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Thursday, January 18, 2018

To know why FIIs are buying, look at the Dollex-30 chart

After five straight months of net selling in equity shares (from Aug '17 to Dec '17), FIIs have turned net buyers in Jan '18.

They have been net buyers in 10 of the 14 trading days this month. Today's net buying was worth Rs 18.9 Billion.

What made them change their bearish stance? Anticipation of better Q3 (Dec '17) results of India Inc.? Overbought US and UK stock markets?

May be a bit of both. For a technical reason, take a look at the long-term Dollex-30 monthly chart (courtesy:investing.com) below:


For the uninitiated, Dollex-30 is the BSE Sensex chart in US Dollar terms. The blue horizontal line has been used to mark the Jan '08 top, which acted as a resistance level in Dec '17.

While Sensex has been conquering new highs on a regular basis, the Dollex-30 has just managed to cross above its Jan '08 top after 10 long years.

Remember that when a long-term resistance level gets breached, it usually turns into a support level for future corrections.

Wednesday, January 17, 2018

Nifty chart: a midweek technical update (Jan 17, 2018)

During the first three days of trading this week, FIIs turned bulls once again. Their net buying in equities touched Rs 13.5 Billion. DIIs were net sellers of equity worth Rs 2.5 Billion, as per provisional figures.

WPI inflation was lower than anticipated at 3.6% in Dec '17 compared to 3.9% in Nov '17. Falling fruit and vegetable prices were main reasons for the lower number.

India's trade deficit was at its widest in 3 years in Dec '17, as a surge in gold and oil imports offset rising exports. Imports increased by 21.1% to $41.9 Billion. Exports increased 12.4% to $27 Billion. 


The daily bar chart pattern of Nifty had formed a 23 points upward 'GAP' on Jan 8. Some bullish and bearish technical possibilities were discussed in last week's post, with the scales tipping towards the bearish side.

Support from the 'GAP' was successfully tested twice last week - on Wed. Jan 10 and Fri. Jan 12. On Mon. Jan 15, the index opened with another upward 'gap' that was quickly filled during Tuesday's correction.

Bulls went on a rampage today. What changed the bearish outlook? News that the govt. will borrow an additional Rs 200 Billion this financial year (ending Mar '18) instead of Rs 500 Billion planned earlier may have acted as a catalyst.

FIIs and DIIs combined forces to buy equity shares today. However, the total number of advancing shares was matched by the total number of declining shares. That means bears are refusing to give up.

Nifty crossed the 10800 level intra-day for the first time ever, and is trading well above its three rising EMAs in a bull market. Daily technical indicators are in their overbought zones. MACD is showing upward momentum. Slow stochastic is showing negative divergence by touching lower tops as the index has moved higher.

Nifty's TTM P/E is at 27.18 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling rapidly inside its overbought zone - and can limit index upside. 

Hind. Unilever declared excellent Q3 (Dec '17) results after trading hours today. That may boost bullish fervour tomorrow.

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Tuesday, January 16, 2018

WTI and Brent Crude Oil charts: soar up, up and away on increasing global demand

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil has continued its bullish fervour in the New Year. Draw down in US inventories and increasing global demand propelled oil's price to new highs. 

All three EMAs are rising, and oil's price is trading above them in a bull market. Increasing volumes have reinforced the bull rally.

Daily technical indicators are looking overbought. MACD and RSI are showing upward momentum, but Slow stochastic is moving sideways and showing negative divergence by not moving up with oil's price.

Some consolidation can be expected before the next leg of the rally. US rig count is increasing, and can put a cap on further rise in prices.

On longer term weekly chart (not shown), oil's price moved convincingly above its 200 week EMA and closed at a 3 year highWeekly technical indicators are looking overbought and may trigger a pullback towards the 200 week EMA.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil briefly touched the $70 level intra-day on Jan 11 - a level last seen in May '15 - before closing a tad lower.

All three EMAs are rising, and oil's price is trading above them in a bull market. The rally from the last week of Dec '17 has been accompanied by rising volumes, which augurs well for bulls.

Daily technical indicators are inside their overbought zones. While MACD and RSI are showing upward momentum, Slow stochastic is moving sideways and showing negative divergence by failing to move up with oil's price.

On longer term weekly chart (not shown), oil's price closed well above its 200 week EMA in long-term bull territoryWeekly technical indicators are looking overbought. Some correction or consolidation is possible.

Monday, January 15, 2018

S&P 500 and FTSE 100 charts (Jan 12, 2018): soaring skywards

S&P 500 index chart pattern


After a day's indecision on Tue. Jan 9 (by forming a 'doji' candlestick pattern) and the briefest of corrections on Wed. Jan 10, the daily bar chart pattern of S&P 500 rose to touch a new high (2788) on Fri. Jan 12.

All three EMAs are rising, and the index is trading way above them in a bull market. Daily technical indicators are well inside their overbought zones. Slow stochastic is showing negative divergence by failing to touch a new high with the index.

Note that an index can remain overbought for long periods. That doesn't mean one needs to jump in and buy. It may be prudent to be fearful when everyone else seems greedy and take some profits off the table.

On longer term weekly chart (not shown), the index closed at a new high - way above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are looking very overbought. Slow stochastic continues to show negative divergence by failing to rise higher. 

FTSE 100 index chart pattern


After a day's correction on Mon. Jan 8, the daily bar chart pattern of FTSE 100 soared to touch a new high (7792) on Fri. Jan 12. Bulls are buying at every dip.

All three EMAs are rising, and the index is trading above them in a bull market. Daily technical indicators are looking overbought and can trigger some consolidation or correction. (At the time of writing this post, FTSE is trading 5 points lower.)

Partial profit booking may be a good idea for conservative investors. Bravehearts can ride the bull wave with a trailing stop-loss.

On longer term weekly chart (not shown), the index touched a new high and closed above its three rising weekly EMAs in a long-term bull market. Weekly MACD and RSI are in bullish zones and showing upward momentum. Slow stochastic is looking quite overbought and can trigger a correction.

Saturday, January 13, 2018

Sensex, Nifty charts (Jan 12, 2018): touch new highs again despite selling by FIIs

FIIs have gone back to their bearish ways. Their net selling in equities during the week was worth Rs 9.6 Billion. DIIs' net buying in equities was much higher at Rs 23.8 Billion, as per provisional figures. Sensex and Nifty touched new highs once again.

The Index of Industrial Production (IIP) rose to 8.4% in Nov '17 against 2.2% in Oct '17 - thanks to a lower base effect. The cumulative Apr-Nov '17 YoY growth figure was 3.2%.

Retail (CPI) inflation accelerated to 5.2% in Dec '17 against 4.9% in Nov '17. Rising food and fuel prices can lead to an interest rate hike by RBI. That will not be good news for the stock market.

BSE Sensex index chart pattern


Combined net buying in equities by FIIs and DIIs on Mon. Jan 8 buoyed the daily bar chart pattern of Sensex to a smart breakout above the small 'rectangle' within which it was consolidating for the previous three weeks.

Though FIIs turned net sellers of equity for the rest of the week, heavy buying by DIIs propelled the Sensex to new intra-day (34638) and closing (34592) highs on Fri. Jan 12. 

Note that the index formed a 'dragonfly doji' candlestick pattern on Fri., indicating hesitation among bulls and bears.

Daily technical indicators are in bullish zones, but only MACD is showing upward momentum. All four indicators failed to touch new highs with the index. The negative divergences can lead to some consolidation or correction.

Sensex is trading above its three rising EMAs in a bull market. That means dips can be used to add to existing holdings. Aggressive buying should be avoided because the index is at an all-time high and Q3 (Dec '17) results season has just begun.

NSE Nifty index chart pattern


After breaking out above a 'flag' pattern, the weekly bar chart pattern of Nifty had pulled back towards the top of the 'flag' before recovering to close above 10490 (its Nov '17 top) in the previous week.

Bulls took the opportunity to take charge. The index opened with a 23 points upward 'gap' on Mon. Jan 8, and then rose to touch intra-week (10690) and closing (10681) highs on Fri. Jan 12.

Weekly technical indicators are in bullish zones but not showing much upward momentum. MACD has crossed above its signal line to enter its overbought zone. ROC is moving sideways below its 10 week MA. RSI and Slow stochastic are also moving sideways inside their respective overbought zones.

Nifty's TTM P/E has increased to 27.28 - well above its long-term average. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone, and is rising inside neutral zone - hinting at a correction or consolidation. 

Bottomline? Sensex and Nifty charts have closed at new highs again. Bulls are expecting Q3 (Dec '17) results to show earnings improvement due to lower base effect. Use dips to add to existing holdings, but avoid aggressive buying close to a market top.

(NoteMarkets fluctuate, but there are always opportunities if you know where to look. Learn how to choose fundamentally strong mid-cap and small-cap stocks. Become a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions are being offered till Jan 21, 2018. Enrollments have started. Contact me for details: mobugobu@yahoo.com.)

Friday, January 12, 2018

Stock Chart Pattern - 3i Infotech Ltd (An Update)

The following concluding comments were made in the previous technical update to the stock chart pattern of 3i Infotech: "Top line is sliding and bottom line is red. Over-leveraging in a bid to grow fast has ruined the balance sheet. Stay away. If you are stuck from higher levels, use any rally to exit."

That update had been posted more than 5 years back. The only thing of note the stock did since then was rise from a low of 6 (touched on May 7 '14) to a high of 13.60 (on Jun 13 '14) - a quick gain of 125% in 5 weeks that gave stuck investors an opportunity to exit.


In less than 2 months, the stock slid down below 10 and dropped all the way to a lifetime low of 2.20 on May 25 '15. Investors got a roller-coaster ride, as the stock rose to 6.80 on Jun 25 '15, and then dropped to 2.70 on Aug 20 '15.

The stock price closed in the range between 2.70 and 6.80 during the next 28 months before suddenly breaking out in Dec '17. What was the trigger? There were two. First, CRISIL upgraded the company's credit rating from 'D' to 'BB' (stable).

Then came news of the company pre-paying three instalments of its debt (worth Rs 195 Million) which were due in Oct '18, Nov '18 and Dec '18. How did a loss-making company pre-pay its debt? 

The reason may be found in the cash flow statement. 3i Infotech has generated positive cash flows from operations in 4 of the past 5 years. Bulls must have felt encouraged by the positive news. 

The stock has shot up to test its previous closing high of 9.10 touched three years back. Daily technical indicators are inside their overbought zones. The stock can consolidate or correct a bit before trying to move higher.

Q3 (Dec '17) results will be announced on Jan 30 '18. Consider entry if there are definite signs of a turnaround in business. (Turnaround stories can generate good profits. Note that the equity capital is bloated, so don't expect a rise from 10 to 100 in 6 months.)

Wednesday, January 10, 2018

Nifty chart: a midweek technical update (Jan 10, 2018)

During the first three days of trading this week, FIIs were net sellers of equity worth Rs 1.8 Billion. (They were net buyers during the previous week.) DIIs were net buyers of equity worth Rs 9.2 Billion, as per provisional figures.

Nifty touched new intra-day (10659) and closing (10637) highs on Tue. Jan 9 before facing some profit booking today.

India has “enormous growth potential” compared to other emerging economies, the World Bank said today, as it projected country’s (GDP) growth rate to 7.3% in 2018 and 7.5% for the next two years. 


The daily bar chart pattern of Nifty had broken out above a large 'flag' pattern (FLAG 1) on Dec 18 '17, only to consolidate within a smaller 'flag' pattern (FLAG 2).

The index broke out above 'FLAG 2' on Fri. Jan 5 '18 with a 7 point 'gap'. On Mon. Jan 8, Nifty formed a 23 points upward 'GAP' - which has thrown up some interesting bullish and bearish possibilities.

Since the index is trading well above its three rising EMAs in a bull market, let us look at the bullish possibilities first.

The breakout above 'FLAG 2' with a 7 points 'gap' on Jan 5 is a bullish sign. The index rose to touch new highs three days in a row, which is another bullish sign. Daily technical indicators are in bullish zones - though they are looking overbought.

Now, some bearish possibilities. The wider 'GAP' on Jan 8 has to be looked at with suspicion, since it has formed so close to a new high. It can turn out to be a bearish 'exhaustion gap'.

Today's trade formed a bearish 'hanging man' candlestick pattern that tested support from the 'GAP'. In case Thursday's (Jan 11) trade opens and stays below the 'GAP', a bearish 'island reversal' pattern can get formed.

Note that daily technical indicators are showing negative divergences by failing to touch new highs with the index on Tue. Jan 9. Slow stochastic is showing downward momentum after forming a 'double top' like reversal pattern inside its overbought zone.

Nifty's TTM P/E has moved up to 27.18 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is moving up inside its overbought zone - hinting at some more correction.

After being net buyers during the first 6 trading days in the New Year, FIIs have turned bears during the past 2 days.

On balance, the bearish possibilities are outweighing the bullish ones. Some more correction appears to be the likely outcome.  

No need to sell in a panic. A low base effect should lead to earnings growth for India Inc. in Q3 (Dec '17). That will add fuel to the bullish fire.

(Note: Thinking of adding quality mid-cap and small-cap stocks to your portfolio? Subscribe to my Monthly Investment NewsletterPaid subscriptions are being offered to blog visitors, followers and subscribers till Jan 21, 2018. Contact me at mobugobu@yahoo.com for details.)