Tuesday, December 6, 2016

Gold and Silver charts: bears continue to rule

Gold chart pattern


Trump's election win and the subsequent strengthening of the US Dollar, and oversold technical indicators had led to the following comment in the previous post on the daily bar chart pattern of Gold: "Any technical bounce towards 1250 may provide another selling opportunity to bears."

The bounce was feeble, falling short of the 1240 level. Bears continued to sell, forcing gold's price down to the 1160 level. The 'death cross' of the 50 day EMA below the 200 day EMA (marked by grey ellipse) has technically confirmed a return to a bear market.

Daily technical indicators are trying to correct oversold conditions, but are yet to emerge from their oversold zones. The price correction since Nov 9 has been overdone. A technical bounce and some sideways consolidation is possible.

On longer term weekly chart (not shown), gold’s price has closed well below its three falling weekly EMAs in a long-term bear market. Weekly MACD and Slow stochastic are inside oversold zones. RSI is falling towards its oversold zone. 

Silver chart pattern


The daily bar chart pattern of Silver shows that bears are continuing to dominate - but silver bulls have suffered less than gold bulls.

Silver's price has bounced up after dropping close to the long-term 'support-resistance' level of 16, but is facing resistance from the falling 20 day EMA.

The 'death cross' of the 50 day EMA below the 200 day EMA hasn't occurred yet - though it may just be a matter of time.

All three daily technical indicators have corrected oversold conditions and are showing upward momentum. MACD and RSI are showing positive divergences by touching higher bottoms while silver's price dropped lower.

Expect some sideways consolidation between 16 and 17.50.

On longer term weekly chart (not shown), silver’s price closed well below its three weekly EMAs in a long-term bear market. Weekly MACD and RSI are in bearish zones. Slow stochastic is inside its oversold zone.

Monday, December 5, 2016

S&P 500 and FTSE 100 charts (Dec 02 '16): brief corrections find some support

S&P 500 index chart pattern


Formation of a 'rising wedge' pattern and overbought technical indicators in last week's post on the daily bar chart pattern of S&P 500 triggered a small correction.

Note that after the break out and close below the 'rising wedge' on Mon. Nov 28, the index pulled back to the lower edge of the 'wedge' and even touched a new high of 2214 on Wed. Nov 30.

On Thu. Dec 1 and Fri. Dec 2, the index slipped below the 2190 level intra-day, but closed slightly higher on both days. Is it a coincidence that the index found support near 2190?

Hardly - because 2190 was the previous highest closing level for the index (on Aug 15 '16) since the rally started from Nov 7 and closed at a new high of 2213 on Nov 25. Previous tops often provide support.

Daily technical indicators have corrected overbought conditions, but remain in bullish zones. The index is trading above its three EMAs in a bull market. 

Some more correction to test support from the rising 20 day EMA can't be ruled out. However, the index should resume its up move soon.

On longer term weekly chart (not shown), the index has formed a 'reversal week' pattern (higher high, lower close), but closed well above its three weekly EMAs in a long-term bull market for the 39th week in a row. All three indicators are in bullish zones but showing negative divergences by failing to touch new highs with the index.

FTSE 100 index chart pattern


The following remarks were made in last week's post on the daily bar chart pattern of FTSE 100: "Daily technical indicators are in bearish zones and not showing much upward momentum. Some more sideways consolidation is likely."

The index failed to overcome resistance from its sliding 50 day EMA and dropped down to test support from the 6700 level. On Dec 1&2, there were intra-day breaches of the 6700 level but the index managed to close higher.

At the time of writing this post, the index has bounced up to 6750 but is facing resistance from the falling 20 day EMA.

The index is trading above its 200 day EMA in bull territory, but all three daily technical indicators are moving sideways in bearish zones. Bulls have managed to defend the 6700 level so far, but their resolve may be weakening.

The risk of a downward break out below 6700 is increasing by the day. 

On longer term weekly chart (not shown), the index closed below its 20 week EMA but above its 50 week and 200 week EMAs in a long-term bull market for the 23rd week in a row. Weekly MACD is in bullish zone but showing downward momentum. RSI is moving sideways in neutral zone. Slow stochastic is just above the edge of its oversold zone.

Sunday, December 4, 2016

Sensex, Nifty charts: bulls and bears struggle for domination (Dec 02, 2016)

As per provisional figures, FIIs were net sellers of equity worth Rs 31.8 Billion while DIIs were net buyers of equity worth Rs 22.6 Billion. Both Sensex and Nifty closed 0.3% lower for the week.

India's GDP growth touched 7.3% in Q2 (Sep '16) against 7.1% in Q1 (Jun '16). However, growth in Q3 (Dec '16) is likely to be hit by the demonetisation of high value bank notes.

Many automobile manufacturers (Maruti excepted) have reported lower sales in Nov '16. Demonetisation has hit the offtake of rural two-wheelers and used cars.

BSE Sensex index chart pattern


The following was the concluding comment in last week's post on the daily bar chart pattern of Sensex: "Some more consolidation or correction can't be ruled out." 

The index rallied past its falling 20 day EMA to touch an intra-day high of 26769 on Thu. Dec 1 - falling short of its 200 day EMA. Bears struck immediately. The index closed below its 20 day EMA - forming a 'reversal day' pattern (higher high, lower close).

On Fri. Dec 2, Sensex opened with a downward 'gap' and dropped below 26200, before closing slightly higher. The index may correct a bit more and test support from the zone between 25300 and 25900.

All four daily technical indicators have corrected oversold conditions but MACD, RSI and Slow stochastic are still in bearish zones. ROC climbed into positive territory, but has reversed direction.

Expect some more correction or consolidation - atleast till the US Fed increases interest rates. A worrying sign for bulls is that both DIIs and FIIs were net sellers of equity on Fri. Dec 2. If they join hands next week, the index can touch a new low. 

NSE Nifty index chart pattern


Oversold technical indicators led to the following comment in last week's post on the weekly bar chart pattern of Nifty: "A pullback rally towards 8300 is likely. Bears will probably use the opportunity to sell."

The index touched an intra-week high of 8251 but faced strong resistance from its sliding 50 week EMA. It dropped to close slightly lower for the week - forming a 'reversal week' bar (higher high, lower close) and an 'inverted hammer' candlestick pattern.

For the past four weeks, the index has closed within the 'support-resistance zone' between 8000 and 8300. A close below 8000 can trigger a fall towards 7500-7700.

Weekly technical indicators continue to look bearish. MACD has just entered negative territory. RSI has bounced up from the edge of its oversold zone. ROC and Slow stochastic are inside their oversold zones.

Some more correction or consolidation is likely. The index is trading below its 20 week and 50 week EMAs, but well above its 200 week EMA in a long-term bull market.

Bottomline? Sensex and Nifty charts show a struggle for domination between bulls and bears. Bears have the upper hand in the near term, but bulls are far from being vanquished. Stick to your asset allocation plans and invest your savings regularly, but try to avoid any bulk buying.

Friday, December 2, 2016

Is this a good time to enter SBI stock? - a technical update

The previous technical update to the stock chart pattern of State Bank of India (posted on Apr 2013) contained a bearish view for the following two reasons:

(1) formation of a head-and-shoulders reversal pattern with a downward target of 155 (adjusted for 10:1 stock split in Nov 2014); (2) large unreported NPAs of most PSU banks that exerted downward pressure on the prices of their stocks.

SBI's stock price had corrected down to 145.30 in Aug '13 - overshooting the downside target of the head-and-shoulders pattern. It then rose to 200, only to correct down once again to 145.60 in Feb '14 - forming a 'double bottom' reversal pattern.

The subsequent rally took the stock to a high of 283.40 on May 26 '14, but a 'reversal day' pattern (higher high, lower close) triggered a 6 months long sideways consolidation.


The stock touched a high of 296.80 on Nov 19 '14 - the day before it started trading ex-split (10:1). Such a split is often followed by selling, but the stock continued to rally and rose to touch a high of 335.90 on Jan 28 '15 - short of the lifetime high of 351.50 (touched on Nov 8 '10).

Three of the daily technical indicators - MACD, ROC, RSI - showed negative divergences by touching lower tops even as the stock closed at a 2 years closing high price of 334.45. That was just the signal bears needed.

A 13 months long correction culminated with the formation of a 'falling wedge' pattern, with the stock testing its Feb '14 low on Feb 25 '16. All four technical indicators showed positive divergences by touching higher bottoms (marked by blue arrows).

That triggered an expected upward breakout from the 'falling wedge' and started a rally that is still going strong. 

Note that the first leg of the rally took the stock above its 20 day and 50 day EMAs, followed by a correction that touched a higher bottom on May 23 '16 - a classic technical signal that the bear market was over.

A move above all three EMAs into bull territory, followed by the 'golden cross' of the 50 day EMA above the 200 day EMA (marked by dotted rectangle) on Jul 20 '16 technically confirmed a return to a bull market.

The stock has corrected below its 20 day and 50 day EMAs. All four technical indicators are looking bearish, and three of them - ROC, RSI, Slow stochastic - are looking oversold.

Though some more correction can't be ruled out, the dip is providing an entry opportunity.

Wednesday, November 30, 2016

Worst over for Nifty bulls, but bears still rule: a mid-week technical update (Nov 30, 2016)

FIIs were net sellers of equity for the second month in a row. As per provisional figures, their net selling during Nov '16 was worth a huge Rs 199.8 Billion. DIIs were net buyers of equity worth Rs 182.8 Billion.

On a closing basis, Nifty lost 401 points (4.6%) during the month - even after it recovered 309 points from the month's low of 7916 (touched on Nov 21).

The unexpected shock of demonetisation of high-value bank notes has been discounted by the market. A combination of short-covering and value buying has triggered a recovery of sorts.


For the past three months, the daily bar chart pattern of Nifty has remained below the down trend line - showing bear domination after a strong rally from the Feb 29 low (of 6826) to the Sep 7 top (of 8969).

Time wise the index spent 3 months in correcting a 6 months long rally. Retracement level wise, the index has retraced 49% (close to the Fibonacci 50% level) of the 2143 points rally.

Note that the down trend was already two months old when the index crashed on Nov 9 - struck by a double whammy of Trump's election win in the US Presidential elections and Modi's bank-note demonetisation.

In the previous mid-week update, three technical reasons were given why Nifty was unlikely to breach the 'Support-resistance zone' between 7900-8000. The sharp pullback (of 309 points in 7 trading sessions) shows that the correction was used as a buying opportunity.

How much further can Nifty move up? Several resistances can soon put paid to the current leg of the rally. 

Nifty is facing resistance from its falling 20 day EMA. Looming overhead is the 'Support-resistance zone' between 8300-8400. The 200 day EMA is close to 8300 and the 50 day EMA is nearly at 8400.

Even if Nifty can move above 8400 - and the probability appears low unless FIIs resume buying - the down trend line at 8525 will provide strong resistance.

Daily technical indicators have corrected oversold conditions, and are showing upward momentum but remain in bearish zones. Another 1-2% up move is possible before bears resume selling. The index has closed below its three EMAs in bear territory for 13 trading sessions in a row. 

Nifty's TTM P/E has slid down from 23.31 at the beginning of the month to 21.61 today; an improvement, but still above its long-term average. The breadth indicator NSE TRIN (not shown) almost reached its oversold zone before turning down - suggesting that the rally may continue a bit longer.

Don't worry if you missed buying during the previous week's dip. Buy according to your asset allocation plan and SIP, and stay invested for the long-term.

Monday, November 28, 2016

S&P 500 and FTSE 100 charts (Nov 25 '16): poised for corrections?

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 soared past its previous high of 2194 without a care in the world and touched a new lifetime high of 2213 during a holiday-shortened trading week.

The index is trading well above its three rising EMAs in a bull market. However, the past three weeks' rally has formed a steep 'rising wedge' pattern from which the likely breakout is downwards.

Volumes are sliding. All three daily technical indicators are looking overbought, which can trigger some correction and/or consolidation. 

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market for the 38th week in a row. All three indicators are in bullish zones but showing negative divergences by failing to touch new highs with the index.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 gradually moved up during the week, but failed to overcome resistance from its 50 day EMA.

At the time of writing this post, the index has corrected down a bit, though it remains above the support level of 6700.

Bears will retain the upper hand as long as the index trades below the downward-sloping trend line, and keep the door open for a fall below 6700.

Daily technical indicators are in bearish zones and not showing much upward momentum. Some more sideways consolidation is likely.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 22nd week in a row. Weekly MACD and RSI are in bullish zones but not showing any upward momentum. Slow stochastic is below its 50% level in bearish zone.

Sunday, November 27, 2016

Sensex and Nifty charts have formed intermediate bottoms (Nov 25 '16)

Selling by FIIs abated a little during the week gone by. Their total net selling in equities was Rs 54.1 Billion, as per provisional figures. DIIs bought heavily. Their total net buying in equities touched Rs 61.9 Billion.

Both Sensex and Nifty breached their previous lows (the possibility was mentioned in last week's post), but recovered to gain about 0.5% on a weekly closing basis.

Demonetisation of bank notes continued to roil both houses of Parliament. Opposition parties joined forces in a desperate bid to project themselves as pro-poor when they were really protesting against the loss of their 'slush' funds.

In a surprising move, RBI has temporarily increased CRR to 100% in a bid to suck out excess liquidity from banks that was being parked in govt. bonds. Yields are expected to rise and bank share prices may take a hit.

BSE Sensex index chart pattern


The Daily bar chart pattern of Sensex dropped to an intra-day low of 25718 on Mon. Nov 21, and closed below its Nov 9 'panic bottom' of 25902 - proving once again that 'panic bottoms seldom hold'.

After consolidating sideways around the support level of 25900 for the next three days, the index bounced up strongly to close above the 26300 level.

The index is trading below its three EMAs in bear territory and is well below the blue down trend line. The 20 day EMA has crossed below the 200 day EMA. The 'death cross' of the 50 day EMA below the 200 day EMA, which technically confirms a bear market, appears imminent.

The down trend that started after Sensex touched a high of 29077 on Sep 8 continues. Bears definitely have the upper hand.

However, there are technical signs that the index has found an intermediate bottom and a pullback rally has started.

All four technical indicators are looking oversold, but are showing slight upward momentum as they try to emerge from their respective oversold zones. 

ROC is showing positive divergence by not falling lower with the index. MACD and Slow stochastic have formed small 'rounding bottom' reversal patterns inside their oversold zones. RSI has formed an 'inverse head and shoulders' like reversal pattern inside its oversold zone.

Since touching the 'panic bottom' on Nov 9, the index had formed a small 'falling wedge' pattern, from which it broke out upwards on Fri. Nov 25.

By touching a low of 25718 on Nov 21, the index retraced 61.7% of its entire rally from 22495 (Feb 29 low) to 29077 (Sep 8 top). That is almost the same as the 61.8% Fibonacci retracement level.

A combination of value buying and short-covering can propel Sensex towards its 200 day EMA (at about 27000). That can be a trigger for bears to strike again. Bulls may try to wrest control with a convincing rally above 27600. 

The market appears to have discounted most of the likely adverse fallouts of the demonetisation drive. Lengthy queues in front of banks and ATMs have been shrinking.  

Time to take out your 'buy list'. Accumulate slowly instead of buying in bulk. Some more consolidation or correction can't be ruled out. 

NSE Nifty index chart pattern


The following comments appeared in last week's post on the weekly bar chart pattern of Nifty: "The index had formed a high-volume 'panic bottom' in the previous week. A 'panic bottom' seldom holds. A drop below 8000 seems likely."

The index touched an intra-week low of 7916 before bouncing up to close above 8100. 

In the process, Nifty formed a 'reversal week' bar (lower low, higher close) - as well as a 'hammer' candlestick pattern. Both can be bullish reversal patterns.

Of the four weekly technical indicators, MACD is falling below its signal line and looks poised to enter negative zone. ROC, RSI and Slow stochastic are looking oversold.

A pullback rally towards 8300 is likely. Bears will probably use the opportunity to sell. A convincing move above 8570 is required if bulls wish to regain control.

Bottomline? Sensex and Nifty charts may have formed intermediate bottoms. Valuations have improved, but weak earnings growth of India Inc. may continue for a quarter or two more. Be cautiously optimistic that the worst is over. Any pullback rally can trigger bear selling.