Wednesday, May 23, 2018

Nifty chart: a midweek technical update (May 23, 2018)

FIIs were net sellers of equity during the first three trading days this week. Their total net selling was worth Rs 24.6 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 34.8 Billion, as per provisional figures.

The fear of losing control over their companies has led to defaulting promoters of 2100 companies settle their dues of around Rs 830 Billion before action was initiated under the newly-enacted Insolvency & Bankruptcy Code (IBC).

During FY 2017-18, India's net direct tax collections have crossed Rs 10 Trillion mark, which is 18% higher than the collections in FY 2016-17.


The following was the concluding remark in last week's technical update on the daily bar chart pattern of Nifty: "A fall below 10602 can lead to a deeper correction."

The index dropped below its 20 day EMA, and closed at 10596 on Fri. May 18. That encouraged bears to continue their rampage.

The index fell below its 50 day EMA on Mon. May 21, only to pullback to its medium-term moving average the next day. The index dropped further and closed below 10450 today.

A test of support from - and possible breach of - the 200 day EMA is on the cards. A fall below the Mar 29 low of 9952 will form a bearish pattern of 'lower tops, lower bottoms' and take the index lower towards 9700.

Daily technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in bullish zone. RSI is falling below its 50% level in bearish zone. 

Slow stochastic has dropped well inside its oversold zone, but is showing negative divergence by touching a lower bottom than its Mar 29 low. Some more correction is likely.

Nifty's TTM P/E has slipped down to 25.86 - which is still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone, and can limit near-term index down side. 

Small investors should avoid the impulse to rush in to 'buy the dip'. Let the correction play out. Patience can get rewarded with better entry points.

Tuesday, May 22, 2018

WTI and Brent Crude Oil charts: bulls clearly on top

WTI Crude Oil chart


The following remarks were made in the previous post on the daily bar chart pattern of WTI Crude Oil: "Daily technical indicators are looking overbought and showing upward momentum. Some more upside is possible. However, a correction or consolidation may be around the corner."

A sharp high-volume correction dropped oil's price below the 68 level intra-day on May 8, but bulls 'bought the dip'. Oil's price recovered the very next day, and rallied past the 72 level to a new 3 year high on May 21.

Daily technical indicators are looking overbought and showing negative divergences by failing to touch new highs with oil's price. Falling volumes during the last leg of the rally is also a bearish sign.

Oil's price is trading well above its three rising EMAs in a bull market. But some correction or consolidation may be on the cards.

On longer term weekly chart (not shown), oil's price closed well above its three rising weekly EMAs. The 50 week EMA has crossed above the 200 week EMA. The 'golden cross' has technically confirmed a return to a long-term bull market.  Weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with oil's price.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil suffered a day's high-volume correction down to the 73 level on May 8, but bounced up after receiving good support from its rising 20 day EMA.

The rally continued. Oil's price crossed above 80 for the first time in more than 3 years on May 17, but closed lower near its opening level - forming a 'shooting star' candlestick pattern that often marks an intermediate top.

Oil's price is trading well above its three rising EMAs in a bull market. Daily technical indicators are correcting overbought conditions. Some correction or consolidation may follow.

On longer term weekly chart (not shown), oil's price closed well above its three weekly EMAs in long-term bull territory. The 'golden cross' of the 50 week EMA above the 200 week EMA has technically confirmed a return to a long-term bull market. Weekly technical indicators are looking overbought. RSI and Slow stochastic are showing negative divergences by failing to touch new highs with oil's price.

Monday, May 21, 2018

S&P 500 and FTSE 100 charts (May 18, 2018): bulls struggle in one, take control in another

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 bulls still have a lot of work left, as 'GAP 2' is likely to provide resistance. The index appears to be consolidating within a bearish 'Flag' pattern whose upper edge can also provide resistance."

The index touched an intra-day high of 2742 on Mon. May 14 - only to face twin resistances from 'GAP 2' and the upper edge of the bearish 'Flag' pattern. As expected, the index pulled back to the down trend line (refer last week's post).

The rest of the week was spent in sideways consolidation within the 'Flag' but above the three EMAs in bull territory. Volumes were stronger on the three down days last week. Bears may force the index to retreat towards its 200 day EMA.

Daily technical indicators are in bullish zones, but not showing any upward momentum. Bulls are struggling to retain control of the chart, whose long-term structure remains bullish. Bears are not making their life easy.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market, but formed a 'reversal' bar (higher high, lower close). Weekly technical indicators are in bullish zones but only Slow stochastic is showing upward momentum.

FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 consolidated sideways during the first three days of the week before making a dash to conquer its lifetime high of 7793 (touched on Jan 12).

Bears put up a strong defense and forced the bulls to retreat temporarily. (At the time of writing this post, the index has crossed its previous top with an upward 'gap' and is trading at a new lifetime high.)

All three EMAs are rising and the index is trading well above them in a bull market. The 'golden cross' of the 50 day EMA above the 200 day EMA (marked by blue circle) had technically confirmed a return to a bull market in the previous week. 

Daily technical indicators are looking quite overbought, and can trigger some correction or consolidation.

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market. Weekly MACD and RSI are rising in bullish zonesSlow stochastic is well inside its overbought zone and can trigger a correction or consolidation.

Sunday, May 20, 2018

Sensex, Nifty charts (May 18, 2018): bears on the warpath

FIIs were net sellers of equity on four of the five trading days. Their total net selling during the week was worth Rs 15 Billion. DIIs were net buyers of equity on all five trading days. Their net buying was worth Rs 20.3 Billion, as per provisional figures.

Sensex and Nifty both lost 1.9% on a weekly closing basis. What can be more worrisome for bulls is that both indices closed below the downward 'gaps' formed on Feb 5.

India's import bill could bloat by $25-50 billion in the current financial year due to spike in crude oil prices, but the government sees no reason for panic. However, a report by Goldman Sachs says that India's Current Account Deficit (CAD) may increase to 2.4% of GDP in FY 2018-19.

BSE Sensex index chart pattern



Negative divergences visible last week on overbought technical indicators on the daily bar chart pattern of Sensex had hinted at a likely corrective move.

A hung Karnataka assembly provided bears with just the trigger they were looking for. The index touched an intra-day high of 35994 on Tue. May 15 - its highest level in more than 3 months - as initial results showed a BJP majority.

However, as the day progressed and more results came in, it became clear that BJP will fall short of a simple majority. Profit booking ensued. The index dropped to close near its opening level - forming a 'shooting star' candlestick pattern that often marks an intermediate top. 

Bears went on the warpath. The index corrected for three straight sessions, falling below its 20 day EMA and closing just below the downward 'gap' formed on Feb 5.

The index touched an intra-day low of 34822 on Fri. May 18, falling below its previous (May 4) low of 34848 which can lead to further downside. However, by closing exactly at 34848, the index has kept open the possibility of a technical bounce.

Daily technical indicators are looking bearish and showing downward momentum. MACD has crossed below its signal line in bullish zone. ROC has dropped below its 10 day MA to its neutral zone. RSI has also dropped to its neutral zone. Slow stochastic is falling below its 50% level.

Resignation of Karnataka's BJP CM before the floor test on Sat. May 19 - as he failed to engineer defections from the opposition Congress and JD(S) - will give bears added incentive to sell.

Small investors need not be in a rush to 'buy the dip'. As mentioned in several previous posts, filling of the Feb 5 downward 'gap' was expected to be followed by a resumption of the corrective down move from the Jan 29 top. 

The 'support-resistance zone' between 32500 and 33800 can come back into play. Note that the rising 200 day EMA is in the middle of the 'support-resistance zone' and is likely to provide strong support should the index fall that far.  

NSE Nifty index chart pattern



Small investors were advised caution in last week's post on the weekly bar chart pattern of Nifty because of fundamental and technical headwinds. The index touched a 3 months high of 10929 but closed at a 3 weeks low of 10596 - forming a 'reversal' bar (higher high, lower close) with good volume support that can lead to further correction.

The previous 3 weeks' trading has formed a bearish 'broadening top' pattern (higher high, lower low) from which a downward breakout is likely.

Weekly technical indicators are in bullish zones, but their upward momentum have stalled. The index is trading above its two rising weekly EMAs - so the bullish structure of the chart is intact.

Nifty's TTM P/E has decreased to 26.27 - which is still much above its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply to enter its oversold zone, and can limit near-term index downside.

Bottomline? Counter-trend rallies on Sensex and Nifty appear to have ended. Some more correction or consolidation will help improve the technical 'health' of both charts. Don't rush to 'buy the dip'. Better entry points may become available with a bit of patience.

Friday, May 18, 2018

4 ways to predict stock market performance

"There are two prices that are critical for any investor to know: the current price of the investment he or she owns, or plans to own, and its future selling price. Despite this, investors are constantly reviewing past pricing history and using it to influence their future investment decisions. 

Some investors won't buy a stock or index that has risen too sharply, because they assume it's due for a correction, while other investors avoid a falling stock because they fear it will continue to deteriorate.

Does academic evidence support these types of predictions, based on recent pricing? In this article, we'll look at four different views of the market and learn more about the associated academic research that supports each view. The conclusions will help you better understand how the market functions, and perhaps eliminate some of your own biases."

Read more here.

Wednesday, May 16, 2018

Nifty chart: a midweek technical update (May 16, 2018)

FIIs were net buyers of equity on Mon. May 14, but net sellers on the next two days. Their total net selling was worth Rs 5 Billion. DIIs were net buyers of equity on all three days this week. Their total net buying was worth Rs 14.5 Billion, as per provisional figures.

Inflation is inching up again. India's CPI inflation in Apr '18 moved up to 4.58% from 4.28% in Mar '18. Core inflation - comprising non-food and non-fuel components - hit a 34 months high of 6%.

India's WPI inflation touched a 4 months high of 3.18% in Apr '18 against 2.47% in Mar '18 due to higher fuel and vegetable prices. Any further rise may force RBI's hand in increasing interest rates.


The following comments were made in last week's update on the daily bar chart pattern of Nifty: "The interesting pattern to observe is that the index has failed to close above the trend line despite intra-day upward breaches on Mon. & Tue. (May 7 & 8). That may encourage bears to mount a stronger attack if the index tries to move up further."

The index did move up further to touch an intra-day high of 10929 on Tue. May 15, but closed more than 125 points lower on profit booking to form a 'shooting star' candlestick pattern that often marks an intermediate top.

Note that the index failed to close above the (purple) up trend line even for a single day after falling below it on May 4. Bears used the hung Karnataka assembly as an excuse to mount a strong attack today.

Bulls gave up ground reluctantly. The index slipped below the downward 'gap' (formed on Feb 5) intra-day, but recovered to close just above it - forming a 'long-legged doji' candlestick pattern that indicates indecision among bulls and bears.

Daily technical indicators have started correcting. MACD is just below its overbought zone and is about to cross below its signal line. RSI has started to fall after facing resistance from the edge of its overbought zone. Slow stochastic has dropped from its overbought zone.

Though Nifty is trading above its three rising EMAs in a bull market, some more correction can't be ruled out. The May 4 low of 10602 can be maintained as a stop-loss by those holding long positions.

Nifty's TTM P/E is at 26.66 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone, and can limit index down side. 

The breach of a steep up trend line does not mean that the trend has changed. However, today's fall away from the trend line is a warning for bulls to close long positions. A fall below 10602 can lead to a deeper correction.

Tuesday, May 15, 2018

Gold and Silver charts: still consolidating and remain range bound

Gold chart pattern


The daily bar chart pattern of Gold continued its sideways consolidation between the 'Support zone' (between 1300 and 1310) and the 'Resistance zone' (between 1360 and 1370). 

The 200 day EMA, which is inside the 'support zone', provided good downside support and kept bullish hopes alive. However, the sliding 50 day EMA provided resistance to a technical bounce.

Daily technical indicators are giving conflicting signals - which is often the case during periods of consolidation. MACD is facing resistance from its falling signal line in bearish zone. RSI has slipped down after facing resistance from its 50% level. Slow stochastic corrected oversold conditions, triggering a brief technical bounce, and moved above its 50% level into bullish zone.

For the past three weeks, gold's price has traded below its 20 day and 50 day EMAs, but above its 200 day EMA in a bull market. Some more consolidation is possible.

On longer term weekly chart (not shown), gold’s price faced resistance from its 20 week EMA but closed above its 50 week and 200 week EMAs in long-term bull territory.  Weekly technical indicators are looking neutral to bearish. MACD is falling below its signal line in bullish zone. RSI is in neutral zone. Slow stochastic is falling towards its oversold zone. 

Silver chart pattern


The following remark was made in the previous post on the daily bar chart pattern of Silver: "More sideways consolidation between the 'support zone' and the 'resistance zone' is likely."

After an intra-day fall below, and a close inside, the support zone (between 16.10 and 16.20) on May 1, silver's price embarked on a sharp rally past its 20 day and 50 day EMAs.

On May 11, it briefly crossed above its 200 day EMA into bull territory intra-day but fell short of the resistance zone (between 16.90 and 17).

The sideways consolidation for the past 15 weeks has mostly occurred below the sliding 200 day EMA in bear territory.

Daily technical indicators are looking neutral to bullish. Slow stochastic is rising towards its overbought zone. MACD and RSI are in neutral zones and not showing any upward momentum

On longer term weekly chart (not shown), silver’s price closed above its 20 week EMA but below its 50 week and 200 week EMAs in a long-term bear marketWeekly MACD and Slow stochastic are in bearish zones. RSI is in neutral zone.