown). That can lead to a pullback towards the down trend line before the index can rise to a new high.

Daily technical indicators are showing upward momentum in bullish zones. The rally can extend a bit further. All three EMAs are rising, and the index is trading above them in a bull market. That means dips can be used to buy.

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 and showing some upward momentum.

Sunday, August 6, 2017

Sensex, Nifty charts (Aug 04, 2017): bulls keep charging ahead

FIIs were net buyers of equity on Wed. & Thu., but net sellers on the other three days of the week. DIIs were net sellers of equity on Wed. & Thu., but net buyers on the other three days.

For the week, FIIs were net sellers of equity worth Rs 25 Billion. DIIs were net buyers of equity worth Rs 35.5 Billion. Sensex eked out a 15 points gain, while Nifty gained 52 points (0.5%) on a weekly closing basis.

Manufacturing and services sectors were hit by the switch to GST regime in Jul '17. Nikkei India Manufacturing PMI contracted to 47.9 against 50.9 in Jun '17. Services PMI contracted to 45.9 against 53.1 in Jun '17. (The 50 point mark separates expansion from contraction.) The composite PMI (manufacturing + services) dropped to 46 from 52.7 in Jun '17.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex touched a new high of 32686 on Wed. Aug 2, but formed a 'reversal day' bar (higher high, lower close) that triggered a shallow correction of 580 points (1.8%).

The index found support from its rising 20 day EMA on Fri. Aug 4 and formed another 'reversal day' bar (lower low, higher close) that enabled Sensex to close higher for the week.

Daily technical indicators have dropped from their respective overbought zones. Negative divergences (marked by blue arrows) on ROC, RSI and Slow stochastic - which touched lower tops while the index touched a new high - led to the correction. 

The index is trading above its three rising EMAs in a bull market. Some more correction or consolidation is possible, but large liquidity inflows into the stock market is keeping the index buoyant.

Q1 (Jun '17) results are almost out of the way, with no significant increase in earnings. So, index valuation remains much higher than its long-term average. The stock market is looking ahead to better Q2 and Q3 results on the back of GST implementation.

Investing near a market top is always a risky proposition. So is sitting out for a correction and watching the index rise even higher. Small investors often face this problem. What is the solution? 

I have mentioned this many times before but don't mind repeating it: Have financial and asset allocation plans in place. The plans will guide you what to do under different market conditions. Otherwise, investing turns into a game of chance. 

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty touched a new high (10138) and closed higher for the 5th week in a row. All dips are being bought as bulls are beginning to run amok.

The index is trading well above its two rising weekly EMAs in a bull market. All four weekly technical indicators are inside their respective overbought zones - as they have been for the past 6 months.

However, ROC, RSI and Slow stochastic are showing negative divergences by showing slight downward momentum as the index touched a new high. A bit of correction or consolidation may be in the offing.

Nifty's TTM P/E is at 25.61 - much above its long-term average. The breadth indicator NSE TRIN (not shown) has moved up inside its overbought zone, and is likely to temporarily limit index upside.

Bottomline? Sensex and Nifty charts touched new highs again. With FIIs booking profits and DIIs continuing to buy, any correction is unlikely to be deep. Stay invested. Book partial profits - particularly in mid-cap and small-cap stocks.

Friday, August 4, 2017

You Haven't Missed the Boat on Emerging Markets

"The MSCI Emerging Markets Index is up 25 percent year to date, vs. a 10 percent gain for the S&P 500. But there's still reason to be skeptical. The last 10 years have been a lost decade for emerging markets, so a lot of investors are asking themselves, Sell the rally, or expect more gains? The charts tell us there is more upside to come."

Matt Harris of HighTower Securities has proved his point with a number of charts in a recent article at investopedia.com.

Read the article here.

Wednesday, August 2, 2017

Nifty chart: a midweek technical update (Aug 02 ‘17)

For the month of Jul '17, FIIs were net buyers of equity (worth Rs 14.6 Billion) after three straight months of net selling. DIIs were also net buyers of equity (worth Rs 47.8 Billion) for the 4th month in a row. Nifty had its first ever monthly close above the 10000 level.

Passenger vehicle sales picked up in Jul '17 - thanks to price cuts after GST implementation. Maruti (22.4%), Honda (21.7%), M&M (21%), Ford (18.9%), Tata Motors (10.2%), Toyota (43%) showed double-digit sales growth over Jun '17. Two-wheeler and Commercial vehicles also had good growth in sales. 

In a widely expected move, RBI cut both the repo and reverse repo rates by 25 bps (0.25%) each during today's monetary policy meeting. Nifty corrected 33 points, as the interest rate cut had already been 'discounted' by the market.


The daily bar chart pattern of Nifty touched a new high of 10138 prior to RBI's policy announcement, but slipped 56 points to close at 10082 - forming a 'reversal day' bar (higher high, lower close) that may temporarily halt the bull rally.

The index is trading well above its three rising EMAs in a bull market. All three daily technical indicators are in their respective overbought zones. Slow stochastic is showing negative divergence by touching consecutive lower tops.

The index is almost 950 points above its 200 day EMA - a sign of extremely overbought condition. Nifty's TTM P/E is at 25.63 - considerably higher than its long-term average. The breadth indicator NSE TRIN (not shown) is trying to emerge from deep inside its overbought zone.

In the near term, large liquidity flows can keep an index overbought for long periods. Eventually, there will be a correction if earnings fail to catch up with index levels. Aug '17 may well turn out to be a month of correction or consolidation. 

Stay invested. Maintain SIPs. But no need to go on a buying spree just because the index is touching new highs. Partial profit booking may be a better idea.

Tuesday, August 1, 2017

Gold and Silver charts: pullback rallies show strength but bears getting ready to attack

Gold chart pattern


The following comments were made in the previous post on the daily bar chart pattern of Gold: "The pullback rally may continue a bit further, but expect resistance from the converging 50 day and 200 day EMAs." 

A sliding US Dollar index added considerable strength to the pullback rally. The 50 day and 200 day EMAs provided only brief resistance on Jul 18 & 19 before gold's price climbed into bull territory.

After a short pullback to the 200 day EMA on Jul 26, the rally resumed and rose past 1270 before correcting a bit. The 'death cross' of the 50 day EMA below the 200 day EMA was averted.

Gold's price is trading above its three EMAs in a bull market. Daily technical indicators are in bullish zones and showing upward momentum. Can the rally proceed further?

Note that RSI's up move has stalled near the edge of its overbought zone - just like it did on Jun 6 when gold touched its previous top of 1299. Slow stochastic is inside its overbought zone, and may be forming a small 'double top' reversal pattern.

The pullback rally is probably on its last legs. Profit booking can begin at any time.

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 daily bar chart pattern of Silver tried to follow in the footsteps of the yellow metal by rallying past its 20 day and 50 day EMAs.

However, there is a strong resistance zone between 16.75 and 17 that can thwart the rally. Silver's price is trading below its sliding 200 day EMA in a bear market.

Daily MACD and RSI are in bullish zones, and showing upward momentum. Slow stochastic is looking overbought, and showing negative divergence by failing to rise higher with silver's price.

Any further rally is likely to invite profit booking.

On longer term weekly chart (not shown), silver’s price faced resistance from its 20 week EMA, and closed below its three weekly EMAs in a long-term bear marketWeekly MACD and RSI are still in bearish zones. Slow stochastic has entered bullish zone and showing upward momentum.