Wednesday, September 28, 2016

Nifty chart: a midweek technical update (Sep 28 '16)

FIIs were net sellers of equity on Mon. and Tue. while DIIs were net sellers of equity on Mon. and Wed. FIIs were net buyers on Wed. while DIIs were net buyers on Tue.

Total net selling of equities by FIIs was worth Rs 290 Crores. Total net selling by DIIs was worth Rs 90 Crores - as per provisional figures. The comparatively lower numbers are due to uncertainty during F&O expiry week.

In a sign of recovery, India's seafood exports for the Apr-Aug '16 period was higher by 7% on volume terms over the same period last year. In value terms, exports were higher by 17% - wiping out the entire loss of 2015.

In last week's post on the daily bar chart pattern of Nifty a couple of bearish scenarios and a bullish scenario were discussed. The balance appears to be tilting towards the bears.

The index has been consolidating sideways within a 'descending triangle' pattern since touching a 52 weeks high of 8969 on Sep 7. Such a triangle - when formed at a market top - can be a trend reversal pattern.

A 'descending triangle' has measuring implications. If the lower support level (8690) gets breached, the index can fall a distance equal to the height of the triangle (about 280 points).

That gives a downside target of about 8410 - which is the upper level of 'Runaway Gap3'. If the index does fall there, use the opportunity to buy.

The index has already touched the downward sloping trend line twice and the flat support level of 8690 twice. As per theory of triangles, a breakout can occur at any time.

Since triangle patterns are unreliable, it may be prudent to wait for the breakout. A convincing move above 8850 can negate the 'descending triangle'.

Things can change quickly on a price chart. Note that a small fall below the triangle and a subsequent quick recovery can turn the bearish 'descending triangle' into a bullish 'falling wedge' pattern. 

Daily technical indicators are giving mixed signals. MACD (in positive zone) and Slow stochastic (in oversold zone) are showing downward momentum. RSI is moving sideways in neutral zone.

Nifty's TTM P/E is still high at 23.97. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone and rising. Some more consolidation within the triangle and/or a breakout below it is possible.

Don't hit the panic button. But if you are sitting on good profits, take some of it off the table.

Tuesday, September 27, 2016

WTI and Brent Crude Oil charts: sideways consolidations within 'triangle' patterns continue

WTI Crude Oil chart

The daily bar chart pattern of WTI Crude Oil appears to have formed a bearish 'descending triangle' pattern. A likely breakout below 43 can drop oil's price to its Aug '16 low of 39.

All three daily technical indicators are in neutral zones and not showing much upward momentum. The three EMAs are moving sideways and gradually converging together. A sharp move is likely to follow.

All eyes are on the unofficial OPEC meeting in Algiers later this week. Saudi Arabia has suggested a cut in production to stabilise prices but Iran is refusing to toe the line.

If producers manage to reach an agreement on an output freeze, oil's price may see an upward bounce. But such an agreement seems unlikely due to geo-political rivalry between Saudi Arabia and Iran.

On longer term weekly chart (not shown), oil's price is oscillating about its entangled 20 week and 50 week EMAs and trading well below its sliding 200 week EMA in a long-term bear market. Weekly technical indicators are in neutral zones, and not showing much upward momentum.

Brent Crude Oil chart

The daily bar chart pattern of Brent Crude Oil seems to have formed a bearish 'descending triangle' pattern. A likely breakout below 45 may drop oil's price to test its Aug '16 low of 41.50.

Of the three technical indicators, MACD and Slow stochastic are in bearish zones while RSI is in neutral zone. The 20 day and 50 day EMAs have converged and are falling towards the 200 day EMA.

If OPEC countries fail to agree on a production freeze, oil's price can drop to 40.

On longer term weekly chart (not shown), oil's price is oscillating about its converging 20 week and 50 week EMAs, and is trading well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are in neutral zones, but none are showing any upward momentum.

Monday, September 26, 2016

S&P 500 and FTSE 100 charts (Sep 23 '16): bears pushed back but not routed yet

S&P 500 index chart pattern

After receiving good support from the 2120 level, the daily bar chart pattern of S&P 500 resumed its up move by crossing above its 20 day and 50 day EMAs and touching an intra-day high of 2180 on Thu. Sep 22.

However, it faced resistance from the blue down trend line and slipped down to close below 2165. The index gained 1.2% on a weekly closing basis and is trading above its three EMAs in a bull market. 

Should bears get ready to throw in the towel? Not yet. 

Note that the index formed an upward 'gap' of 8 points on Thu. (marked by blue square) and completely filled the downward 'gap' (also of 8 points - marked by blue circle) formed on Sep 9. The latter 'gap' had triggered a breakdown below a 'rectangle' consolidation pattern (see last week's post).

Technically, filling of a downward 'gap' should lead to a resumption of the down move. But Thursday's upward 'gap' also got filled by Friday's corrective move. Shouldn't that lead to a resumption of the rally from the low of 2120?

That can happen only on a convincing breakout above the down trend line - as per theory of trend lines ('a trend remains in force till it gets reversed').

Daily technical indicators are giving mixed signals. MACD has just crossed above its signal line but remains in negative zone. RSI is in neutral zone, seeking support from its 50% level. Only Slow stochastic is looking bullish by rising above its 50% level.

Some consolidation can be expected before bulls can attempt a breakout above the down trend line. The longer the index consolidates between 2120 and the blue down trend line, the more bearish will become the technical set up

Why? Because a bearish 'descending triangle' pattern will then get formed near a lifetime high. That could very well be a trend reversal pattern. 

If you are holding long positions, take some profits off the table. Bulls better hope for a quick breakout above the down trend line.

On longer term weekly chart (not shown), the index traded above its three rising weekly EMAs in a long-term bull market for the 29th week in a row. Weekly technical indicators have corrected overbought conditions but remain in bullish zones.

FTSE 100 index chart pattern


The following comment was made in last week's post on the daily bar chart pattern of FTSE 100: "The Sep 2 top of 6928 needs to be crossed if bulls are to regain their control."

The index rose to touch an intra-day high of 6937 on Thu. Sep 22 before closing with a weekly gain of 3%. However, the index formed a 'doji' candlestick pattern, which is a sign of indecision among bulls and bears.

All three daily technical indicators are in bullish zones. The index is trading above its three rising EMAs in a bull market. The next hurdle to be crossed is the Aug 15 top of 6955 if bulls are to regain total control.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 13th week in a row. Weekly technical indicators are looking overbought.

Saturday, September 24, 2016

BSE Sensex and NSE Nifty charts (Sep 23, 2016): bears grudgingly yield ground

FIIs were net buyers of equity on Mon., Wed. and Thu. but their net selling on Tue. and Fri. took their net selling for the week to Rs 720 Crores, as per provisional figures. 

DIIs were net sellers on Mon. and Wed. but were net buyers on the other three days. Their net buying for the week was more than Rs 1100 Crores.

Sensex and Nifty closed marginally higher for the week, but touched lower tops and ended up near long-term resistance levels.

After diplomatically isolating Pakistan at the recent UN General Assembly meeting, the NDA government is pushing hard to ensure GST implementation from the next fiscal year starting Apr. 2017. 

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex consolidated sideways near the resistance level of 28600 during the first three days of the trading week, before bouncing up on Thu. Sep 22 on the back of FII and DII buying.

The index touched a lower top, formed a 'doji' candlestick pattern (which indicates indecision among bulls and bears) and dropped down to close near the resistance level of 28600 by the end of the week.

The trading during the past three weeks has been confined within a small 'symmetrical triangle' pattern, which is usually a 'continuation' pattern. That means the likely breakout from the 'triangle' is upwards.

The index is trading above its three rising EMAs in a bull market. The blue uptrend line is intact. That lends credence to the upward breakout possibility.

However, triangles are quite unreliable because a breakout can occur in either direction. On odd occasions, the price moves sideways through the apex of the triangle - negating the triangle and turning the horizontal level of the apex (at 28750) into a resistance level.

Daily technical indicators are treading water and giving conflicting signals, which often happens during periods of consolidation. MACD and RSI are in bullish zones. ROC and Slow stochastic are in bearish zones. None are showing any upward or downward momentum.

Bulls and bears are expected to remain cautious ahead of F&O expiry on Thu. Sep 29. Wait for a convincing breakout from the 'symmetrical triangle' before initiating any buy/sell strategies.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty closed about 0.5% higher for the week and received good support from the blue uptrend line, but failed to close above the resistance level of 8850 for the second week in a row.

The index is trading well above its two rising weekly EMAs in a bull market. Three of the weekly technical indicators are moving sideways inside their respective overbought zones. Only ROC is looking a bit bearish by sliding down from its overbought zone.

Nifty's TTM P/E remains above its long-term average at 24.24. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone - hinting at some more correction/consolidation.

Mid-cap and small-cap stocks are continuing to outperform large-cap stocks. This is typical during bull phases. Remember that the opposite holds true during bear phases, when mid-cap and small-cap stocks tend to underperform large-cap stocks.

If you are sitting on decent profits on mid-cap and small-cap stocks, this may be a good time to book partial profits.

Bottomline? Bulls and bears are continuing their fight to dominate Sensex and Nifty charts. Rallies from the Feb '16 lows - as marked by blue uptrend lines - are intact. Bulls may be winning the war, but bears are refusing to concede without a good fight.

Friday, September 23, 2016

A simple Strategy to achieve your Financial goals

(When Paul McCartney wrote the words "I don't care too much for money, 'cause money can't buy me love" he probably didn't have enough of it!)

There are three ways of making money:

1. Work hard
2. Own assets that earn money
3. Work hard and own assets that earn money

Unless you are born with a silver spoon in your mouth, you can't start adult life with option 2. So, you have no option but to work hard - whether at a job, or a business.

What you do with the money you earn by working hard will determine whether you will achieve your financial goals and will be able to retire later in life to benefit from option 2.

The simple strategy to achieve your financial goals? Save and invest. And the sooner you start, the better.

But you knew that already - right? 

Do you also know how much money you will need to save today, and what mix of assets you need to invest in so that when you eventually stop working you will be able to live comfortably on what your assets will earn?

Probably not - as per anecdotal evidence from a few young working people. 

One complained she hardly has any savings left after paying for rent, food and the daily commute. Another said he is putting some money into a mutual fund every month, but hasn't figured out how much he will need 30 years from now.

Would it be a surprise to know that both own high-end smartphones and laptops, commute only by app-cabs, wear designer clothes, eat out 2-3 times a week and rent apartments in posh localities?

Living the good life now may mean that you will neither be able to retire early to do the things you really love, nor will you be able to enjoy retired life without cutting corners. 

Is there a way to live reasonably well now - and in future when you will not be able (or willing) to work any more?

There is - but you will need to plan for it:

- Set financial goals - near-term, medium-term and long-term
- Figure out how much money you will need at each stage
- Save and invest accordingly

For longer term goals, you can and should invest in riskier assets like equity or equity funds for better returns. For nearer term goals, invest in less risky assets like bank fixed deposit or debt funds.

From your monthly/quarterly earnings, invest first (according to your financial plan) and then spend. 

Stay a bit farther away from town, commute by autorickshaw or train, eat out only once or twice a month, buy a cheaper phone and laptop, pay off your credit card dues in full every month. 

You will be amazed how much these small sacrifices now can lead to a more comfortable retired life. (Believe it or not, you will get old and retired life will be upon you sooner than you expect!)

Wednesday, September 21, 2016

Nifty chart: a midweek technical update (Sep 21 '16)

FIIs were net buyers of equity on Monday and Wednesday (worth Rs 400 Crores), but turned net sellers on Tuesday (worth Rs 1150 Crores). DIIs did the exact opposite. They were net sellers on Monday and Wednesday (worth Rs 480 Crores), but were net buyers on Tuesday (worth Rs 780 Crores).

The result of all this buying and selling? Nifty went nowhere - trading within a 70 points range, and closing just 3 points lower than Friday's close. Bulls and bears were kept on tenterhooks ahead of the US Fed's interest rate policy announcement.

India's Current Account Deficit for Q1 (Jun '16) was $300 Million (0.1% of GDP) against expectations of a surplus. The figure was much lower than the deficit of $6.1 Billion (1.2% of GDP) in Q1 (Jun '15).   

During the past 3 months, the daily bar chart pattern of Nifty has been quite active in forming different technical patterns. It formed a couple of 'runaway gaps' (marked 2&3) followed by a 7 weeks long consolidation within a 'rectangle' pattern.

The upward breakout from the 'rectangle' was followed by an 'exhaustion gap' on Sep 6 and then a downward 'breakaway gap' on Sep 12 - turning the four days of trading between Sep 6 & 9 into an 'island reversal' pattern.

After dropping and staying below the 20 day EMA for three consecutive trading sessions, the index bounced up with strong volumes (not shown) on Fri. Sep 16 and formed a 'long-legged doji' candlestick pattern (indicating indecision) that completely filled the 'exhaustion gap' of Sep 6 and the 'breakaway gap' of Sep 12.

Miles Davis would have said: So what? Here are three possible scenarios - two bearish and one bullish:

1. The 'island reversal' pattern raises the possibility of a retracement of the previous minor/intermediate up move. That means a likely filling of either 'Runaway Gap3' or 'Runaway Gap2' or both.
2. The filling of the downward 'breakaway gap' of Sep 12 should lead to a resumption of the corrective downward move.
3. The technical setup of the chart is bullish. All three EMAs are rising; Nifty is trading above them and receiving support from the 20 day EMA for the past four trading sessions. The up move may resume at any time. 

Confusing? You bet. Daily technical indicators appear confused too! MACD is falling below its signal line in positive zone, and showing negative divergence. RSI is moving sideways just above its 50% level. Slow stochastic is oscillating about its 50% level.

Nifty's TTM P/E remains well above its long-term average at 24.11. The breadth indicator NSE TRIN (not shown) is about to emerge from its overbought zone, and hinting at a correction.

The index is in suspended animation because FIIs are not sure whether the US Fed will announce an interest rate hike or not. This is typical of the short-term outlook of stock market participants. 

The hike won't be more than 25 bps (0.25%), which is unlikely to have much impact on the economy or the stock market but will indicate that the US economy is on a firm footing. Lack of a hike will indicate otherwise.

Nifty should not be affected either way - unless FIIs go on a profit-booking spree. In which case, use the dip to add. But don't be in a hurry to do so.

Sometimes, stepping back and watching events unfold is far better than hectic activity.   


Tuesday, September 20, 2016

Gold and Silver charts: bulls strongly defending important support levels

Gold chart pattern

The following remarks were made in the previous post on the daily bar chart pattern of Gold: "The upward breach of the 1310 level on Jun 26 was accompanied by a sharp increase in volumes. A resistance level when breached with high volumes often turns into a support level for future down moves."

Gold's price rose sharply above its 20 day and 50 day EMAs with good volume support on Sep 6, stopping just short of the 1360 level. The next day, it formed a 'reversal day' bar (higher high, lower close) that triggered a correction.

After falling below its 20 day and 50 day EMAs, gold's price found support at the 1310 level once more and has bounced up a bit - albeit with low volume support. Bears are not allowing gold's price to resume its bull rally.

However, the rising 200 day EMA - with gold's price trading 50 points above it - is an indication that bulls have the advantage over the longer term.

Daily technical indicators are in bearish zones. MACD is sliding below its signal line in negative territory. RSI is below its 50% level. Slow stochastic has dropped to the edge of its oversold zone.

Note that the 20 day EMA has formed a bearish 'head and shoulders' like pattern and is about to cross below the 50 day EMA. That can lead to some more correction. In case 1310 is breached, expect support from the zone between 1280-1300.

On longer term weekly chart (not shown), gold’s price again bounced up after receiving support from its rising 20 week EMA, and closed above its three weekly EMAs in long-term bull territory for the 15th week in a row. The 'golden cross' of the 50 week EMA above the 200 week EMA, which will signal a return to a long-term bull market, is still awaited. Weekly technical indicators have corrected overbought conditions but remain in bullish zones.

Silver chart pattern

The daily bar chart pattern of Silver crossed above the 20 level with strong volume support on Sep 6. Bears struck the very next day and pushed silver's price below its 20 day and 50 day EMAs.

After a brief sideways consolidation just above the 18.50 level, silver's price has managed to close above its three EMAs and the 19.25 level in bull territory.

Of the three daily technical indicators, MACD and Slow stochastic are moving sideways in bearish zones. RSI is trying to cross above its 50% level.

Silver's price may make an attempt to cross above its Sep 6 top of 20.25.

On longer term weekly chart (not shown), silver’s price closed below its 200 week EMA, but received good support from its rising 20 week EMA and bounced up. Weekly technical indicators are in bullish zones after correcting overbought conditions.