Friday, June 22, 2018

Understanding the Cash Conversion Cycle

"The cash conversion cycle (CCC) is one of several measures of management effectiveness. It measures how fast a company can convert cash on hand into even more cash on hand. 

The CCC does this by following the cash as it is first converted into inventory and accounts payable (AP), through sales and accounts receivable (AR), and then back into cash. Generally, the lower this number is, the better for the company. 

Although it should be combined with other metrics (such as return on equity and return on assets), the cash conversion cycle can be especially useful for comparing close competitors because the company with the lowest CCC is often the one with better management."

Read more at:
https://www.investopedia.com/articles/06/cashconversioncycle.asp

Wednesday, June 20, 2018

Nifty chart: a midweek technical update (Jun 20, 2018)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth a huge Rs 45.2 Billion. DIIs were net buyers on all three trading days. Their total net buying was worth Rs 29.5 Billion, as per provisional figures.

Domestic air passenger traffic grew 16.53% to 11.86 million in May '18 as compared to 10.17 million in May '17according to data released by DGCA.

Overseas funds are pulling out of six major Asian emerging equity markets at a pace unseen since the global financial crisis of 2008 — withdrawing US $19 Billion from India, Indonesia, Philippines, South Korea, Taiwan and Thailand so far this year, according to Bloomberg.


The daily bar chart pattern of Nifty shows that bears are putting up strong resistance by defending the down trend line. Following last Wednesday's intra-day breach, the index dropped to seek support from the 'gap' formed on Feb 5.

The index bounced up today and closed above its three EMAs in bull territory. A convincing move above the down trend line is necessary for bulls to regain control of the chart.

Daily technical indicators are in bullish zones, but not showing any upward momentum. A fall below the 50 day EMA can lead to a test of support from the 200 day EMA.

Nifty's TTM P/E has slipped a bit to 26.52 - which is still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is showing downward momentum in neutral zone, and can trigger some near-term index up side.

FIIs continue to sell heavily. The Rupee is weakening against the US Dollar. The OPEC meeting on Jun 22 will decide the near-term trend in oil's price. Trump's trade war with China can upset global economic growth trajectory.

All of the above may increase volatility in the stock market. So, remain cautious. The rising 200 day EMA is an indication of a bull market. No need for any panic selling or impulsive buying.

Tuesday, June 19, 2018

WTI and Brent Crude Oil charts: bears trying to gain control

WTI Crude Oil chart


The following remarks were made in the previous post on the daily bar chart pattern of WTI Crude Oil: "Slow stochastic is well inside its oversold zone. A likely pullback towards the 'Support/Resistance zone' will provide bears another selling opportunity."

The expected pullback almost turned into a rally, but formed a bearish 'rising wedge' pattern. Note the sliding volumes during the formation of the 'wedge' pattern, which gave a warning that the rally would not last.

On Thu. Jun 14, oil's price rose above the 'support/resistance zone' intra-day, but faced strong resistances from the upper edge of the 'wedge' and the merged 20 day and 50 day EMAs.

A sharp breakout below the 'rising wedge' on Fri. Jun 15 was followed by a pullback towards the 'wedge' and the 'support/resistance zone' on Mon. Jun 18. Bears may use the pullback to sell.

Daily technical indicators have corrected oversold conditions, but remain in bearish zones. Oil's price is trading above its rising 200 day EMA in bull territory. However, bears are gaining ground.

On longer term weekly chart (not shown), oil's price is struggling to stay above its 20 week EMA but closed above its 50 week and 200 week EMAs. Weekly MACD is falling in bullish zone. RSI is seeking support from its 50% level. Slow stochastic has dropped below its 50% level. Some more correction or consolidation is likely.

Brent Crude Oil chart


The following remarks were made in the previous post on the daily bar chart pattern of Brent Crude Oil: "Oil's price is trading above its 50 day and 200 day EMAs in bull territory, but the corrective move may continue a while longer."

For more than 3 weeks, oil's price has been correcting within a downward-sloping channel. On Fri. Jun 15, oil's price closed at the lower edge of 'support/resistance zone 2'.

On Mon. Jun 18, oil's price formed a large 'reversal day' bar by falling lower to the edge of the channel, only to bounce up and close above its 50 day EMA. Another attempt may be made by bulls to breach the upper edge of the channel.

Daily technical indicators are looking bearish to neutral. MACD is below its falling signal line and has entered bearish zone. RSI is in neutral zone, and showing some upward momentum. Slow stochastic is in bearish zone, and moving down. 

On longer term weekly chart (not shown), oil's price received support from its 20 week EMA, and closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators have corrected overbought conditions. Some more correction or consolidation is likely.

Monday, June 18, 2018

S&P 500 and FTSE 100 charts (Jun 15, 2018): bears stall bull rallies

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: "Note that Friday's higher close was on weaker volumes. Bears may use the opportunity to force bulls to retreat. Any further rally is likely to face resistance from the 2810 level."

The index faced resistance at 2790, and pulled back to the top of the 'Flag' pattern on Wed. Jun 13. Instead of bouncing up, the index dropped inside the 'Flag' intra-day on Fri. Jun 15 but managed to close just above the 'Flag'.

Friday's trading formed a 'hammer' candlestick pattern that has bullish implications. The significant volume spike is probably a sign of 'selling climax'. 

Daily technical indicators are in bullish zones. MACD and RSI are moving sideways. Slow stochastic is sliding down inside its overbought zone. The index is trading above its three rising EMAs in a bull market. 

A possible move above 2810 can lead to a test of resistance from 'GAP 1'. Bears can be expected to give ground grudgingly. In case of further correction, 'GAP 2' should provide strong support. 

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market, but formed a 'doji' candlestick that can lead to some correction or consolidation. Weekly technical indicators are looking bullish.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 spent another week consolidating sideways in a range between 7601 and 7793. 

On Thu. Jun 14, the index tested resistance from its Jan '18 top of 7793 but dropped to close below its 20 day EMA on Fri. Jun 15 - with a weekly loss of 0.6%.

The 50 day and 200 day EMAs are rising, and FTSE is trading above them in a bull market. Daily technical indicators are looking bearish and showing downward momentum - hinting at more consolidation/correction. 

On longer term weekly chart (not shown), the index closed well above its  three weekly EMAs in a long-term bull market. Weekly MACD is moving sideways inside its overbought zone. RSI is rising above its 50% levelSlow stochastic has fallen from its overbought zone.

Sunday, June 17, 2018

Sensex, Nifty charts (Jun 15, 2018): bulls fail to overcome resistance from bears

FIIs stepped up their selling. They were net sellers of equity worth a huge Rs 52.9 Billion during the week. DIIs were net buyers of equity worth Rs 40.1 Billion, as per provisional figures. Sensex and Nifty gained about 0.5% each on a weekly closing basis.

India's Current Account Deficit (CAD) widened to US $13 Billion (1.9% of GDP) in Q4 (Mar '18), up from US $2.6 Billion (0.4% of GDP) in Q4 (Mar '17), but slightly lower than $13.7 Billion (2.1% of GDP) in Q3 (Dec '17). Higher software exports and remittances were not enough to cover higher crude oil and commodity prices.

WPI inflation jumped to 4.43% in May '18 - a 14 months high - against 2.26% in May '17 and 3.6% in Apr '18 - largely on account of higher fuel, fruit and vegetable prices.

BSE Sensex index chart pattern



The following remarks were made in last week's post on the daily bar chart pattern of Sensex: "Bears are not giving up just yet. A fall below the 'rising wedge' may lead to a test of support from the 'Support/Resistance zone'. The balance can swing toward bulls if the index moves above the down trend line."

On Wed. Jun 13, the index crossed above the down trend line intra-day but faced resistance from the upper edge of the 'rising wedge' pattern (within which it has been trading for the past 4 weeks).

Profit booking ensued. The index dropped towards the lower edge of the 'wedge', and touched an intra-day low of 35420 on Fri. Jun 15. Bears bought the dip and prevented a fall below the 'wedge'. Sensex closed for the week above its three daily EMAs in bull territory. 

Daily technical indicators are in bullish zones, but turning bearish. MACD is moving sideways above its rising signal line in bullish zone. ROC formed a 'double top' reversal pattern and fell below its 10 day MA. RSI has dropped from its overbought zone. Slow stochastic is about to fall from its overbought zone.

There are strong supports for the index on the downside. The 20 day EMA is merging with the lower edge of the 'rising wedge'. That ought to help bulls put up a fight to prevent a likely fall below the 'wedge'.

The 50 day EMA has just entered the 132 points 'gap' (formed on Feb 5), and should provide stronger support to the index in case of a fall below the 'wedge'.

Can the index fall below the 'gap'? Anecdotal evidence suggests the possibility. Rising interest rate and a falling Rupee has sent even long-only funds scurrying towards the 'exit' door. In which case, Sensex can fall towards the 'Support/Resistance zone' and test support from the rising 200 day EMA.

An index move above the down trend line and the May '18 top of 35994 will lead to new lifetime highs. But that may happen after some more correction and consolidation.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty closed higher for the 4th week in a row, and managed to breach the down trend line intra-week. The 20 week and 50 week EMAs are rising, and the index closed above them for the 10th straight week.

In other words, the bull market is very much alive - even though the index has closed below the down trend line for 20 weeks in a row. Note that the volume bars are showing negative divergence by falling while the index has been rising higher for the past two weeks.

Weekly technical indicators are in bullish zones. MACD has started to rise above its signal line. RSI has climbed up to the edge of its overbought zone. Slow stochastic has entered its overbought zone. ROC is above its rising 10 week MA, but is poised to fall from its overbought zone. Some correction or consolidation may follow.

Nifty's TTM P/E has moved up to 27.44 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone, and can limit near-term index upside.

Bottomline? Another attempt by bulls to regain control of Sensex and Nifty charts was thwarted by bears, who defended the down trend lines well. Some more consolidation or correction appears likely. Small investors should continue their SIPs but stay away from any impulsive buying/selling till a clear trend emerges. Long term chart structures remain bullish. 

Friday, June 15, 2018

Candlesticks and Oscillators for Successful Swing Trades

"Swing traders specialize in using technical analysis to take advantage of short-term price moves. Successfully trading these swings requires the ability to accurately determine both trend direction and trend strength. 

This can be done through the use of chart patterns, oscillators, fractals, volume analysis and a variety of other methods. This article will focus on using oscillators and candlestick patterns as a quick and easy way to characterize a trend and successfully identify swing trades."

Read more at:

https://www.investopedia.com/articles/trading/06/swingtrades.asp

Wednesday, June 13, 2018

Nifty chart: a midweek technical update (Jun 13, 2018)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 24 Billion. DIIs were net buyers on all three trading days. Their total net buying was worth Rs 28.8 Billion, as per provisional figures.

CPI inflation rose to a 4 months high of 4.87% in May '18 as compared to 4.58% in Apr '18 and 2.18% in May '17. Higher food and fuel prices were the components stoking inflation.

The IIP number increased a little to 4.9% in Apr '18 against a 5 months low of 4.4% in Mar '18. Mining and scientific instruments were positive contributors, while gold jewellery was a negative contributor.


The daily bar chart pattern of Nifty shows that bulls are gradually overcoming all the challenges thrown at them by bears - by moving above the downward 'gap' of Feb 5 and testing resistance from the (purple) down trend line.

The trigger may have been provided by last Friday's (Jun 8) trading, when the index dropped inside the 'gap' intra-day, but bounced up to close above it.

Nifty breached the down trend line during intra-day trading today, but pulled back below the trend line on profit booking before closing exactly on it. Bulls will regain control of the chart once the index crosses above its previous (May 15) top of 10929.

Daily technical indicators are in bullish zones but looking overbought. MACD is rising above its signal line, and has entered its overbought zone. RSI is slowly moving up towards its overbought zone. Slow stochastic is well inside its overbought zone.

Nifty's TTM P/E has risen to 27.54 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone, and can limit further index up side.

Rising inflation without much growth in industrial production is a worrying sign. So is the weak Rupee. The index is where it was in end Feb '18 in US Dollar terms. That is one of the reasons why FIIs are not buying. Oil's price has moderated a bit, but can go up again after OPEC's meeting on Jun 22.

Q4 (Mar '18) corporate results have shown revenue growth but margin pressure. Nifty's TTM P/E is looking unsustainable with no earnings improvement in sight. Remember that you make money in the stock market by being fearful when others are greedy - and vice versa.

Nifty is trading above its three rising EMAs in a bull market. The long-term structure of the chart remains bullish. Small investors should be cautiously optimistic.