Wednesday, June 19, 2019

Nifty chart: a midweek technical update (Jun 19, 2019)

FIIs were net buyers of equity on Tue. (Jun 18), but were net sellers on Mon. and Wed. (Jun 17 and 19). Their total net selling was worth about Rs 4 Billion. DIIs were net sellers of equity on Wed., but were net buyers on Mon. and Tue. Their total net buying was worth Rs 13.3 Billion, as per provisional figures.

According to data compiled by Bloomberg, India's non-bank finance companies (NBFCs) have a record Rs 1.1 Trillion of local currency bonds due next quarter. Refinancing the obligations may pose a challenge.

India recorded FDI inflow of US $61 Billion during FY 2017-18 against $60.2 Billion in FY 2016-17, according to the Ministry of Commerce & Industry.



Note the following comments from last week's technical update on the daily bar chart pattern of Nifty: "Charts don't 'like' unfilled gaps. Most gaps get filled sooner than later - though some gaps may never get filled. A part or complete filling of the May 20 'gap' will make the chart technically 'healthy', enabling the index to rise higher."

Nifty had formed a 165 points upward 'gap' on May 20, and rose to touch a lifetime high of 12103 on Jun 3. It has since corrected all the way down towards the 'gap'. 

The 50 day EMA has provided good support this week. The index continues to trade well above its rising 200 day EMA in a bull market.

A part or complete filling of the 'gap', followed by a resumption of the bull rally is the more likely Nifty direction. However, a remote bearish possibility should also be kept in mind: If Nifty forms a downward 'gap' and falls below the May 20 upward 'gap', a bearish 'island reversal' pattern will get formed.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. (Note that the signal line has formed a bearish 'rounding top' pattern.) RSI is moving sideways below its 50% level. Slow stochastic has fallen inside its oversold zone, and can trigger an index pullback towards the 20 day EMA

Nifty's TTM P/E has moved down to 28.91, but remains in overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has re-entered its oversold zone, hinting at some near-term index upside.

A delayed monsoon is adding to the growth woes of the economy. Some out-of-the box thinking and reform measures are required to push the economy back onto the growth track. But it may be better to have moderate expectations from the current regime.

Tuesday, June 18, 2019

WTI and Brent Crude Oil charts: consolidating near support zones

WTI Crude Oil chart


The following comment appeared in the previous post on the daily bar chart pattern of WTI Crude Oil: "The imminent 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a bear market."

The 'death cross' (marked by grey oval) has ended the brief foray of oil's price into bull territory during Apr-May '19. The support zone between 50-52 has provided temporary solace to bulls.

Daily technical indicators are looking bearish and oversold. MACD is moving sideways below its signal line in oversold zone. RSI has emerged weakly from its oversold zone. Slow stochastic has dropped back inside its oversold zone. 

All three EMAs are falling, and oil's price is trading below them in a bear market. Bears are likely to continue with their 'sell on rise' strategy.

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

Brent Crude Oil chart


For the past two week's, the daily bar chart pattern of Brent Crude Oil has consolidated sideways in a range between 60-64. The 'death cross' of the 50 day EMA below the 200 day EMA (marked by grey oval) has technically confirmed a return to a bear market.

The support zone between 58-60 has helped oil's price to stabilise after a steep fall. However, it may only be a temporary respite for bulls. A slowing global economy will not be able to boost oil demand. Further downside is likely.

Daily technical indicators are looking bearish and oversold. MACD is moving sideways below its signal line in oversold zone. RSI has bounced up weakly from the edge of its oversold zone. Slow stochastic has dropped back inside its oversold zone. 

On longer term weekly chart (not shown), oil's price closed below its three weekly EMAs in long-term bear territory for the third week in a row. Weekly technical indicators are in bearish zones, and showing downward momentum - hinting at some more consolidation or correction.

Monday, June 17, 2019

S&P 500 and FTSE 100 charts (Jun 14, 2019): bears trying their best to spoil the bull party

S&P 500 index chart pattern


The following comments appeared in last week's post on the daily bar chart pattern of S&P 500: "The week's rally was accompanied by sliding volumes. A pullback towards the down trend line is a possibility."

The index touched an intra-day high of 2911 on Tue. Jun 11, but pulled back towards the (purple) down trend line, forming a 'reversal day' bar (higher high, lower close).

A sideways consolidation in a range of 20 points (2875 - 2895) followed. The index closed above its three EMAs in a bull market, and eked out a 0.5% weekly gain.

Daily technical indicators are in bullish zones, but not showing any upward momentum. MACD has crossed above its signal line to enter bullish zone. RSI is moving sideways above its 50% level. Slow stochastic is moving sideways inside its overbought zone. 

Some more consolidation is possible before the index attempts to scale a new high.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market, but formed a 'doji' candlestick indicating indecision among bulls and bearsWeekly technical indicators are looking bullish to neutral. MACD is moving sideways below its signal line. RSI has moved above its 50% level after falling below it. Slow stochastic has moved up to its 50% level after falling below it.

FTSE 100 index chart pattern


The following comments appeared in last week's post on the daily bar chart pattern of FTSE 100: "Near-term index upside may be limited. Sliding volumes during last week's rally can encourage bears to 'sell on rise'."

The index touched an intra-day high of 7421 and closed just below 7400 on Tue. Jun 11 - negating the bearish 'head and shoulders' pattern (refer last week's post). Bulls failed to press home their advantage, and bears stepped in to sell as expected.

The index received support from its 20 day EMA, and closed above its three EMAs in bull territory. Strong volumes on the two down days indicate bears are in no mood to give up without a fight.

Daily technical indicators are in bullish zones but showing downward momentum. MACD crossed above its signal line to enter bullish zone, but is turning down. RSI is falling towards its 50% level. Stochastic has slipped down from its overbought zone.

A fall and a test of support from the 200 day EMA may be on the cards.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in long-term bull territory, but formed a 'shooting star' candlestick pattern that can trigger some correction or consolidation . Weekly technical indicators are in bullish zones, but not showing any upward momentum. 

Saturday, June 15, 2019

Sensex, Nifty charts (Jun 14, 2019): profit booking emerges near lifetime highs

FIIs were net buyers of equity on Mon., Tue. and Thu. (Jun 10, 11 and 13), but net sellers on Wed. and Fri. (Jun 12 and 14). Their total net selling exceeded Rs 8.0 Billion. DIIs were net buyers of equity on Mon., Wed. and Fri., but net sellers on the other two days. Their total net buying was worth Rs 2.2 Billion, as per provisional figures.

India's CPI based retail inflation rose to a 7 months high of 3.05% in May '19 from a revised 2.99% in Apr '19. However, WPI based wholesale inflation fell to a 22 months low of 2.45% in May '19 from 3.07% in Apr '19. 

The Index of Industrial Production (IIP) grew to a six months high of 3.4% in Apr '19 against 0.4% in Mar '19, but was lower than 4.5% in Apr '18. Some experts have questioned the veracity and sustainability of the improved Apr '19 data.

India's trade deficit widened to US $15.4 Billion in May '19 against $14.6 Billion in May '18. While exports grew 4% to $30 Billion, imports grew 4.3% to 45.4 Billion.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex touched a lower top of 40066 on Tue. Jun 11 and corrected down to seek support from its 20 day EMA. The index is trading well above its rising 200 day EMA in a bull market.

Some consolidation or correction near a lifetime index high is only to be expected. It is always a good idea to take some profit off the table and lock it in fixed income instruments (but don't touch debt funds with a barge-pole).

Daily technical indicators are turning bearish after correcting overbought conditions. MACD has crossed below its signal line in bullish zone. ROC is falling below its 10 day MA and dropped into bearish zone. RSI and Slow stochastic have fallen to their respective neutral zones. 

All four technical indicators had showed negative divergences by failing to touch new highs with the index on Jun 4. Some more correction, and a part or complete filling of 'Gap 2' (formed on May 20) will improve the technical 'health' of the chart - enabling Sensex to move higher.

Expect the index to meander without a clear direction till the budget on July 5. There may even be a 'managed' pre-budget rally. Use it to book profits.  

The state of the financial system - banks, NBFCs, HFCs (barring a few exceptions) - doesn't look encouraging at all. Frauds and defaults are being discovered on a daily basis. No one is sure how deep the rot is. The government seems to be in denial - trying to put positive spins on negative data.

Small investors should be extra careful about where they invest their money. Choose quality stocks, or the best equity funds - even if they appear expensive. Companies like Asian Paints, HUL, HDFC Bank, TCS have management quality and cash to survive downturns. 

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty touched a lower top and closed 47 points (0.4%) lower for the week. However, the index is trading well above its rising weekly EMAs in a long-term bull market.

The index has spent four weeks above the upward 'gap' formed on the week beginning May 20, but has failed to move higher. It may test support from the 'gap' and fill it partly or completely. The 20 week EMA has entered the 'gap' zone, and should provide additional support to the index. 

Weekly technical indicators are showing bearish signs. MACD is moving sideways inside its overbought zone. ROC is falling below its 10 week MA towards neutral zone. RSI and Slow stochastic are poised to fall from their respective overbought zones

All four indicators had showed negative divergences by failing to touch new highs with the index in the previous week. Some more consolidation or correction is possible. But don't expect a deep correction - unless the budget on July 5 badly disappoints the market.

After touching a high of 29.90 on Mon. Jun 3, Nifty's TTM P/E has moved down to 29.24, which is still well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has re-entered its oversold zone after briefly falling from it. Some near-term index upside is likely.

Bottomline? Sensex and Nifty charts continue to consolidate after touching lifetime highs. A stalling economy, debt crisis of NBFCs/HFCs and weak earnings growth of India Inc. have been 'discounted' by the market. A disappointing budget may derail bullish hopes. Stay invested with trailing stop-losses. Ignore optimistic 'buy' calls from brokerages.

Friday, June 14, 2019

How can an investor determine the efficiency of a company's working capital management?

There are a number of tools that determine how efficiently a company is managing its working capital, principally by looking at measures of inventory and cash flow.

Analysts and investors look at a company's working capital to determine its overall efficiency and financial health. Working capital is essentially the money necessary for a company to maintain its operations on a day-to-day basis. It is composed of a number of components, the three most important being:

Wednesday, June 12, 2019

Nifty chart: a midweek technical update (Jun 12, 2019)

FIIs were net buyers of equity on Mon. and Tue. (Jun 10 and 11), but were net sellers today. Their total net selling was worth Rs 7.4 Billion. DIIs were net sellers of equity on Tue., but were net buyers on Mon. and today. Their total net buying was worth Rs 2.9 Billion, as per provisional figures.

Reigniting the debate on the accuracy of India's GDP growth numbers, the former Chief Economic Advisor, Arvind Subramanian mentioned in a research paper that analyses data on 17 different economic indicators that India's real GDP growth was only 3.5-5.5% during FY 2012-2017.

The Prime Minister's Economic Advisory Council has refuted the claims made by the former CEA in his research paper. However, the jobless economic growth on the ground may be confirming - rather than refuting - Mr Subramanian's findings.


The daily bar chart pattern of Nifty had touched a new high of 12103 on Jun 3. The index corrected sharply and tested support from its rising 20 day EMA on Jun 7. It has been consolidating since then, and touched a lower top of 12000 on Jun 11.

All three EMAs are rising, and the index is trading above them in a bull market. The index should rise to a new high soon. However, the 165 points upward 'gap' formed on May 20 remains a concern.

Charts don't 'like' unfilled gaps. Most gaps get filled sooner than later - though some gaps may never get filled. A part or complete filling of the May 20 'gap' will make the chart technically 'healthy', enabling the index to rise higher.

Daily technical indicators are in bullish zones, but not showing any upward momentum. MACD is seeking support from its signal line in overbought zone. RSI is moving sideways above its 50% level. Slow stochastic is moving sideways above its 50% level after falling from its overbought zone

All three indicators showed negative divergences by failing to touch new highs when the index touched its lifetime high on Jun 3. Some more consolidation or correction may follow.

After touching a high of 29.90 on Jun 3, Nifty's TTM P/E has moved down to 29.45, which is in overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone, hinting at some near-term consolidation.

The debt crisis in the NBFC/HFC segment seems to be getting worse, and is having a negative spill-over effect on the banking sector. With the financial system in turmoil, how will economic growth get funded?

The consumption sector that is dependent on loans from banks/NBFCs - like automobiles, real estate - is in doldrums. It will be too much to expect the new Finance Minister to perform a miracle in her first budget and restore the economy back on the growth track.

Stay invested, but stay nimble. Book profits where available, and invest it in bank FDs to protect capital before interest rates fall further. 

Tuesday, June 11, 2019

Gold and Silver charts: correcting after upward breakouts

Gold chart pattern


Note the following comments made in the previous post on the daily bar chart pattern of Gold: "Recent volume spikes on up days indicate buying interest...Gold's price may make another attempt to break out above the 'wedge'."

This time, the breakout above the 'falling wedge' (which is also the 'handle' of a large 'cup and handle' pattern) was successful. Gold's price shot up like a rocket to test its previous (Feb '19) top of 1350, but profit booking dropped it to a close below 1330.

Daily technical indicators are looking overbought. MACD has risen sharply to enter its overbought zone. RSI has fallen from its overbought zone. Slow stochastic is sliding down inside its overbought zone. Gold's price may consolidate or correct towards 1310-1320 zone before it can resume its up move.

After touching a high of 98.26 on May 23 - its highest level in 2 years - the US Dollar index dropped to a low of 96.40 on Jun 7 before recovering to 96.70. The fall may have triggered the upward breakout in Gold's price.

On longer term weekly chart (not shown), gold’s price closed well above its three weekly EMAs in long-term bull territory. Weekly technical indicators are in bullish zones. MACD and Slow stochastic are showing upward momentum. RSI is showing downward momentum - hinting at some price consolidation.

Silver chart pattern


After spending three months below the (purple) down trend line, the daily bar chart pattern of Silver managed to breakout above the down trend line and its 20 day and 50 day EMAs, with strong volume support.

However, resistance from the sliding 200 day EMA proved to be too strong. Bullish hopes took a sever knock as silver's price dropped sharply below its 20 day and 50 day EMAs to close in bear territory.

Daily technical indicators are turning bearish. MACD is facing resistance from its '0' line. RSI has dropped below its 50% level. Slow stochastic has turned down after facing resistance from the edge of its overbought zone.

On longer term weekly chart (not shown), silver's price is trading below its three sliding weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones and not showing much upward momentum. Some more correction or consolidation is likely.