Wednesday, March 29, 2017

Nifty chart: a midweek technical update (Mar 29 ‘17)

FIIs were net buyers of equity worth a huge Rs 74.5 Billion during the first three trading days this week. DIIs were also net buyers of equity - worth Rs 10.4 Billion, as per provisional figures.

Despite all the buying, Nifty has been stuck in a range between 9000 and 9150 after an intra-day move above 9200 on Fri. Mar 17.

NDA government is facing flak from opposition parties by trying to introduce a large number of amendments to the Finance bill. The GST bill has also been tabled in Parliament. Transition of power in UP has caused a lot of turmoil so far.


The daily bar chart pattern of Nifty has so far received good support from the 85 points 'gap' formed on Mar 14. 

The index dropped inside the 'gap' (marked by grey rectangle) twice - on Mar 22 and Mar 27 - but bounced up on both occasions.

Part filling of the 'gap' should have been followed by a resumption of the up move from the Dec '16 low. F&O expiry on Thu. Mar 30 may be the reason for a bit of caution among market players.

All three technical indicators are in bullish zones after correcting overbought conditions, but are not showing much upward momentum. Some more consolidation or correction can't be ruled out.

The index is trading above its three EMAs in bull territory. The distance between the index and its 200 day EMA is almost 650 points - which is not a 'healthy' condition technically.

Nifty's TTM P/E has inched up to 23.74 - much higher than its long-term average, and limiting index upside. The breadth indicator NSE TRIN (not shown) is in neutral zone. 

The Rupee is strengthening against the US Dollar - thanks to FII and FDI inflows. With DIIs also turning buyers, the index can move higher. 

This is a good time to think about asset reallocation by booking partial profits in equity holdings.

Tuesday, March 28, 2017

Gold and Silver charts: bulls stage smart recoveries after strong bear attacks

Gold chart pattern


The following comment was made in the previous post on the daily bar chart pattern of Gold: "If bulls manage to prop gold's price above 1200, they may be able to regroup and mount another rally."

Gold's price had corrected down to 1195 after rallying from 1125 (Dec '16 low) to 1265 (Feb '17 top) - which was an exact 50% Fibonacci retracement of the rally. So, there was a good chance of a recovery by bulls.

After re-testing the 1195 level - and forming a small 'double bottom' reversal pattern in the process - gold's price rallied above its three EMAs into bull territory.

By touching a high of 1260 on Mar 27, gold's price has recovered almost all its losses from the Feb '17 top of 1265. Bulls need to rally past the Feb '17 top soon. Otherwise there is a possibility of forming a 'double top' reversal pattern.

Daily technical indicators are in bullish zones, but not showing much upward momentum. That could lead to some consolidation or a pullback to the 200 day EMA.

On longer term weekly chart (not shown), gold’s price climbed past its 20 week and 50 week EMAs but is facing resistance from its 200 week EMA. The long-term bear market is intact. Weekly technical indicators are looking bullish, and showing upward momentum. Any further rally may face strong resistance from the zone between 1280 and 1300.

Silver chart pattern


The daily bar chart pattern of Silver formed a small 'double bottom' reversal pattern at 16.80, and rallied past its three EMAs into bull territory. 

The 'death cross' of the 50 day EMA below the 200 day EMA was prevented - keeping bullish hopes alive. 

Silver's price has climbed past 18. A convincing move above 18.50 - where multiple tops were formed in Feb '17 - is required if bulls wish to retain control.

Daily technical indicators are looking bullish, and showing upward momentum. Some more upside is possible. Resistance can be expected from the zone between 18.75 and 19. 

On longer term weekly chart (not shown), silver’s price crossed above its 20 week and 50 week EMAs, but closed below its sliding 200 week EMA in a long-term bear market. Weekly technical indicators are looking bullish and showing upward momentum.

Monday, March 27, 2017

S&P 500 and FTSE 100 charts (Mar 24 '17): retracing last 4 months rally?

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 shows that good sense is dawning among bulls. The 'Trump rally' has not only come to a halt, but may have started retracement of the entire 320 points rally from the Nov 4 '16 low of 2084.

A 38.2% Fibonacci retracement may take the index down to 2280. A 50% Fibonacci retracement can take the index down to 2240.

The index had a sharp break down below the small 'symmetrical triangle' pattern within which it was consolidating after touching its lifetime high of 2401 on Mar 1.

The 50 day EMA has provided good support so far. But that support is unlikely to hold. Failure to pass the healthcare bill has raised market concerns that Trump may not be able to deliver on many of his other election campaign promises.

There is a technical reason why the index may breach support from its 50 day EMA. Note that all three technical indicators are showing negative divergences by falling lower than their Feb '17 lows, while the index touched a higher bottom.

Technical indicators are looking bearish and hinting at some more correction. But the index is trading well above its rising 200 day EMA. The long-term bull market is intact.

On longer term weekly chart (not shown), the index closed below 2350 but well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are correcting overbought conditions, and showing downward momentum. Expect some more correction.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 had been trading within a large 'rising wedge' pattern for the past two months. The index managed to cling on to the lower edge of the 'wedge' last week.

However, at the time of writing this post, the index has fallen sharply below the 'wedge'. (The possibility of such a downward break out was mentioned in last week's post.)

Daily technical indicators are looking bearish and showing downward momentum. Some more correction is likely.

On longer term weekly chart (not shown), the index closed 1.2% lower for the week but well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are correcting overbought conditions, and showing downward momentum.

Sunday, March 26, 2017

Sensex, Nifty charts (Mar 24, 2017): pause after touching new highs

FII net buying in equities was lower than the previous week at Rs 37.1 Billion, as per provisional figures. DII net selling in equities was higher than the previous week at Rs 25.9 Billion.

However, both indices closed lower for the week - Sensex by 0.8% and Nifty by 0.6%. Some profit booking after both indices touched new highs was only to be expected.

India's Current Account Deficit (CAD) for Q3 (Dec '16) rose to four-quarter high of 1.4% of GDP (at US $ 7.9 Billion) against 0.6% of GDP for Q2 (Sep '16). CAD for Q3 (Dec '15) was also 1.4% of GDP (at US $7.1 Billion). 

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex shows how news can affect market technicals in the short term. 

There was a downward breach on Mar 8 '17 of the blue up trend line drawn from the Dec 26 '16 low (marked 1). An upward 'gap' on Mar 14 '17 - following announcement of state election results - took the index back above the up trend line '1'.

After touching a new 52 week high of 29825 (and closing at a lifetime high of 29649) on Mar 17 '17, the index corrected on profit booking. Trend line '1' was breached on the downside again - on Mar 21 '17.

Note that the mere breach of a trend line may not necessarily indicate a trend reversal. Some times it is a warning of an impending reversal.

A second up trend line (marked 2) has been drawn through the Dec 26 '16 and Mar 22 '17 lows. Any downward breach of trend line '2' may not indicate a trend reversal either. But it will be a second warning.

As per 'corrective fan principle', only a breach of a third up trend line - should it need to be drawn after a downward breach of trend line '2' - will confirm a reversal of the up trend (or a much deeper correction).

Since the index is trading above its three rising EMAs in a bull market, there is no need to panic and sell. Neither should any one go on a buying spree.

Daily technical indicators are in bullish zones but giving conflicting signals. MACD and Slow stochastic are showing downward momentum. ROC and RSI are showing upward momentum.

If you can't control your urge to buy, choose safer large-cap stocks. Better still, let your asset allocation plan be your guide.

NSE Nifty index chart pattern



Attention is being drawn to the following comments in last week's post on the weekly bar chart pattern of Nifty: "Nifty is trading more than 700 points above its rising 50 week EMA. The last time it did that - in the week ending on Sep 9 '16 - a sharp correction had followed." 

Therefore, last week's correction - albeit a small one - should not have come as a surprise to regular readers of this blog.

Has anything changed in the technical structure of the chart? Not yet. Last week's upward 'gap' has been partly filled. The index may correct a bit more to completely fill the 'gap'.

Either way - i.e. partial or complete filling of an upward 'gap' - should be followed by a resumption of the up move.

Since the index is trading well above its rising 20 week and 50 week EMAs in a bull market, a slightly deeper correction will improve the technical 'health' of the chart - enabling Nifty to climb to new highs. But wishing for a correction doesn't make it happen.

Weekly technical indicators are still looking overbought. ROC is showing the first sign of a correction by dropping down to its rising 10 week MA.

Nifty's TTM P/E remains much higher than its long-term average at 23.65. The breadth indicator NSE TRIN (not shown) has fallen sharply inside its neutral zone. Any further index upside may push TRIN inside its overbought zone.

Bottomline? Both Sensex and Nifty charts are pausing after touching new highs. Q4 (Mar '17) earnings need to catch up as both indices are looking overvalued. Downside risk appears higher. Investors should be thinking about booking profits and buying fixed income instruments.

Friday, March 24, 2017

How to become a better investor by avoiding mental mistakes

Bulls are on a roll. The stock market is touching new highs. Every one seems to be making money. How can you stay away when exciting things are happening all around you?

You jump in and buy 1000 shares of a Rs 80 stock, expecting to turn a quick profit in a few days. Your friend said it was a 'sure shot' winner. Experts are recommending it. The price is moving up daily.

The day you buy, the stock starts falling. It falls Rs 3 on day 1, then Rs 4 on day 2 and again Rs 3 on day 3. You're down Rs 10000 in 3 days. What is going on?  What to do now?

You have three options: 
1. Sell, and take the loss. 
2. Buy more to 'average' your 'buy' price.
3. Wait hopefully for the price to go back up so you can recoup your losses.

Chances are, you will choose option 2 or 3. Why? Because no one likes to book a loss - particularly if it is a substantial sum. What will you tell your friends? Won't they laugh at you? 

Now, imagine another investor in a slightly different situation. He buys 500 shares of a Rs 100 stock. The stock catches market fancy after a recommendation by a popular expert, and quickly rises to Rs 140 in 2 days.

He feels proud about his smart choice and plans to book profit at 150. But the stock price dives to 120 on the following day. In one day, his profit of Rs 20000 is halved to Rs 10000. What will he do now?

Again, there are three options:
1. Sell, and book the smaller profit.
2. Buy more because the price may rise up again.
3. Wait for the price to rise back to 140 so that the full profit of Rs 20000 can be booked.

Chances are, either option 2 or 3 will be chosen again. 

In both instances, selling would have been the smarter option. Small investors get mentally 'anchored' to a price - either the price at which they bought or the price to which a stock's price has moved up or down. It prevents them from making a rational decision.

An entire field of study - called Behavioural Finance - has evolved because of apparently irrational behaviour of human beings when money is involved in decision making.

Some familiarity with Behavioural Finance concepts can help small investors avoid mental mistakes that prevent them from getting superior returns from their investments.

In a recent article in investopedia.com, Cathy Pareto has discussed a few common mental mistakes that small investors make. Knowing about and learning from these mistakes will help you to become a better investor.

Wednesday, March 22, 2017

Nifty chart: a midweek technical update (Mar 22 ‘17)

FIIs were net buyers of equity worth Rs 20.8 Billion during the first three days of trading this week. DIIs were net sellers of equity worth Rs 21.1 Billion, as per provisional figures.

Nifty had touched a lifetime high of 9218 on Fri. Mar 17, but has been in a corrective mode this week. Today, the index opened with a downward 'gap' and closed below 9050, partly filling the 85 points upward 'gap' formed on Tue. Mar 14.


There were a few technical and fundamental signs of worry for bulls that were mentioned in last week's technical update on the daily bar chart pattern of Nifty.

Though a bull market is supposed to climb a 'wall of worries', the index rarely moves in one direction. Corrections do occur, and are necessary to improve the technical 'health' of charts.

The good news for bulls is that the index is trading above its three EMAs in a bull market, and the long-term bullish structure of Nifty's chart is intact.

Daily technical indicators are in bullish zones and showing downward momentum after correcting overbought conditions. Some more correction may be on the cards.

There is a good possibility that the index will completely fill the 85 points upward 'gap' formed on Tue. Mar 14, and test support from the 8950 level.

In case 8950 gets breached on the downside, expect stronger support from the zone between 8700-8800. 

Note that the 38.2% Fibonacci retracement level of the entire rally from the Dec '16 low (of 7894) to the Mar '17 top (of 9218) is 8712. 

Remember that after correcting down to fill an upward 'gap', an index typically resumes its up move. If you were waiting for a correction to enter, this is the one to do so.

Can Nifty fall below 8700? There is no rule which says it can't. So, it may be a good idea to wait for the index to find some support and bounce up before entering.

Nifty's TTM P/E remains high at 23.45. The breadth indicator NSE TRIN (not shown) is rising in neutral zone - hinting at some more correction.

Tuesday, March 21, 2017

WTI and Brent Crude Oil charts: break down sharply below consolidation patterns

WTI Crude Oil chart


The following comments were made in the previous post on the daily closing chart pattern of WTI Crude Oil: "Oil's price is likely to correct downwards from the 'wedge'. Stronger volumes on recent down days are indicating that bears are sensing an opportunity to attack."

Daily technical indicators, which were looking bearish and showing negative divergences, had also signalled a correction. 

Oil's price broke down below the 'rising wedge' pattern and plummeted below its 200 day EMA in the space of three trading sessions - wiping out all gains made in the previous three months. 

After a brief pullback above the 200 day EMA, oil's price has once again dropped into bear territory below its three EMAs.

Daily technical indicators have corrected oversold conditions, but remain in bearish zones and are not showing any upward momentum. 

Bears have regained control of the chart. Expect some support at 47.

On longer term weekly chart (not shown), oil's price has dropped below its 20 week EMA and is seeking support from its 50 week EMA. It closed well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are looking bearish, and showing downward momentum.

Brent Crude Oil chart


The daily closing chart pattern of Brent Crude Oil broke down sharply below the 'symmetrical triangle' pattern within which it was consolidating for the previous 10 weeks.

All gains made in the previous three months were erased in three trading sessions. Oil's price has bounced up after finding good support from its 200 day EMA.

The respite from a strong bear attack may be short-lived for bulls. Daily technical indicators are close to their respective oversold zones and showing downward momentum.

Some more correction - towards 49 - is likely.

On longer term weekly chart (not shown), oil's price has dropped below its 20 week EMA and is seeking support from its 50 week EMA. It closed well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are looking bearish, and showing downward momentum.