Monday, May 22, 2017

S&P 500 and FTSE 100 charts (May 19 '17): bears down but yet to be counted out

S&P 500 index chart pattern


Negative divergences visible on technical indicators had led to the following comment in last week's post on the daily bar chart pattern of S&P 500: "Some more correction or consolidation is likely before a convincing break out above 2400 can occur." 

On Mon. May 15, the index closed at 2402 - but it wasn't a convincing close above 2400 because of the '3% whipsaw rule.' The next day, the index touched a new intra-day high of 2405 only to close slightly lower than Monday's closing level - forming a 'reversal day' bar.

That was just the trigger bears needed to jump into action. The index opened trading with a downward 'gap' below its 20 day EMA on Wed. May 17, and fell sharply below its 50 day EMA with huge volumes to close at its lowest level in 4 weeks.

On Thu. May 18, the index dropped a little lower (to 2353) but closed higher - forming another 'reversal day' bar with good volume support - completely filling the upward 'gap' formed on Apr 24. That encouraged bulls to fight back. 

The index closed the week above its 50 day EMA but just below its sliding 20 day EMA - partly filling Wednesday's downward 'gap' and losing 9 points for the week.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. RSI dropped below its 50% level but has moved up to neutral zone. Slow stochastic is falling below its 50% level towards its oversold zone.

Bears have successfully defended the 2400 level for almost 3 months. However, the next bull charge may overwhelm them. Expect some more consolidation till then.

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

FTSE 100 index chart pattern


In last week's post on the daily bar chart pattern of FTSE 100, the following likely index movements were mentioned:

- a test of the Mar 17 top of 7447
- a pullback towards 7400
- a convincing move above 7450 that could put bulls back on the driver's seat

On Mon. May 15, the index easily crossed above 7447 and closed at 7454. The next day, the index soared to a new high of 7534 with strong volume support, and closed at 7522. 

On Wed. May 17, the index touched a slightly lower top of 7533 - forming a small 'double top' reversal pattern that brought bears back into action. On Thu. May 18, the index dropped below 7400 to touch an intra-day low of 7389 with strong volumes.

Bulls fought back on Fri. May 19. The index closed the week at 7471 with a 35 points (about 0.5%) gain for the week. (At the time of writing this post, the index has moved up to 7500.)

Daily technical indicators are in bullish zones, but not showing much upward momentum. Some consolidation can be expected before the index touches another new high.

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but showing negative divergences by failing to touch new highs with the index.

Sunday, May 21, 2017

Sensex, Nifty charts (May 19, 2017): rally to touch new highs, but bulls looking a bit tired

During the week, FIIs were net sellers of equity worth Rs 9.9 Billion while DIIs were net buyers of equity worth Rs 13.9 billion. Interestingly, during the first two days of the week, FIIs were net buyers and DIIs were net sellers.

Sensex closed about 0.9% higher, and Nifty closed about 0.3% higher on a weekly closing basis. Both indices touched new highs during the week.

Different slabs of GST rates have been finalised at a recent meeting of state Finance Ministers in Srinagar, and implementation from July 1 seems on the cards. However, the feisty West Bengal CM is trying to put a spanner in the works by claiming that small businesses are not yet ready to implement GST.

BSE Sensex index chart pattern


The following remark was made in last week's post on the daily bar chart pattern of Sensex: "... the bullish structure is looking a bit shaky as any downward breach of 'fan line 3' can bring bears to the fore."

The index rose to touch a new high of 30712 on Fri. May 19, only to drop lower and seek support from 'fan line 3' before bouncing up.

Bulls may heave a sigh of relief that 'fan line 3' was not breached. But if FIIs remain in selling mode, that support may get breached soon.

All three EMAs are rising, and the index is trading above them in a bull market. However, Q4 (Mar '17) results show that corporate earnings are lagging behind index valuation.

Technical indicators are in bullish zones, but giving conflicting signals. MACD is moving sideways. ROC and RSI have reversed their downward slide. Slow stochastic is about to drop from its overbought zone.

All four are showing negative divergences by failing to touch new highs with the index. Expect some consolidation or correction.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty touched a new high of 9533 but could not sustain above the 9500 level.

The index closed just below its opening level of the week (9434) to form a 'shooting star' candlestick pattern that often marks the end of an intermediate up move. (Note a similar pattern that formed in the week ending on Sep 9 '16.)

The index is trading well above its two weekly EMAs in a bull market. Weekly technical indicators are inside their respective overbought zones. Three of them - ROC, RSI, Slow stochastic - are showing negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E is at 24.91 - much above its long-term average. The breadth indicator NSE TRIN (not shown) is falling deeper inside its overbought zone.

A correction towards the Mar '15 top of 9119 will improve the technical 'health' of Nifty's chart and provide a good adding opportunity. But hoping for a correction never caused one. It'll happen when it is least expected.

Bottomline? Sensex and Nifty charts continue to touch new highs. Both indices are looking overbought. Corporate earnings are far from catching up with market expectations. If FIIs and DIIs keep trading at cross purposes, upside for both indices will remain capped. Stay invested but maintain trailing stop-losses.  

Friday, May 19, 2017

Stock Chart Pattern – Diamines and Chemicals (an update)

Shortly after posting the previous update, the stock chart pattern of Diamines and Chemicals had entered a long bear phase that finally ended at a closing low of 18 in Mar '14.

The subsequent rally took the stock price to a high of 50 in Sep '14 - a quick return of 177% in 6 months. Another correction ensued. The stock formed a 'double bottom' reversal pattern during Mar-Jun '15.

That was a signal that the bear phase had finally come to an end. But bulls didn't have it easy.


The stock price rose to a lower top of 46.40 on Aug 5 '15 and began a long sideways consolidation within a 'rectangle' pattern. A 'rectangle' - though unreliable - is usually a continuation pattern.

Since the stock price had entered the 'rectangle' from below, the expected breakout from it was upwards. The breakout finally occurred with good volume support on Oct 25 '16, after a couple of failed attempts.

A pullback towards the top of the 'rectangle' found good support from the rising 50 day EMA on Nov 18. The next leg of the rally ensued - giving an opportunity to enter for those who may have missed buying during the initial breakout above the 'rectangle'.

The stock faced resistance from the 72 level in Jan '17 and corrected nearly 20 points to a low of 52.50 on Feb 16 '17. The subsequent rally took the stock past 72 to a new closing high of 84.25 on May 16 '17 before correcting a bit.

Daily technical indicators are in the process of correcting overbought conditions. The company has declared very good Q4 (Mar '17) results after a couple of years of poor performance. Dips can be used to add. 

Wednesday, May 17, 2017

Nifty chart: a midweek technical update (May 17 ‘17)

Both FIIs and DIIs were net buyers of equity - worth Rs 3.6 Billion and Rs 1.5 Billion respectively - during the first three days of trading this week. Nifty rose to close above the 9500 mark for the first time ever.

Interestingly, FIIs turned net sellers today after two days of net buying while DIIs were net buyers today after two days of net selling. Reminds me of an African proverb: When two elephants fight the grass gets trampled. 

India's exports grew nearly 20% in Apr '17, but imports grew 49% due to a sharp jump in gold and oil imports. As a result, the trade deficit grew to a 29-months high of US $13.2 Billion against $4.8 Billion in Apr '16.


Strong FII buying propelled the daily bar chart pattern of Nifty to a close above the 9500 level for the first time ever on Tue. May 16. Though the index touched new intra-day and closing highs today, it was on the back of DII buying as FIIs were in profit-booking mode.

All three daily technical indicators are looking overbought. The index is trading above its three rising EMAs in a bull market, but the distance between the index and its 200 day EMA is in excess of 800 points - which is another sign of overbought conditions.

Nifty's TTM P/E has crossed above 24 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has dropped back inside its overbought zone after attempting to emerge from it.

An index can remain overbought for long periods. That doesn't mean it will be a one-way rise to new highs every day. 

If FIIs continue to book profits, a sharp correction can follow. Such a correction, if and when it occurs, will improve the technical 'health' of the chart and provide an entry opportunity.

Till then, stay invested with a trailing stop-loss and enjoy the bull ride.

Tuesday, May 16, 2017

WTI and Brent Crude Oil charts: sharp bear market rallies providing selling opportunities

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil plunged below 44 with a volume surge on May 5, but bounced up to close higher - forming a 'reversal day' bar (lower low, higher close) that marked the end of the corrective move from its Apr 12 top.

The subsequent rally took oil's price past its 20 day and 200 day EMAs towards 50, but faced strong resistance from the falling 50 day EMA and closed below the 200 day EMA in bear territory.

Bulls may heave a sigh of relief that the 'death cross' of the 50 day EMA below the 200 day EMA has been prevented. Bears will point out that the 3 months long bearish pattern of 'lower tops, lower bottoms' is still in force.

Daily technical indicators are looking bullish and showing upward momentum after correcting oversold conditions. However, MACD is still in bearish zone and RSI is in neutral zone.

The rally may continue till 51-51.50. Expect bears to start selling at any time.

Energy ministers of Russia and Saudi Arabia suggested that current production cuts should get extended till Mar '18. That triggered Monday's price spurt. Other OPEC and non-OPEC producers may not agree to any extended production cuts.

On longer term weekly chart (not shown), oil's price faced resistance from its 50 week EMA and closed below its three weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones. Slow stochastic is showing positive divergence by touching a higher bottom.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil dropped sharply towards 46.50 on May 5, but pulled back with strong volume support to close at 49.50. 

In the process, oil's price formed a 'reversal day' bar (lower low, higher close) that marked the end of the intermediate down trend from its Apr 12 top.

The subsequent rally faced resistance from the falling 50 day EMA, but oil's price managed to close just above its 200 day EMA in bull territory. 

Daily technical indicators have corrected oversold conditions and are showing upward momentum. Only Slow stochastic is in bullish zone. MACD is in bearish zone and RSI is in neutral zone.

The rally may have further upside - to 53-53.50. But bears are likely to 'sell the rise' at any time.

On longer term weekly chart (not shown), oil's price faced resistance from its 20 week EMA and closed at its 50 week EMA, but is trading well below its 200 week EMAs in a long-term bear market. Weekly technical indicators are in bearish zones. Slow stochastic is showing positive divergence by touching a higher bottom.

Monday, May 15, 2017

S&P 500 and FTSE 100 charts (May 12 '17): bears fighting a losing battle?

S&P 500 index chart pattern


The following remark was made in last week's post on the daily bar chart pattern of S&P 500: "The 2400 level has been tested twice in 8 trading sessions, and may get breached soon."

On Tue. May 9, the index touched a new intra-day high of 2404, but closed 3 points below the previous day's closing level of 2399 - forming a 'reversal day' bar (higher high, lower close) that triggered a correction.

The index received good support from its rising 20 day EMA, and bounced up to close above 2390 - losing 8 points on a weekly closing basis.

Daily technical indicators are in bullish zones, but showing downward momentum. All three are showing negative divergences by failing to touch new highs with the index.

Some more correction or consolidation is likely before a convincing break out above 2400 can occur. 

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 showing negative divergences and looking overbought.

FTSE 100 index chart pattern



The daily bar chart pattern of FTSE 100 faced resistance from the (purple) down trend line on Tue. May 9 but broke out above the trend line on the following day. (The possibility was mentioned in last week's post.)

The index rallied past the 7400 level on Fri. May 12 and closed at 7435 - with a 1.9% gain for the week. The 7 weeks long down trend has ended. A test of the Mar 17 top of 7447 is likely.

Daily technical indicators are in bullish zones and showing upward momentum. Slow stochastic is well inside its overbought zone, and can trigger a pullback towards 7400.

The index is trading above its three EMAs in a bull market. A convincing move above 7450 will put bulls back in the driver's seat.

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

Sunday, May 14, 2017

Sensex, Nifty charts (May 12, 2017): touch new highs on the back of FII buying

In a surprising change of strategy near a market top, FIIs turned net buyers of equity - worth Rs 28.3 Billion. DIIs turned net sellers of equity worth Rs 13.0 Billion.

Sensex and Nifty touched new highs during the week, and closed at their highest ever weekly closing levels.

Calculated according to new series (base year shifted to 2011-12 from 2004-05), IIP rose 2.7% in Mar '17 against 1.9% in Feb '17; WPI inflation declined to a 4 months low of 3.85% in Apr '17 against 5.29% in Mar '17; CPI inflation declined to 2.99% in Apr '17 against 3.81% in Mar '17.

For FY 2016-17, IIP grew 5% against 3.4% in FY 2015-16. However, as per old series, IIP growth was a dismal 0.7% in FY 2016-17 against 2.5% in FY 2015-16.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex received good support from 'fan line 3' and its 20 day EMA during the week. It rose to touch a new high of 30366 on Thu. May 11 but corrected a little by the end of the week.

All three EMAs are rising, and the index is trading above them in a bull market. However, the bullish structure is looking a bit shaky as any downward breach of 'fan line 3' can bring bears to the fore.

Daily technical indicators are in bullish zones, but giving conflicting signals. MACD and ROC are showing negative divergences by failing to touch new highs with the index. RSI and Slow stochastic are looking overbought. Of the four indicators, only Slow stochastic is showing upward momentum.

Bulls may feel encouraged that FIIs have resumed buying. But DII selling is likely to act as a brake to the Sensex rally.

Stay invested and carry on with your SIPs.  

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty touched a new intra-week high of 9451 and closed just above 9400 for the first time ever.

The index is trading well above its two rising weekly EMAs in a bull market.

Weekly technical indicators are looking overbought. Three of them - ROC, RSI, Slow stochastic - are showing negative divergences by failing to touch new highs with the index.

With FIIs resuming their buying, liquidity inflow may push the index even higher. But the higher the index climbs, the sharper will be the subsequent correction.

Nifty's TTM P/E is at 23.88 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising inside its overbought zone - hinting at some correction or consolidation.

Bottomline? Sensex and Nifty charts touched new highs during the week. Both indices are looking overbought. Earnings are yet to catch up with growth expectations. With FIIs and DIIs at cross purposes, upside for both indices may be limited. Stay invested but avoid any impulsive buying.