Wednesday, October 17, 2018

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

FIIs were net sellers of equity on Tue. Oct 16, but net buyers on the other two trading days this week. Their total net selling was worth Rs 9.6 Billion. DIIs were net buyers on Mon. & Tue. but net sellers on Wed. Oct 17. Their total net buying was worth Rs 10.1 Billion, as per provisional figures.

India's WPI inflation rose to 5.13% in Sep '18 from 4.53% in Aug '18 and an upwardly revised 5.27% in Jul '18. Higher fuel price was the main culprit.

Consumer goods companies are uncertain about the outlook for rural demand as below-normal monsoon rainfall in some states is set to hit income in rural areas.



The daily bar chart pattern of Nifty has reverted back to the control of bears. The counter-trend rally from the lower Bollinger Band came to a screeching halt today.

The index touched an intra-day high of 10710 but faced strong resistances from its 200 day EMA, its 20 day SMA (green dotted line) and the downward 'gap' formed on Oct 4. (The bearish and measuring significance of the 'gap' was discussed in last week's post.)

After an intra-day correction of more than 250 points, the index formed a large 'reversal day' bar and a 'bearish engulfing' candlestick that have put paid to any bullish hopes of a further recovery. 

Daily technical indicators have corrected oversold conditions but remain in bearish zones. MACD is facing resistance from its falling signal line. RSI is showing downward momentum. The upward momentum of Slow stochastic has stalled. 

Nifty's TTM P/E has moved down to 25.19, but still remains higher than its long-term average. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone, suggesting near-term downside.

All three EMAs are moving down, and the index is trading below them in bear territory. It may be early to call this correction the first leg of a bear market. Technical confirmation will be provided by the 'death cross' of the 50 day EMA below the 200 day EMA, and a 20% fall from the Aug 28 top of 11760 (to 9400).

The correction is far from over. Looks like the index wants to test its downward target of the 'measuring gap' at 9850. A little patience may provide better entry points.

Tuesday, October 16, 2018

WTI and Brent Crude Oil charts: correcting after touching 52 week highs

WTI Crude Oil chart


The following remark was made in the previous post on the daily bar chart pattern of WTI Crude Oil: "Daily technical indicators are looking quite overbought, and can trigger a correction."

Oil's price rose to touch a 52 week high of 76.90 on Oct 3, but started correcting from the next day and dropped to seek support from its 50 day EMA. The subsequent pullback is facing resistance from its 20 day EMA.

Daily technical indicators are showing downward momentum after correcting overbought conditions. MACD is falling below its signal line in bullish zone. RSI has slipped below its 50% level. Slow stochastic has dropped inside its oversold zone, and can trigger a rally.

Oil's price is trading above its 50 day and 200 day EMAs in a bull market. Expect some consolidation before the starting the next leg of the rally.

On longer term weekly chart (not shown), oil's price closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators showed negative divergences by touching lower tops, and are moving down in bullish zones.

Brent Crude Oil chart


The following comments appeared in the previous post on the daily bar chart pattern of Brent Crude Oil: "...vertical rally during the past two weeks is unsustainable. A correction may follow."

Oil's price rose to touch a 52 week high of 86.74 on Oct 3, but started correcting from the very next day. It dropped to seek support from its 50 day EMA before bouncing up to its 20 day EMA.

Daily technical indicators are looking bearish after correcting overbought conditions. MACD is falling below its signal line in bullish zone. RSI has slipped below its 50% level. Slow stochastic has dropped to the edge of its oversold zone, and can trigger a rally.

Oil's price is trading above its 50 day and 200 day EMAs in a bull market. Some consolidation can be expected before the next leg of the rally can begin.

On longer term weekly chart (not shown), oil's price closed above its three rising weekly EMAs in long-term bull territory. Weekly technical indicators are in bullish zones, but not showing any upward momentum.

Monday, October 15, 2018

S&P 500 and FTSE 100 charts (Oct 12, 2018): bears force bulls on the ropes

S&P 500 index chart pattern


Possibility of some more correction was mentioned in last week's post on the daily bar chart pattern of S&P 500. Yet, the vicious bear attack on Wed. & Thu. (Oct 10 & 11) seemed to catch bulls unawares.

The index fell vertically to close below its 200 day EMA for the first time in 6 months. By touching an intra-day low of 2710 on Oct 11, the index dropped into the support zone between 2737 and 2689 (which are the 50% and 61.8% Fibonacci retracement levels respectively of the 408 points rally from the Feb 9 low of 2533 to the Sep 21 top of 2941).

Volume spikes on Wed. & Thu. may be the sign of a 'selling climax'. On Fri. Oct 12, the index bounced up to close above its 200 day EMA in bull territory. In the process, it formed an 'inside day' as well as a 'hammer' candlestick pattern. Bulls appear to be ready for a fight back.

Daily technical indicators are looking oversold. MACD and Slow stochastic are falling deeper inside their respective oversold zones. RSI is trying to emerge from its oversold zone, and can trigger a pullback towards the 2800-2850 zone. 

On longer term weekly chart (not shown), the index fell below its 50 week EMA intra-week for the first time since Apr '18, but closed above its 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are showing downward momentum. MACD and Slow stochastic are falling in bullish zones. RSI has dropped below its 50% level.  

FTSE 100 index chart pattern


The bottom seems to be falling out of the daily bar chart pattern of FTSE 100. Bulls were helpless against aggressive bears, as the index closed more than 320 points (4.4%) lower for the week.

All three EMAs are falling, and the index is trading below them in a bear market. A test of the Mar '18 low is on the cards. (At the time of writing this post, the index is correcting further.)

Daily technical indicators are looking oversold. MACD and RSI are falling deeper inside their oversold zones. Stochastic has stopped falling, and can trigger a technical bounce.

On longer term weekly chart (not shown), the index closed below its three weekly EMAs in long-term bear territory. Weekly technical indicators are looking bearish and showing downward momentum. MACD and RSI are falling towards their respective oversold zones. Stochastic is inside its oversold zone.

Sunday, October 14, 2018

Sensex, Nifty charts (Oct 12, 2018): find some support at Fibonacci retracement levels

FIIs were net sellers on all five days of trading last week. Their total net selling was worth a Rs 83.3 Billion. DIIs were net buyers on all five trading days. Their total net buying was worth Rs 85.7 Billion, as per provisional figures.

In Sep '18, India's CPI inflation inched up to 3.77% compared with a 3.69% increase in Aug '18 due to higher food and fuel prices. The figure was less than RBI's medium-term inflation target of 4%.

The IIP number slipped to a 3 months low of 4.3% in Aug '18 from (downward revised) 6.5% in Jul '18 due to a sharp decline in mining sector output and poor offtake of capital goods. However, during Apr-Aug '18, IIP growth was 5.2% - up from 2.3% during Apr-Aug '17.

BSE Sensex index chart pattern



Note the following comments from last week's post on the daily bar chart pattern of Sensex

"...the index appears to be retracing the 13236 points rally from its Dec 26 '16 low (25754) to its Aug 29 '18 top (38990). The 38.2% and 50% Fibonacci retracement levels of the rally are 33934 and 32372 respectively (marked on chart)."

On Thu. Oct 11, the index dropped inside the support zone between 33934 and 32372 and touched an intra-day low of 33724, but bounced up to close just above 34000. A 700+ points rally on Fri. Oct 12 brought a collective sigh of relief to mauled bulls.

Is the worst over? Can Sensex start a pre-Diwali rally? Bulls would do well to keep their hopes on a tight leash. 

By falling to a low of 33724, the index has corrected 5266 points (13.5%) from its Aug 29 '18 top (38990). A 38.2% Fibonacci retracement of the fall will take the index up to 35736, which is the current level of its falling 20 day EMA. To get there, the index needs to overcome resistance from its 200 day EMA (at 35370). 

A pullback to the zone between 35370 and 35736, followed by a corrective move towards 32372 (lower edge of the support zone) seems like a possible outcome. 

What if the index falls below 32372? It can then correct further to 30800 (which is a Fibonacci 61.8% retracement of the 13236 points rally from the Dec '16 low).

A correction down to 30800 will be more than a 20% correction from the Aug 29 '18 top of 38990 and technically push Sensex into a bear market. It may or may not happen, but forewarned is forearmed.

Incidentally, on Fri. Oct 12, FII net selling (Rs 13.2 Billion) exceeded DII net buying (Rs 12.9 Billion) in equity shares. So, whose buying caused the 700+ points rally in Sensex? 

Daily technical indicators are in the process of correcting oversold conditions, but remain in bearish zones. Drop in oil prices and a slight Rupee gain against the US Dollar enthused bulls on Friday. But the stock price of TCS cracked despite declaring decent Q2 (Sep '18) results, which is a bearish sign.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty touched an intra-week low of 10139 - inside the Fibonacci support zone between 10283 and 9827 (38.2% and 50% Fibonacci retracement levels of the rally from the Dec '16 low of 7894 to the Aug '18 top of 11760). 

The index bounced up to close with a 156 points (1.5%) gain on a weekly closing basis. In the process, it formed a weekly reversal bar (lower low, higher close) that can trigger a rally towards the zone between its sliding 50 week and 20 week EMAs. Expect bears to 'sell on rise'.

Weekly technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. ROC is inside its oversold zone, but has stopped falling. RSI has slipped below its 50% level. Slow stochastic is about to enter its oversold zone for the first time since Mar '18.

Nifty's TTM P/E has moved up to 25.33, which is well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling in neutral zone, hinting at some near-term upside.

Bottomline? The corrections on Sensex and Nifty charts have found temporary support at Fibonacci support zones. Pullbacks towards long-term moving averages are likely. Macro headwinds like rising oil prices, a depreciating Rupee, widening trade and fiscal deficits, ongoing debt woes of IL&FS won't die down in a hurry. Perhaps better than expected Q2 (Sep '18) corporate results can bring some succour to bulls. 

Saturday, October 13, 2018

Why You Should Never Short a Stock

If you've ever lost money on a stock, you've probably wondered if there's a way to make money when stocks fall. There is, and it's called short selling.

Even though it seems to be the perfect strategy for capitalizing on declining stock prices, it comes with even more risk than buying stocks the traditional way.

Read more at: 

https://www.investopedia.com/articles/investing/121415/why-you-should-never-short-stock.asp

Thursday, October 11, 2018

NIFTY breaks up trend from March 2016

Julius de Kempenaer is the creator of Relative Rotational Graphs (RRG), a unique method to visualise relative strength of stocks and sectors. He is the founder and director of RRG Research, Amsterdam. Read more about him here.

In a recent post featured on the stockcharts.com site, Kempenaer discusses the decisive break of the up trend on the long-term weekly chart of Nifty, and identifies some of the sectoral indices (based on his RRG) where investors can hide, or expect some outperformance on the down side.

Remember that a trend - whether up or down - is expected to remain in force till it is decisively broken. Last week's downward break of the up trend is a clear indication that another bear phase (within a longer-term bull market) has started.

For those who are unfamiliar with - or have never heard of - RRG, Kempenaer has clearly explained the concept with notes on his RRG charts.

Shown below is the long-term weekly Nifty chart (from Kempenaer's post):



Read more at:

Wednesday, October 10, 2018

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

FIIs were net sellers of equity on the first three trading days this week. Their total net selling was worth Rs 41.4 Billion. DIIs were huge net buyers on all three days. Their total net buying was worth Rs 53.9 Billion, as per provisional figures.

RBI announced it will inject Rs 120 Billion liquidity into the system through purchase of government bonds with maturity ranging from 2020 to 2030, to meet the festival season demand for funds.

The news soothed frayed nerves of bulls. The Rupee recovered from a record low against the US Dollar after six straight days of losses, and triggered a smart short-covering rally - particularly in stocks of NBFCs and banks.



The daily bar chart pattern of Nifty shows that the real damage to bullish sentiments occurred on Thu. Oct 4. The index not only dropped below its 200 day EMA into bear territory for the first time since Mar 19 '18, but did so with a downward 'gap' of 89 points (marked by grey rectangle on chart).

Such a downward 'gap' after a sharp correction has the hallmark of a 'runaway gap' - also called a 'measuring gap' because it tends to occur in the middle of a down move and therefore, has measuring implications.

The mid-point of the 'gap' is at 10800, which is about 950 points below the Sep 3 top of 11752. (Nifty had touched a higher top of 11760 on Aug 28, but the correction started from Sep 3.) So, 10800 - 950 = 9850 is the possible downside target for the index.

On Mon. Oct 8, Nifty touched an intra-day low of 10198, but formed a 'reversal day' bar (lower low, higher close) that set-off a technical bounce. Expect bears to start selling as the index moves up towards the 'gap' zone, which should act as a resistance in the near term.

Daily technical indicators are trying to correct oversold conditions. MACD is below its falling signal line deep inside its oversold zone, but its downward momentum has paused. RSI is trying to emerge from its oversold zone. Slow stochastic is rising inside its oversold zone. A pullback towards the zone between 10600 and 10700 appears likely.

Nifty's TTM P/E has moved down to 25.3, but still remains higher than its long-term average. The breadth indicator NSE TRIN (not shown) is moving down in neutral zone, hinting at some more upside.

All three EMAs are moving down, and the index is trading below them in bear territory. It is too early to call this correction the first leg of a bear market. Technical confirmation will be provided by the 'death cross' of the 50 day EMA below the 200 day EMA, and a 20% fall from the Aug 28 top of 11760 (to 9400).