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Wednesday, January 18, 2017

Nifty chart: a midweek technical update (Jan 18 ‘17)

FIIs were net sellers of equity on Mon. Jan 16, but turned net buyers on the next two days. Their total net buying for the three days of trading this week was worth Rs 1.1 Billion. 

As per provisional figures, DIIs were net buyers of equity on Mon. and Wed. but their net selling on Tue. Jan 17 exceeded their net buying by Rs 1.6 Billion. Nifty has been stuck in neutral gear in spite of all the buying and selling.

WPI inflation rose to 3.39% in Dec '16 against 3.15% in Nov '16 and -1.06% in Dec '15. Higher diesel and petrol prices were the main culprits.


The daily bar chart pattern of Nifty had formed a 'double bottom' reversal pattern during Nov-Dec '16 and has been rallying since then. 

After a brief pause near its 200 day EMA, the index negated the 4 months long down trend by crossing above the down trend line with an upward 'gap' last Wed. (Jan 11) on the back of strong buying by DIIs. 

Nifty has been consolidating sideways during the past 5 trading sessions, hovering near the 8400 level.

The 50 day EMA has formed a small 'rounding bottom' reversal pattern and is about to cross above the 200 day EMA. The 'golden cross' will technically confirm a return to a bull market.

Note that all three EMAs have converged together (marked by grey ellipse). A sharp move is likely. Logically, the move should be upwards, because the index is trading above its three EMAs in bull territory.

However, market moves are not always logical. So, a sharp down move towards the 200 day EMA can't be ruled out. Such an event will provide a buying opportunity.  

Daily technical indicators are bullish and looking overbought. MACD has entered its overbought zone. Slow stochastic has been inside its overbought zone since the beginning of the year. RSI is moving sideways just below its overbought zone.

Nifty's TTM P/E is at 22.39 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is inside its overbought zone. The index upside appears limited.

How limited? The 'double bottom' pattern has measuring implications - with an upward target of 8650. To get there, Nifty needs to cross above a resistance zone between 8500 and 8600.

Will it be able to do so? Yes, if FIIs continue buying - like they did during the past two days.

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Tuesday, January 17, 2017

Gold and Silver charts: bulls fight back but face strong resistance zones

Gold chart pattern


What had looked like a technical bounce from the Dec '16 low on the daily bar chart pattern of Gold turned into a sharp rally of about 80 points. 

Gold's price surged past its 20 day and 50 day EMAs on short covering and some value buying before running into the long-term 'support-resistance' zone between 1200 and 1220.

The 200 day EMA is still falling, and gold's price is trading well below it in a bear market.

Daily technical indicators are in bullish zones but not showing much upward momentum. Slow stochastic is inside its overbought zone, and may trigger a correction.

On longer term weekly chart (not shown), gold’s price has closed below all three weekly EMAs in a long-term bear market, despite rallying for two weeks with good volume support. Weekly technical indicators are correcting oversold conditions but remain in bearish zones. 

Silver chart pattern


The daily bar chart pattern of Silver tried to play catch-up with gold's chart, but after crossing above its 20 day EMA the rally stalled at the 50 day EMA - just below the 'support-resistance' zone between 17 and 17.50.

Daily MACD and RSI are in neutral zones and not showing much upward momentum. Slow stochastic is inside its overbought zone and turning down.

The short-covering rally, triggered by positive divergences visible on all three daily technical indicators (which touched higher bottoms when silver's price dropped lower in Dec '16), may have already come to an end. 

On longer term weekly chart (not shown), silver’s price rallied for two weeks but closed below its three weekly EMAs in a long-term bear market. Weekly technical indicators are correcting oversold conditions but remain in bearish zones.

Monday, January 16, 2017

S&P 500 and FTSE 100 charts (Jan 13 '17): bulls are clearly on top

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 was in pause mode - trading within a 25 points range and closing just 2 points lower for the week. 

On Thu. Jan 12, the index dropped below its rising 20 day EMA to a low of 2254 intra-day, but bounced up to close near its much higher opening level of 2271 - forming a 'hammer' candlestick pattern.

Any bullish implications of the 'hammer' pattern were negated by the formation of a 'shooting star' candlestick on Fri. Jan 13 - showing honours were even between bulls and bears.

Daily technical indicators are in bullish zones but hinting at some more index consolidation before resumption of the up move. MACD is sliding down gently below its falling signal line. RSI and Slow stochastic are moving sideways.  

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market for the 45th week in a row. All three weekly technical indicators are looking overbought, but not showing much upward momentum.

FTSE 100 index chart pattern



The daily bar chart pattern of FTSE 100 is in the midst of a record-breaking and unprecedented bull run with 14 consecutive higher closes starting from Dec 22 '16.

At the time of writing this post, the index is trading 5 points higher - and well above its three EMAs in a bull market. A weakening UK Pound against the US Dollar, Japanese Yen and Euro has been propelling the index higher.

All three daily technical indicators are inside their respective overbought zones. Note that an index can remain overbought for long periods. But such a one-way rally without a correction is not technically 'healthy'. It reminds me of the story of Icarus.

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market for the 29th week in a row. Weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index. 

Sunday, January 15, 2017

Sensex, Nifty charts (Jan 13, 2017): game over for bears?

FIIs were net sellers of equity worth Rs 11 Billion, as per provisional figures. DIIs were net buyers of equity worth Rs 8.8 Billion. However, both Sensex and Nifty gained nearly 2% during the week.

There was some cheer on the economic front. The IIP number for Nov '16 was a surprising 5.7% against -1.8% in Oct '16 and -3.4% in Nov '15. Any adverse effect of demonetisation may become apparent from the Dec '16 number.

CPI inflation in Dec '16 slipped to 3.41% against 3.63% in Nov '16 and 5.61% in Dec '15 due to weak consumer demand. 

Exports rose for the 4th straight month to 5.72% in Dec '16. Imports rose only 0.46%, thanks to lower gold imports, leaving a lower trade deficit of $10.4 Billion.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex slid down the slope of the down trend line on Mon. Jan 9 before bouncing up and closing above its three EMAs in bull territory for the next four days.

On Fri. Jan 13, the index rose to test resistance from the 27600 level but fell short. It closed slightly lower to form a 'reversal day' bar (higher high, lower close) - giving some encouragement to bears.

Note that the three EMAs are converging, which is often a prelude to a sharp move. But in which direction?

Daily technical indicators are giving some clues. All four are in bullish zones. MACD is rising above its signal line in positive territory. But RSI and Slow stochastic are looking quite overbought. ROC faced strong resistance from the edge of its overbought zone and is about to cross below its rising 10 day MA.

A pullback to the 200 day EMA seems on the cards. A subsequent strong upward bounce can carry the index above the resistance level of 27600. 

Be aware that both FIIs and DIIs were net sellers on Thu. and Fri. If they don't resume buying, the index may consolidate sideways within the 'support-resistance' zone between 25900 and 27600 for a while.

Stock picking skills will get tested. Avoid 'cheap' stocks.

NSE Nifty index chart pattern



The inevitable happened. The weekly bar chart pattern of Nifty followed the example of Sensex and crossed above the resistance level of 8300 and the blue down trend line that had dominated the chart for 18 weeks.

Good volume support technically validated the 'double bottom' reversal pattern and the break out above the down trend line.

All four weekly technical indicators are still in bearish zones, but turning bullish by showing upward momentum.

A pullback to the down trend line and the 8300 level can't be ruled out. But technically, the index is poised to move higher.

Nifty's TTM P/E has moved towards 22.50 - higher than its long-term average. The breadth indicator NSE TRIN (not shown) is inside its overbought zone. Some correction or consolidation is likely. 

Bottomline? Sensex and Nifty charts have finally reversed 4 months long down trends after forming 'double bottom' reversal patterns. Bears are losing the war, but may put up a last-ditch battle. FII buying support is required for a sustained rally. Check Q3 (Dec '16) results before taking any major buy/sell decisions.

(Note: Markets 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, 2017. Enrolments have started. Contact me for details: mobugobu@yahoo.com.)

Friday, January 13, 2017

To diversify, or not to diversify? That is the question.

Diversifying - in the context of business and investments - means hedging your bets, instead of putting all your eggs in one basket.

What is the main benefit of diversifying? Reduction of risk. Say, you are supplying large plastic containers to domestic paint manufacturers and have built up a reasonably good clientele.

Out of the blue, demonetisation of bank notes is announced by the government. The real estate sector goes for a toss and paint manufacturers curtail production. A big supply order of containers that you were negotiating gets cancelled.

What will you do? Shout from the rooftops about what an ill-planned disaster demonetisation has been? Or, realise the need of ridding the financial system of large amounts of untaxed cash and look for alternatives?

One alternative is to look for opportunities at other organisations in the domestic market with a need for large plastic containers - like Edible oil manufacturers. That would be a diversification.

Another alternative is to look for opportunities in the export market. A third alternative may be to make small plastic containers - used by shampoo and hair-oil makers.

Without making too many changes to your expertise and production capabilities, you now have more opportunities of growing your business and reducing risk by operating in different markets and product categories.

Peter Lynch coined the term "di'worse'ification" for companies that diversify into unrelated businesses that destroy rather than create shareholder value. A classic example?  Reliance entering the telecom services business. 

As if one brother's disastrous foray into telecom services was not enough. Now, big brother is throwing more money into the same business. The result is likely to be equally disastrous.

What about diversifying in the investment arena? Should you, or shouldn't you? Most financial experts will recommend diversification for reducing risk. That doesn't mean you buy 20 equity funds or 50 stocks.

Real diversification means investing in different asset classes after making a financial plan and an asset allocation plan depending on your goals and risk profile. 

Investing partly in equity, partly in fixed income, partly in gold, partly in a liquid fund will provide a well-rounded portfolio across different market and interest cycles.

When the stock market is booming, stocks will provide huge returns. What if the market crashes - as it often does? Fixed income instruments will continue to provide lower but steady returns, and liquid funds can be transferred to buy equity funds at lower NAVs.

Is there a downside to a planned and well-diversified portfolio? Unfortunately, yes. You will generate steady, average returns, but are unlikely to get filthy rich.

How can you get filthy rich? By becoming the next Bill Gates. Gates stuck to a single line of business, and made sure the whole world will use his company's software through shrewd negotiations with computer makers. (His di'worse'ification efforts into electronic products haven't borne fruit.)

Moral of the story? For mere mortals - like you and me - a planned and well-diversified portfolio that reduces risk and provides steady returns over many years is the route to financial freedom.

Learn more: 
What Does Investment Diversification Really Mean?

Related Post

Wednesday, January 11, 2017

Nifty chart: a midweek technical update (Jan 11 ‘17)

As per provisional figures, net selling in equities by FIIs was worth Rs 9.7 Billion during the first three trading days of the week. DIIs were net buyers of equity worth Rs 14.7 Billion, which allowed Nifty to kill two birds with one stone.

At the ongoing Vibrant Gujarat Global summit, where it is represented by a high-profile 20-member business delegation, Saudi Arabia invited India to play a key role in the kingdom's economic transformation as it seeks to reduce its dependence on oil exports.


The daily bar chart pattern of Nifty vaulted above the twin resistances of the 8300 level and the down trend line, when it opened with an upward 'gap' to begin trading today. 

The index continued its intra-day up move and closed at 8380 with strong volume support (not shown). A breach of a trend line with a 'gap' is considered to be 'stronger' than a breach during regular intra-day trading.

The index killed two birds with one stone - technically confirming the 'double bottom' reversal pattern and reversing the 4 months long down trend.

For the second day in a row, the index closed above its three EMAs in bull territory. The 50 day EMA is forming a small 'rounding bottom' pattern and looks ready to negate its earlier 'death cross' (below the 200 day EMA).

Daily technical indicators are looking bullish and showing upward momentum, hinting at a continuation of the rally. Is it time to throw caution to the winds and start buying by the truckload? 

Not really. Nifty's TTM P/E has moved up to 22.42 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling deeper inside its overbought zone. A correction/pullback may be around the corner. 

The index gave two good opportunities to buy when it dropped twice to the 7900 level in Nov '16 and Dec '16. Don't fret if you didn't buy then. There are always good buying opportunities in individual stocks. 

(Note: Thinking of adding quality mid-cap and small-cap stocks to your portfolio? Subscribe to my Monthly Investment Newsletter. Paid subscriptions are being offered to blog visitors, followers and subscribers till Jan 21, 2017. Contact me at mobugobu@yahoo.com for details.)

Tuesday, January 10, 2017

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

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil broke out upwards from its trading range between 52 and 54 on the first day of trading in the New Year.

Oil's price crossed above the 55 level intra-day, but succumbed to selling pressure and dropped to seek support from its rising 20 day EMA. In the process, a 'reversal day' bar (that often marks an intermediate top) got formed.

After a brief upward bounce past the 54 level, oil's price corrected sharply below its 20 day EMA and closed just below 52. Concerns over rising US output and Iraqi exports may have contributed to the bearishness.

All three daily technical indicators showed negative divergences by touching lower tops when oil's price touched a new 52 week high. 

MACD has crossed below its signal line and corrected from its overbought zone. Note that the signal line has formed a 'rounding top' reversal pattern. The last time it formed such a pattern was in Oct '16 - when oil's price dropped from 52 to 42.

RSI and Slow stochastic are showing downward momentum and are about to enter bearish zones. Higher volumes on recent down days is another bearish sign.

On longer term weekly chart (not shown), oil's price is trading above its rising 20 week and 50 week EMAs, but below its sliding 200 week EMA in a long-term bear market. Weekly technical indicators are in bullish zones, but not showing any upward momentum.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil crossed above the 58 level intra-day on the first trading day of the New Year but dropped to close near 55. A large 'reversal day' bar (higher high, lower close) got formed in the process.

After bouncing up to the 57.50 level on Jan 6, oil's price corrected sharply below its 20 day EMA and closed just below 55. Negative divergences visible on all three daily technical indicators, which touched lower tops when oil's price touched a new 52 week high, may have triggered the correction.

MACD has crossed below its signal line and has corrected down from its overbought zone. RSI and Slow stochastic are showing downward momentum and seeking support from their respective 50% levels.

Stronger volumes on recent down days is a clear sign that bears are becoming active. Despite OPEC production cut, another year of low oil prices is likely.

On longer term weekly chart (not shown), oil's price is trading above its 20 week and 50 week EMAs, but below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are in bullish zones, but not showing any upward momentum.