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Wednesday, October 31, 2012

Gold and Silver chart patterns: an update

Gold Chart Pattern

Gold_Oct3012

In the previous post, it was observed that gold’s long-term weekly bar chart was forming a bullish cup-and-handle pattern. The ‘handle’ of the cup is still being formed. Gold’s price is seeking support from its 20 week EMA. An upward bounce from here can take gold’s price above the cup’s ‘rim’ at 1800 and past its all-time high of 1925.

However, a drop below the 50 week EMA will be bearish, and negate the cup-and-handle. Weekly technical indicators are bullish, but showing weakening signs. MACD is positive, but has started falling towards its rising signal line. RSI is falling towards its 50% level. Slow stochastic has formed a bearish rounding-top pattern and dropped from its overbought zone.

Hold, with a strict stop-loss at 1660.

Silver Chart Pattern

Silver_Oct3012

The long-term weekly bar chart pattern of silver is also forming a bullish cup-and-handle pattern. The ‘handle’ is seeking support from the 20 week and 50 week EMAs. There is a good possibility of an upward bounce from here, which can take silver’s price past 36 towards 46.

Technical indicators are bullish but showing signs of weakness. MACD is positive and above its signal line, but moving sideways. RSI has dropped close to its 50% level from its overbought zone. Slow stochastic has also formed a cup-and-handle like pattern and has dropped down from its overbought zone.

Remember that technical analysis is an art and not a science. Patterns don’t always play out as expected. Hold with a strict stop-loss at 31. Add more on a move above 36.

Monday, October 29, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Oct 26, ‘12

S&P 500 Index Chart

S&P 500_Oct2612

Last week’s analysis of the 6 months daily bar chart pattern of S&P 500 index had the following observations:

  • The index had possibly formed a triple-top reversal pattern
  • Technical indicators were bearish
  • A breach of the 50 day EMA could lead to a deeper correction

Note that the breaches of the 20 day and 50 day EMAs (on Fri. Oct 19 and Tue. Oct 23) were accompanied by strong volumes. That means any upward bounce from current levels is likely to face resistance from the short-term and medium-term EMAs. There is a good chance of the index dropping to its 200 day EMA, before the bulls can gather strength to resume the up move.

Technical indicators are bearish, but looking a bit oversold. MACD has dropped into negative territory, below its falling signal line. RSI is below its 50% level but moving sideways. Slow stochastic is inside its oversold zone. The 200 day EMA is still rising. The index is undergoing a bull market correction.

Economic news continues to be a mix of good and bad. Durable goods orders showed improvement. Initial jobless claims dropped to 369,000 from 392,000 a week ago. But corporate results continued to disappoint.

FTSE 100 Index Chart

FTSE_Oct2612

There is good news and bad news visible on the 6 months daily bar chart pattern of the FTSE 100 index. First, the good. The index has not yet fallen below its Oct 1 ‘12 low of 5738. That means the double-top formed at around 5930 has not yet been technically confirmed.

Now, the bad. Friday’s (Oct 26 ‘12) intra-day low of 5753 breached the Oct 11 ‘12 low of 5767. The technical indicators have turned bearish. MACD is still positive, but falling below its signal line. RSI is drifting sideways below its 50% level. Slow stochastic has bounced up weakly from the edge of its oversold zone. If 5738 gets breached, a drop below the 200 day EMA is likely to follow.

The UK economy came out of recession, growing 1% in the three months to September, the fastest rate for five years. But the majority of the growth was due to one-off factors. However, factory orders fell in October, fuelling fears that a much hoped for recovery in the run-up to Christmas has already run out of steam.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices are undergoing bull market corrections. Such corrections improve the technical health of stock indices and enable investors to add/accumulate at lower levels. Economic recovery is slow, but the worst seems to be over.

Saturday, October 27, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 26, 2012

BSE Sensex index chart

A trading week shortened by Dussehra holiday plus F&O expiry meant that trading interest remained subdued. The BSE Sensex index consolidated within a narrow 300 point rectangular range, from which a break out can occur in either direction.

Any upward break out is likely to face resistance from the resistance zone between 19000 and 19800. On the downside, the unfilled gap, the rising 50 day EMA and the blue uptrend line should provide good supports.

The UPA government is getting ready for a long overdue cabinet reshuffle. Several ministers have resigned to make way for younger and more efficient claimants. The reshuffle is unlikely to have much of an effect on the stock market, unless there is greater coordination among the various ministries to fast-track important infrastructure projects.

SENSEX_Oct2612

FIIs were in a profit booking mood last week. The index may see lower levels if they continue selling in the coming week. Retail investors are still not participating whole-heartedly. Anecdotal evidence shows profit booking during the recent rally.

Daily technical indicators have turned bearish. MACD is positive, but falling below its signal line. ROC has turned negative after a brief foray into positive territory. RSI has dropped below its 50% level. Slow stochastic bounced up weakly from its oversold zone, and is moving down.

Expect some more consolidation or a shallow 200-300 points correction. Use the opportunity to enter or add good quality stocks.

NSE Nifty 50 index chart

Q2 results are showing pressure on both top and bottom lines of companies. PSU banks have expectedly come out with disappointing results. Even HUL showed growth slowdown. CESC announced a di’worse’ification by acquiring FirstSource and the stock price got hammered.

A lot of infrastructure projects are stuck – either due to lack of clearances from various ministries or lack of funds of the implementing authorities/companies. Some companies had over-leveraged during the boom period 5-6 years back and have fallen into debt traps. Others are waiting for interest rates to come down.

Nifty_Oct2612

The weekly closing chart of the NSE Nifty 50 index shows a sideways drift with a slight downward bias. However, the index is trading above its rising 20 week and 50 week EMAs. The nascent bull market is under no immediate threat.

Weekly technical indicators are showing weakening upward momentum. MACD is positive and above its signal line, but moving sideways. ROC is also positive, but has crossed below its 10 week MA. RSI is clinging on to the edge of its overbought zone. Slow stochastic is inside its overbought zone, but sliding down.

The 20 week EMA and the blue uptrend line are supports on the down side. The resistance zone between 5750 and 6000 is likely to prevent Nifty from shooting up.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are consolidating within narrow ranges from which break outs can occur in either direction. Add/accumulate good quality stocks, but maintain suitable stop-losses. Despite all the scams and political posturing, the indices are unlikely to crash.

Friday, October 26, 2012

Stock Chart Pattern - Tata Steel (An Update)

The stock chart pattern of Tata Steel has been in a prolonged bear phase ever since reaching a closing high of 703 in Jan ‘11. Shortly after posting the previous update on Aug 4 ‘11 (marked by grey vertical line in the middle of the chart below), the stock price dropped like a stone below the support level of 500 on a volume spurt.

A fall below a support level on strong volumes usually means that the support level will turn into a strong resistance level during subsequent up moves. That is precisely what happened to the 500 level on the closing chart pattern of Tata Steel.

The first attempt at a pullback towards the 500 level in Sep ‘11 faced strong resistance and the stock fell to a lower bottom. The second attempt in Oct ‘11 managed to climb above the falling 50 day EMA, but stopped short at 480. The stock price continued to fall – forming a bearish pattern of lower tops and lower bottoms – till it touched a closing low of 335 in Dec ‘11.

Tata Steel_Oct2612

The subsequent rally coincided with the rally in the broader market. Aided by a couple of strong volume spurts, the stock price rose sharply above all three EMAs and touched a closing high of 495 on Feb 15 ‘12. But resistance from the 500 level was overwhelming.

During Mar ‘12 and Apr ‘12, the stock price consolidated within a bearish ‘rising wedge’ pattern, from which the expected downward break out occurred in early May ‘12. The stock made a ‘U turn’ but could not climb past its falling 200 day EMA. The stock price dropped below all three EMAs but recovered after touching a slightly higher bottom at 350 in Sep ‘12.

So, has the stock formed a bullish double-bottom pattern? The volume action doesn’t suggest that. There should have been a pick-up in volumes after the stock bounced up from the second (higher) bottom. Instead, volumes have slipped, and so has the stock’s price after it faced resistance from the 200 day EMA.

Technical indicators are looking bearish. MACD is still positive, but is falling below its signal line. ROC has crossed below its 10 day MA into negative territory. RSI has dropped below its 50% level. Slow stochastic has entered oversold territory. The stock may move down to test support from the blue line connecting the two previous bottoms.

An upward bounce from the blue trend line, supported by increase in volumes will be bullish. A drop below the blue trend line will be bearish.

Bottomline? The bear phase in the stock chart pattern of Tata Steel is not over yet. Accumulate slowly with a stop-loss at 355. Alternatively, wait for a convincing move above the 200 day EMA to add. Either way, one has to remain patient for the next couple of years to get good returns.

Tuesday, October 23, 2012

WTI and Brent Crude Oil charts: an update

WTI Crude chart

WTI Crude_Oct2212

In the previous post two weeks back, the following observations were made:

  1. If oil’s price can bounce up from the 88 level and move past 101, a bullish pattern of higher bottoms and higher tops will get formed. But it is a big ‘if’.
  2. The fall below the 200 day EMA was accompanied by a sharp volume spike. That means the 200 day EMA is likely to provide strong resistance to future up moves.
  3. Any upward move is likely to face resistance from the falling 20 day and 50 day EMAs.

Note that oil’s price did bounce up from the 88 level, but found resistance from the falling 20 day and 50 day EMAs. On a couple of occasions, the intra-day highs touched the 200 day EMA and retreated. The high volumes on the last two down days is an indication that bears are gaining control. The support from the 88 level may get breached.

Daily technical indicators are looking bearish, which means the correction isn’t over yet. MACD is touching its signal line in negative territory. RSI failed to move above its 50% level and has started falling. Slow stochastic is about to drop below its 50% level.

Oil’s price is trading below all three EMAs and is back in a bear market.

Brent Crude chart

BrentCrude_Oct2212_weekly

The possibility of Brent Crude’s price dropping below the support level of 110 was mentioned in the previous post. An intermediate down trend is in progress. Higher volumes on the previous three down weeks is a sign of distribution.

The 20 week EMA is about to cross below the 50 week EMA, which is bearish in the medium term. However, the 200 week EMA is still rising – so the long-term bull market is intact.

Weekly technical indicators are beginning to turn bearish. MACD is barely positive, and may cross below its signal line into negative territory soon. RSI has slipped below its 50% level. Slow stochastic has dropped from its overbought zone and falling rapidly towards its 50% level.

Be prepared for a deeper correction.

Monday, October 22, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Oct 19, ‘12

S&P 500 Index Chart

S&P 500_Oct1912

In last week’s analysis of the 6 months daily bar chart pattern of the S&P 500 index, a small double-top reversal pattern was observed. Technical indicators were looking bearish and profit booking was recommended on an upward bounce.

The index bounced up smartly on rising volumes till the middle of the week, but only managed to touch a lower third top (at 1464) – possibly forming a triple-top reversal pattern. The sharp fall on the last two days of the week was also on rising volumes, which is a sign of distribution.

All may not be lost yet for the bulls. The index found support from its 50 day EMA. The entire move from the Sep ‘12 top of 1474 looks like a ‘flag’ pattern, which has bullish implications. Bears will point out that the uptrend line connecting the Jun ‘12 and Jul ‘12 bottoms (not shown in chart) was breached on a closing basis last Friday (Oct 19).

Technical indicators are looking bearish. MACD is still positive, but has been falling below its signal line for the past 4 weeks. RSI and slow stochastic are both below their 50% levels. If the 50 day EMA gets breached, be prepared for a deeper correction.

US economic data continues to support a slow recovery. Retail sales, manufacturing and new housing exceeded expectations. But existing home sales were weaker and some of the corporate results – specially from tech big-wigs – were disappointing.

FTSE 100 Index Chart

FTSE_Oct1912

The 6 months daily bar chart pattern of the FTSE 100 index shows a spirited recovery by the bulls. The index bounced up from the 50 day EMA and tested its Sep ‘12 top of 5933, but fell short by about 5 points. Volumes were lower during the formation of the second top (not shown in chart), which leaves the door open for the formation of a double-top reversal pattern.

However, a double-top will be confirmed only if the index falls below its Oct 1 ‘12 low of 5738. Note that all three EMAs are rising and the index is trading above them. The bull market is still alive and kicking – despite the gloomy economic scenario.

Technical indicators are bullish, but showing some signs of weakness. MACD has crossed above its signal line in positive territory, but the upward momentum is weak. RSI is above its 50% level but turning down. Slow stochastic is well inside its overbought zone, but is also turning down.

Analysts expect a 0.6% rise in GDP, lifting the economy out of the longest double-dip recession since the second world war. But the outlook is for a period of steady, unspectacular growth rather than the surge in output witnessed in the aftermath of previous recessions.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices are showing topping patterns. Remember that technical analysis is not a science, and patterns don’t always play out as expected. Both indices are in bull markets, so stay invested but maintain appropriate stop-losses.

Saturday, October 20, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 19, 2012

BSE Sensex index chart

The weekly bar chart of the BSE Sensex index seemed to run out of breath trying to keep up with the thrill-a-day accusations and counter-accusations of various political groups that unfolded on TV channels and newspapers during the past week. The weekly bar shows an ‘open’ and ‘close’ almost at the same level of the previous week’s close – a clear sign of indecision among market players.

The educated and politically aware among the ‘mango people’ (the new term for ‘aam aadmi’ coined by the utterly corrupt son-in-law) must be shaking their heads and having a good laugh. All the posturing about a new-found zeal in announcing reforms was swept away as the IAC brought out one scam after the other to the forefront. The boorish attempts by the UPA to threaten and demean the anti-corruption movement shows that the accusations have begun to hit home.

SENSEX_Oct1912

FIIs remained net buyers, but their buying fervour has abated a bit. DIIs continued to be net sellers. That hasn’t changed the trend, which remains up. The 20 week EMA has merged with the blue up trend line. The 50 week EMA is rising. The index is trading above the trend line and both weekly EMAs. The index has expectedly corrected after hitting the strong resistance zone between 19000 and 19800. Expect support from the combined 20 week EMA and the blue uptrend line on the down side.

Weekly technical indicators are bullish, but the upward momentum has weakened. MACD is positive and rising above its signal line, but the histogram is falling. ROC is also positive, but has dropped to its 10 week MA. RSI has re-entered its overbought zone. Slow stochastic is inside its overbought zone, but sliding down.

The present correction will improve the technical health of the Sensex chart, and enable bulls to gather strength to push the index past the resistance zone.

NSE Nifty 50 index chart

Q2 results declared so far show that proven performers are getting separated from non-performers. ITC declared a good set of numbers. So did TCS. Yet, these two stocks are absent from portfolios of most small investors.

High WPI inflation was a disappointment. The clamour for an interest rate cut by India Inc. may once again fall on deaf ears. The 2G spectrum auction (re-farming of earlier spectrum) didn’t evoke the kind of response the government had hoped for. They have no one to blame but themselves for setting a high reserved price. Supreme Court’s licence cancellation turned off overseas groups like Sistema and Etisalat from participating in the auction.

Nifty_Oct1912 

After the ‘flash crash’ on Oct 5 ‘12, the daily bar chart pattern of NSE Nifty 50 index has got stuck in a narrow 100 point range. The 20 day EMA has not only provided good support to the index; it has also continued to rise – albeit slowly. The 50 day and 200 day EMAs are also rising, and the uptrend in the Nifty is under no real threat.

Daily technical indicators are beginning to turn bearish. MACD is positive, but falling below its signal line. ROC is in negative territory, and below its falling 10 day MA. RSI has slipped below its 50% level. Slow stochastic is however still looking bullish as it is moving sideways inside its overbought zone.

Note that the gap in the chart – marked by a narrow blue oval – was closed by the ‘flash crash’. But that hasn’t changed the technical position in any way. The up move should resume in the near future. Don’t stay away thinking that there will be a big crash – as some Elliott Wave theorists have suggested. The economic tide has turned, and the Nifty is reflecting that.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are in corrective modes after touching strong resistance zones. Use the opportunity to enter or add to your existing holdings. Remember to maintain suitable stop-losses, just in case the Elliott Wave theorists are proven right.

Friday, October 19, 2012

Stock Chart Pattern - Sesa Goa (An Update)

In the previous update to the stock chart pattern of Sesa Goa – posted on May 17 ‘11 (marked by grey vertical line in chart below) – it was observed that the stock had slipped into a bear market while forming a pattern of lower tops and lower bottoms.

Though the company, which is India’s largest private sector iron ore exporter, remained a cash cow, it was facing fundamental and technical headwinds. Ban on export of iron ore from Karnataka and tax on iron ore exports had weakened the company’s balance sheet. Ban on export of iron ore from Goa appears to have broken its back.

In the concluding remarks of the previous post it was mentioned that it was a good portfolio stock for long-term, patient investors. A ‘buy’ was recommended on a convincing break above the 200 day EMA, with a stop-loss at 255. The chart below shows that a buying opportunity never occurred.

Sesa Goa_Oct1912

The stock price received good support from the 255 level for the next couple of months following my previous post, but once it broke down below 255 in Aug ‘11 the down move gathered pace till it hit a low of 149 in Dec ‘11.

The subsequent rally coincided with the rally in the Sensex. The stock price rose sharply above all three EMAs to touch an intra-day high of 270 on Feb 17 ‘12. But it turned out to be a high-volume ‘reversal day’ – higher high, lower close – that signalled the end of the intermediate up move, and extinguished brief bullish hopes.

Was the strong move above the 200 day EMA a buying opportunity? Hind-sight is always 20-20, and the answer is obviously ‘no’. But what should an investor have done in Feb ‘12?  There were three technical ‘red flags’ at the time:

  1. The stock failed to cross above the 255 level on a closing basis despite a couple of intra-day breaches. A support level, once breached, usually becomes a resistance level.
  2. The 50 day EMA was trading below the 200 day EMA. Even the 20 day EMA had failed to cross above the 200 day EMA.
  3. Three of the four technical indicators – ROC, RSI, slow stochastic – were looking overbought and touched lower tops while the stock price touched a higher top. The combined negative divergences hinted at a change of trend.

All three taken together were suggesting a clear ‘avoid’. The stock price fell below all three EMAs and reverted back to a bear market. So, is now a good time to enter? Only if you don’t believe the old market adage: Never try to catch a falling knife. What if you are holding from higher levels? Get out now. Sesa Goa declared awful Q2 results because production is almost at a standstill.

Bottomline? The stock chart pattern of Sesa Goa continues to show the effects of fundamental and technical headwinds. Vedanta group’s tactic of leveraging the company’s cash pile to acquire Cairn India has proved disastrous for investors. Regulatory issues have further compounded the problem. A blue-chip company has been brought to its knees. Stay away.

Wednesday, October 17, 2012

Is it a good time to enter RIL post results? – a guest post

RIL recently declared what appeared to be stellar Q2 and half-yearly results, with a $1 Billion profit during the quarter (which is more than the annual turnover of many listed companies). Why did the market react indifferently to the excellent numbers? A closer inspection of the figures paints a less rosy picture.

In this month’s guest post, Nishit looks at the RIL stock from both fundamental and technical points of view to help investors take an informed decision about what to do with a stock that has been a favourite of investors for many years.

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Reliance (RIL – CMP Rs 812) has come out with its half yearly results. Let us find out how this bellwether stock is faring. For RIL, the main sources of profits come from 3 segments: Refining, which contributes 80% of the top line; Petrochem, which is their old bread and butter business; and oil and gas business. Retail and Broadband businesses are still in nascent stages and are yet to generate any substantial profits.

Refining business is booming and gross refining margins (GRM) are almost $9.50 per barrel. This is a decent GRM, because of high oil prices. Typically, GRMs are 8-10% of the price of oil. However, GRM was lower than the year-ago quarter, though it was higher than Q1.

Gas business has hit a roadblock with Krishna Godavari basin not generating as much gas as was earlier expected or planned. The company has also got embroiled in a controversy with the government on cost allocation for exploration.

Petrochem business, which is the old solid business, has seen margin contraction. Other income contributed almost 31% to the profits. Other income is obtained by investing surplus cash in the financial markets. This is more like a treasury operation and the income generated is like that of a financial institution.

If RIL generates 31% income from financial investing, it means it has much surplus cash but very little idea of new businesses to invest in. To be fair to RIL, they are looking at broadband and content related to broadband (e.g. Network 18 rights issue). It is also doing a share buyback, extinguishing shares by buying them from the market.

So, those buying RIL shares are buying it on the bet that its Retail, broadband and content businesses may expand into something more substantial.

RIL’s share price will depend on the gas it generates from KG Basin and also any output from its recent Shale gas purchases. A fundamental buy on RIL would be for buying its future expansions. Those who trust the management and its promises can look at buying RIL. At a valuation of a P/E of 10-12 range, the fair price comes to Rs 610 to Rs 750.

Elliot Wave analysis:

The bottom which the stock hit in October 2008 was Rs 465. After that the stock hit a peak of Rs 1149. So, if we take a corrective A-B-C to the entire up move which terminated at 1614 in Jan 2008:

  • A – 1614 – 465
  • Ba – 465 – 1149
  • Bb – 1149 – 681
  • Bc - 681 - ??? (942, 1023 or 1149 can be targets); currently made a high of only Rs 881.

Bottomline: The future outlook for RIL is hazy and only those with an appetite for risk can venture to buy it.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money Manthan).

Related Posts

1. Why rely on Reliance?

http://investmentsfordummieslikeme.blogspot.in/2009/01/why-rely-on-reliance.html

2. Why did Reliance announce a share buyback?

http://investmentsfordummieslikeme.blogspot.in/2012/01/why-did-reliance-announce-share-buyback.html

Tuesday, October 16, 2012

Gold and Silver chart patterns: bulls trying to regain control?

Gold Chart Pattern

Gold_Oct1512

Ever since gold’s price formed a double-top at 1925 more than a year ago, the bears have tried to rule gold’s chart. But their best efforts failed to reverse the long-term bull market – despite gold’s price dropping almost 400 points from its peak.

What had looked like a large descending triangle pattern with bearish implications got negated. The 20 week EMA did not cross below the 50 week EMA. Gold’s price didn’t even come close to testing its rising 200 week EMA. Now all three weekly EMAs are rising and gold’s price is trading above them. The bulls seem to be back on top again.

Note that the 2 years weekly bar chart pattern of gold has been forming a bullish cup-and-handle pattern since Feb ‘12. The ‘handle’ of the cup is currently being formed. This can be a good entry point, since the upward target on a break out above 1800 will be 2080.

Weekly technical indicators are bullish, but upward momentum is weakening. MACD is positive and above its signal line, but moving sideways. RSI has dropped down from the edge of its overbought zone. Slow stochastic is getting ready to move down from its overbought zone.

If you enter now, maintain a stop-loss at 1660. Alternatively, wait for the correction forming the ‘handle’ to play out and the up move to resume before entering.

Silver Chart Pattern

Silver_Oct1512

The 2 years weekly bar chart pattern of silver has also formed a bullish cup-and-handle consolidation pattern – though the pattern is a bit asymmetric. A break out above 36 may take silver’s price to 46.

The 20 week EMA has crossed above the 50 week EMA, technically confirming a return to a long-term bull market. All three weekly technical indicators touched higher tops while silver’s price touched a lower top in Oct ‘12. The combined positive divergences should lead to a resumption of the up move soon.

You can enter now, with a stop-loss at 31. Alternatively, wait for the up move to resume after completion of the ‘handle’ correction.

Monday, October 15, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Oct 12, ‘12

S&P 500 Index Chart

S&P 500_Oct1212

In last week’s analysis of the daily bar chart pattern of the S&P 500 index, it was observed that technical indicators were bullish but showed weakening upward momentum. Volumes needed to pick up for the rally to sustain. A drop to the 20 day EMA seemed possible.

The S&P 500 chart dropped to its 50 day EMA, and has turned bearish by forming a small double-top reversal pattern. Friday’s (Oct 12) close below the ‘valley’ level of 1430 (touched on Sep 26), and lower volumes during the formation of the second top at 1471 (on Oct 5) has confirmed the double-top. A downward target of 1385 is a possibility.

Technical indicators are looking bearish, which means the support from the 50 day EMA may not hold. MACD is still positive, but falling rapidly below its signal line. RSI has dropped below its 50% level. Slow stochastic has entered its oversold zone. Any upward bounce from the current level can be used to book profit.

Economic indicators are not rosy. Initial unemployment claims dropped below the 340,000 mark, which was celebrated by the market before realisation dawned that one large state did not report its figures! New manufacturing orders are sliding. The trade deficit is widening – thanks to a drop in exports of US goods – which will hurt GDP growth.

FTSE 100 Index Chart

FTSE_Oct1212

The uptrend on the 6 months daily bar chart pattern of the FTSE 100 is on the verge of ending as the index touched a lower top of 5885 (on Oct 5) and started sliding. A drop below its previous low of 5738 (touched on Oct 1) will form a bearish pattern of lower tops and lower bottoms.

Technical indicators are starting to look bearish. MACD is still positive but gradually falling below its signal line. RSI is oscillating about its 50% level. Slow stochastic has dropped below its 50% level. If the index falls below its 200 day EMA, a new bear phase may start.

UK’s economy may emerge from a double-dip recession, but growth remains weak. Manufacturing output dipped in Aug ‘12 and the trade deficit widened sharply due to lower exports and higher oil imports. But rising consumer demand may raise hopes of a recovery in GDP growth.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices are still in corrective modes. Further fall in both indices may end the uptrends from Jun ‘12 lows. Book part profits, or hold with stop-losses at respective 200 day EMAs.

Saturday, October 13, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 12, 2012

BSE Sensex index chart

Sensex_Oct1212

Readers of this blog received adequate warning in last week’s post that Sensex may face a correction or consolidation soon. So far, the correction has received good support from the 20 day EMA – despite not-so-great news from economic and political fronts.

CPI inflation has moderated a bit, but remains high. The IIP number was better than expected, but worse on a YoY basis. Arvind Kejriwal, the activist against corruption, has targetted the Law Minister for breaking the law. His next target may well be the head honcho of the main opposition party.

Q2 results have started trickling in. Infosys disappointed the market once again, and its share price dropped sharply. IndusInd Bank declared a decent set of numbers, but the stock still faced selling. Despite high valuations, investors (rather, FIIs) are still buying FMCG stocks.

Daily technical indicators are beginning to look bearish. MACD is positive, but falling below its signal line. ROC is barely positive, and below its falling 10 day MA. RSI and slow stochastic have both slipped below their 50% levels. On the downside, the gap on the Sensex chart, and the blue uptrend line should provide good support.

NSE Nifty 50 index chart

Nifty_Oct1212

The weekly closing chart of NSE Nifty 50 index has turned down after hitting the strong resistance zone between 5750 and 6000. This was expected, and is good for the long-term technical health of the chart. A drop towards the steeper of the two blue uptrend lines will correct the overbought condition, and prepare the grounds for an attempt to cross the resistance zone.

Weekly technical indicators are weakening, but haven’t turned bearish yet. MACD is positive and above its signal line, but its upward momentum is slowing down. ROC is also positive, but falling towards its 10 week MA. RSI has slipped down from its overbought zone. Slow stochastic is still inside its overbought zone, but showing signs of turning down.

Note that both the 20 week and 50 week EMAs are moving up and the Nifty is trading well above them. There is no immediate threat to the nascent bull market, and the dip towards the uptrend line may be used to enter.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are undergoing corrections after touching strong resistance zones. The corrections may last a bit longer – but will enable the bulls to gather strength to overcome the resistance zones. Pick and choose from stocks that declare improved Q2 results.

Friday, October 12, 2012

Stock Chart Pattern - Jagran Prakashan (An Update)

In the previous update to the stock chart pattern of Jagran Prakashan – posted on May 4 ‘11 (marked by grey vertical line on chart below) – it was observed that the stock price was consolidating within a rectangular band between 105 and 140.

The prolonged consolidation may have frustrated long-term investors but provided good trading opportunities. The eventual break out from a rectangle can occur in either direction. In this case, the support level of 105 got decisively broken in Aug ‘11.

Note that after dropping below 105, the stock began consolidating within a bearish ‘rising wedge’ pattern from which it broke downwards – only to form another ‘rising wedge’ pattern. The break down from the second ‘rising wedge’ dropped the stock price to a closing low of 91 in Dec ‘11 that coincided with the bottom formed by Sensex and Nifty.

JagranPrakasan_Oct1112

A third ‘rising wedge’ pattern formed on the closing chart pattern of Jagran Prakashan during Dec-Jan ‘12. An interesting variation of a ‘rising wedge’ can be observed. Instead of breaking downwards once more, the stock broke out upwards, accompanied by a volume surge.

This is an example why technical analysis is not a science. Chart patterns don’t always play out as expected, and one has to wait for the eventual break out. A ‘rising wedge’ is a bearish pattern from which the likely break out is downwards. However, perhaps due to the rally in the broader market, Jagran’s stock moved up.

The stock price formed a small bearish ‘double top’ pattern in Feb ‘12 that coincided with the tops made by Sensex and Nifty. Note that three of the four technical indicators – ROC, RSI, slow stochastic – also formed double tops. The stock dropped below all three EMAs in Mar ‘12, consolidated within a ‘pennant’ (narrow triangle) for 5 weeks before dropping all the way down to 80 in May ‘12.

A steady rally – marked by blue uptrend line – has taken the stock price above its 200 day EMA. The 20 day EMA is ready to cross above the 200 day EMA, and the 50 day EMA is likely to follow suit. Expect some resistance as the stock nears the level of 105.

Technical indicators are looking bullish, which means the stock is likely to move higher. Margins have been under pressure because of steep rise in the cost of newsprint, plus losses from two newly-launched Punjabi Jagran editions. Acquisitions of Nai Dunia and Nav Dunia – Hindi newspapers published from MP and Chattisgarh - should add to top and bottom lines. Dainik Jagran remains the largest read daily in India.

Bottomline? Stock chart pattern of Jagran Prakashan appears to be emerging from a long bear phase. Accumulate with a stop-loss at the uptrend line (currently at 90). Alternatively, wait for a convincing move above 105 to enter. The company generates a lot of cash from operations and is a regular dividend payer.

Wednesday, October 10, 2012

Nifty and Defty charts: a mid-week technical update

Nifty chart

Nifty_Oct1012

There are three things to note on the daily bar chart pattern of Nifty above:

  1. the blue uptrend line – which was breached intra-day by last Friday’s ‘flash crash’
  2. the light green oval marking a gap in the chart – which was filled by the ‘flash crash’
  3. last Friday’s ‘flash crash’ – which dropped the Nifty below all three EMAs and the uptrend line

As mentioned in last Sunday’s post about Nifty, intra-day breaches of support/resistance levels are not taken into account for technical analysis. Only convincing breaches on a closing basis are important. That hasn’t happened yet for points 1 and 2 above. So technically, the Nifty uptrend remains intact, and the gap on the Nifty chart remains unfilled.

Regarding the ‘flash crash’, five reasons were put forth why the ‘flash crash’ smells of a ‘scam’ rather than an ‘error’. If it looks like a duck and quacks like a duck, then there is very little chance that it is a mouse doing a duck impersonation!

However, the Nifty was looking a bit overbought, and has reacted after briefly entering a strong resistance zone between 5750 and 6000. It is seeking support from its 20 day EMA, and may drop some more in an effort to fill the gap. Technical indicators have corrected from overbought conditions, and beginning to look a bit bearish.

No need to sell in a panic. Since the uptrend is intact (which will be quite clear from the Defty chart below), use the correction to buy. More reforms are in the pipeline. FIIs are likely to greet that with more enthusiasm.

Defty chart

S&P CNX Defty_Oct1012

The daily bar chart pattern of CNX Defty (Nifty expressed in US Dollar terms) has an important difference from the Nifty chart above. Last Friday’s ‘flash crash’ found support – marked by an up arrow - exactly on the blue uptrend line. That should answer the question in many investors’ minds about who bought when the Nifty had tanked by 900 points.

The two other points worth noting are the ‘golden cross’ of the 50 day EMA above the 200 day EMA last week, technically confirming a return to a bull market; and, the gap formed on the Defty chart (marked by light green oval) when the index crossed above its 200 day EMA.

A break out with a gap is supposed to be stronger than a break out without a gap. That means, the gap should act as a strong resistance to future down moves.

Technical indicators are beginning to look bearish – so the correction may continue a bit longer. On the downside, support can be expected from the rising 50 day EMA and the gap.

Tuesday, October 9, 2012

WTI and Brent Crude Oil charts: in corrective modes

WTI Crude chart

WTI Crude_Oct0812

In the previous post three weeks ago, the following three points were mentioned about the 6 months daily bar chart pattern of WTI Crude oil:

  1. The 101 level was likely to be a strong resistance
  2. All three technical indicators showed negative divergences
  3. Volumes on down days were higher than those on up days

The three points taken together led to the following conclusion: “The entire rally from the Jun ‘12 low has the characteristics of a bear market rally.”

Put another feather in the cap of technical analysis, which can be quite prophetic some times. Note that crude oil’s price retreated sharply after almost touching the 101 level, and dropped quickly below all three EMAs. The 50 day EMA failed to cross above the 200 day EMA. All three EMAs are moving down, with crude oil’s price trading below them. The bears are back on top.

The zone between 88 and 92 is a support/resistance zone, and WTI Crude’s price is trying to consolidate within that zone. If oil’s price can bounce up from the 88 level and move past 101, a bullish pattern of higher bottoms and higher tops will get formed. But it is a big ‘if’. The fall below the 200 day EMA was accompanied by a sharp volume spike. That means the 200 day EMA is likely to provide strong resistance to future up moves. Down-day volumes continue to be higher than up-day volumes. Bears are in no mood to relent.

Daily technical indicators are bearish, but showing some signs of turning around. MACD is falling below its signal line in negative territory, but downward momentum is slowing. RSI bounced up from the edge of its oversold zone, but is sliding down again. Slow stochastic also bounced up from the edge of its oversold zone, but is well below its 50% level. Any upward move is likely to face resistance from the falling 20 day and 50 day EMAs.

Brent Crude chart

BrentCrude_Oct0812_weekly

The long-term bull market is still intact on the 2 years weekly closing chart pattern of Brent Crude oil. Though there were a couple of daily closes below the support/resistance level of 110, weekly closes have been above 110.

The 20 week EMA has managed to stay above the 50 week EMA, and both are well above the rising 200 week EMA. However, weekly volumes have been higher on down-weeks of late. That means the bears are lurking round the corner. There is a possibility of Brent Crude’s price dropping below the 110 level.

Weekly technical indicators are bullish, but showing signs of weakness. MACD is barely positive and above its signal line, but moving sideways. RSI has been hovering just above the 50% level for the past 3 weeks. Slow stochastic has dropped down from its overbought zone. Expect some more consolidation around current levels.

Monday, October 8, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Oct 05, ‘12

S&P 500 Index Chart

S&P 500_Oct0512

The 1 year daily bar chart pattern of S&P 500 index clearly shows an unfolding bull market. All three EMAs are rising in tandem and the index is trading above them. After a brief drop below the 20 day EMA that corrected overbought conditions, the index appears to have resumed its upward march. The 3 years high of 1475 – touched last month – may get surpassed soon.

Technical indicators are bullish, but showing some signs of weakening upward momentum. MACD is positive but below its falling signal line. RSI is above its 50% level but turning down. Slow stochastic has risen sharply above its 50% level. A dip to the 20 day EMA is a possibility. Volumes need to pick up for the rally to continue.

Initial claims of unemployment was a bit higher than the previous week’s revised number, but slightly lower than consensus expectations. But the unexpected drop in overall unemployment below 8% has to be taken with a pinch of salt. A silver lining has been the increase in residential real estate prices for the 4th month in a row. US economic growth may be improving – but way too slowly.

FTSE 100 Index Chart

FTSE_Oct0512

The 1 year daily bar chart pattern of FTSE 100 index has recovered smartly from a drop below its 50 day EMA, and appears ready to test its 52 week high touched in Mar ‘12. All three EMAs are rising and the index is trading above them – which signifies a bull market.

Technical indicators are looking bullish. MACD is positive and about to cross above its signal line. RSI has moved above its 50% level. Slow stochastic has climbed quickly above its 50% level from its oversold zone.

So, is this a good time to buy? The best time to buy is when one has the money. But it is better to be a little circumspect when an index (or stock) is near its 52 week high. Also, MACD formed a head-and-shoulders reversal pattern while the FTSE moved up to touch higher tops. The pattern may or may not play out – because technical analysis is not a science. However, it may be prudent to pay some respect to a reversal pattern, till it gets negated.

UK’s economy is still struggling to hit the growth path, as is evident from the drop in manufacturing activity in September. So, there is no reason to be very bullish - despite the upward movement in the stock market for the past 4 months.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices have corrected overbought conditions and look poised to touch new highs. It is better to be cautiously optimistic rather than be gung-ho bullish when indices approach new highs. US and UK economies are not in the pink of health.

Sunday, October 7, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 05, 2012

BSE Sensex index chart

One can’t complain that trading or investing in the Indian stock market is dull! As if the daily and weekly price movements in indices and individual stocks are not challenging enough, one has to contend with a government that works only when pushed to a corner, irresponsible opposition parties, a wide variety of scams and corruption, and creaking infrastructure that is forever on the verge of a collapse.

By any account, last week’s trading had its fair share of thrills. Just as the market was digesting the FDI in retail announcement, came the news of the cabinet passing FDI in insurance and FDI in pension bills. While the latter require to be vetted by Parliament, and are by no means done deals, the very fact that these two bills have gone through the cabinet is a positive for the market.

What happened instead? A ‘flash crash’ in the Nifty (and a sympathetic minor crash in the Sensex) that was being passed off by NSE authorities as an ‘error’ made at a brokerage terminal. If an ‘error’ can cause the Nifty to drop by 900 points within seconds, then NSE authorities should shoulder the blame for having ineffective software systems. The way high-value shares were picked up quickly at much lower prices smells strongly of a well-executed scam.

SENSEX_Oct0512

One of the main reasons for looking at longer-term charts is that daily gyrations and aberrations get smoothened out, revealing the underlying trend. That is precisely what can be observed on the 2 years weekly closing chart of the Sensex. A prolonged bear phase showed the first sign of ending when the index touched a higher bottom in Jun ‘12 (marked by blue uptrend line 1).

Another steeper uptrend (marked by blue uptrend line 2) is in progress. The Sensex rose past its Feb ‘12 top – forming a bullish pattern of higher bottoms and higher tops. The 20 week EMA crossed above the 50 week EMA, technically confirming a return to a bull market.

Bull markets climb ‘a wall of worry’ – and there is plenty to be worried about the Indian and global economies. The more immediate worry is the proximity of a strong resistance zone between 19100 and 20000. This resistance zone has to be overcome if the bulls are to regain control.

Weekly technical indicators are bullish, but looking overbought. MACD is rising above its signal line in positive territory. ROC is also positive and moving up above its rising 10 week MA. RSI and slow stochastic are both inside their overbought zones, but touched lower tops while the index rose higher. The index is trading more than 1500 points above its 50 week EMA.

A correction/consolidation may be around the corner.

NSE Nifty 50 index chart

Daily movements in an index or a stock are useful in technical analysis, particularly for those who indulge in short-term trading. However, when supports, resistances, trend lines, stop-loss levels are breached, less importance is given to intra-day breaches. More important is whether the breach has been on a closing basis or not.

Large single day movements in an index or a stock are to be noted, but ignored for analysis purposes. Last Friday (Oct 5 ‘12), the Nifty fell a huge 900 points intra-day due to 59 ‘error’ trades, dropping below all three EMAs and the blue uptrend line (not shown in chart below), but closed only 40 points below its previous day’s close.

If you take the ‘flash crash’ into consideration then Nifty’s uptrend has ended – as the index dropped below its Jul ‘12 and Aug ‘12 lows, the uptrend line and all three EMAs. Even the longer-term uptrend line connecting the Dec ‘11 and Jun ‘12 bottoms (not shown in chart) was breached intra-day. But the 2 years daily closing chart of the Nifty is obviously still in an uptrend.

Nifty_Oct0512

When a stock or an index falls a huge amount within a short time span, whether due to an ‘error’ or a ‘scam’, it is better to remain circumspect. More so in this case, because the Nifty had briefly entered a strong resistance zone between 5750 and 6000. The close just below the resistance zone on Friday may lead to some profit booking in the coming weeks.

Why? Because the Nifty touched a 17 months high, but all four technical indicators are showing negative divergences by failing to touch new highs. However, all four indicators are still bullish, so any correction is unlikely to be steep. Support can be expected from the 20 day EMA (at 5600), 50 day EMA (at 5450) and the blue uptrend line (at 5380).

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are in nascent bull markets, but need to cross above strong resistance zones. Both indices are likely to correct or consolidate before bulls can muster enough strength to test the Nov ‘10 tops in both indices. Use dips to enter, but maintain stop-losses. Book partial profits if you entered at lower levels.

Saturday, October 6, 2012

Was Friday’s ‘flash crash’ in the Nifty an error or a scam?

All seemed well when the stock market opened in the morning on Fri. Oct 5 ‘12. The previous evening’s cabinet meeting had passed the Companies Bill (2011 amendments) and FDI in insurance and pension. The Nifty was expected to open higher, and it did. Out of the blue at 9:50 am, the Nifty crashed by 900 points before you could say ‘Jack Robinson’.

10% circuit filter kicked in and trading was halted at the NSE for 15 minutes, while trading continued at the BSE. When normalcy was restored and trading resumed at NSE, Nifty quickly climbed back almost to the level from which it had fallen. But the bullish sentiment had been badly dented.

What happened? NSE authorities were quick to mention that there were no technical problems with NSE’s software. Instead, fingers were pointed at a particular brokerage house that had entered 59 ‘erroneous’ trades on a basket of Nifty stocks worth Rs 650 Crores. The brokerage house had been ‘disabled for trading’ and the matter was being investigated.

There was no clarification from the brokerage house. All its senior managers apparently left the office in the morning. There were rumours floating around that some of them were at the NSE’s office, trying to sort out payment issues. What about the likely loss that the brokerage house may have suffered due to the ‘error’? Unconfirmed figures in the range of Rs 80 Crores to Rs 200 Crores were being bandied about.

So, was it really an ‘error’ or was it another one of those periodic scams perpetrated to bail out some one who was caught short in a rising market? The truth may never be known – going by the lack of transparency of NSE officials and the poor track record of SEBI in bringing scamsters to justice.

But if I had to make a bet on one or the other, I’d go with a scam. Here are the reasons why:

  1. An ‘error’ can occur with one or two trades. But 59 trades – one after the other? It seems too much of a coincidence.
  2. The timing of the ‘erroneous trades’ within the first hour of trading, when volumes are typically low in Nifty cash, raises questions. A series of trades worth Rs 650 Crores could bring the Nifty to its knees, though daily volumes top Rs 10000 Crores.
  3. The 10% circuit breaker should have been applied as soon as the Nifty dropped by 570 points. Why was it applied only after a 900 points (15%) fall?
  4. As per SEBI guidelines, if a circuit breaker is applied before 1 pm, trading ought to be suspended for 1 hour. Why was trading resumed after 15 minutes?
  5. When trading is suspended due to circuit breaker in one exchange, the other exchange should also have stopped trading. But no shut down happened at BSE.

All of the above point to some thing more than an ‘error’ by a dealer at a brokerage terminal, entering trades for an institutional investor. Will the SEBI get to the bottom of this? How about cancelling all the trades that took place from 9:45 am to 10:15 am? Surely that would help small traders and investors who got stopped out by the sudden ‘flash crash’ in the Nifty? Who will restore the confidence of small investors – many of whom believe that the stock market is a big casino with the odds always favouring the house?

Related post

Was it a freak ‘error’ trade or a ‘short and distort’ scam?

http://investmentsfordummieslikeme.blogspot.in/2012/04/was-it-freak-error-trade-or-short-and.html

Thursday, October 4, 2012

Is the Government’s policy overdrive a ploy to boost the stock market?

From a condition of growth deceleration, threat of credit downgrade, scams coming out of the woodwork and total policy paralysis, India is now being swept along by a sudden policy overdrive that has changed stock market sentiment from extremely bearish to almost wildly bullish.

After the recent announcements of 51% FDI in retail and a long overdue hike in diesel price, the UPA government’s largest ally, Mamata Banerjee’s Trina Mool Congress (TMC – literally ‘Grass Roots’ Congress), walked out of the government in a huff. That perhaps paved the way for three big-ticket reforms announcements this evening:

  1. Passing of the Insurance Bill, including enhanced 49% FDI limit (from the earlier 26%)
  2. Passing of the Pension Bill, including 26% FDI limit, and giving statutory authority to PFRDA
  3. Passing of the Companies Bill, 2011 (a bill pending for nearly 2 decades)

Passing of the three bills by the Cabinet is only the first, albeit a big, step. All three bills need to be ratified by the Parliament, which will be a tough task because the UPA government has been reduced to a minority due to TMC’s withdrawal of support.

The BJP has already announced its opposition to the Insurance and Pension Bills. The Left parties and TMC will surely be joining hands with them. The UPA government will need to do some deft floor management to turn around allies providing outside support – like Mulayam’s SP, Karunanidhi’s DMK, Mayawati’s BSP. Needless to say, the latter will try to extract their respective ‘pounds of flesh’.

The Companies Bill may go through because the BJP is unlikely to oppose it – but one never knows in politics. So, why this sudden policy overdrive by a government that appeared almost moribund just a couple of months ago? The answer depends on who you ask!

Mamata Banerjee has already gone on record – in her typically eccentric and irreverent way – that all these so-called reform announcements have been made to deflect the public’s attention from the slew of scams in which the Congress Party has got mired in. The allegation may not be incorrect.

UPA policy makers are probably trying to make hay while Mamata fails to shine. Her recent protest rally in Delhi was a bit of a damp squib, and Sharad Jadav’s presence next to her on the dais has effectively negated her grand plan of forming a third front with Mulayam’s SP for the 2014 Lok Sabha elections.

Another reason could very well be a ploy to boost the stock market. Why? Because of its various welfare and subsidy schemes, the government is fast running out of money. Foreign credit-rating agencies and the RBI have told the government in no uncertain terms to cut its fiscal deficit, or face rating downgrades and continued low GDP growth.

Reducing spending should be the prudent option, but could cost the government dearly in the next polls. An alternative is to generate cash by reviving the divestment policy. A bullish stock market is a pre-requisite for absorbing large FPO and IPO offerings from PSU companies.

Tomorrow (Fri. Oct 5 ‘12) may bring a further surge in Sensex and Nifty indices. Use it to book part profits. Once the FPO and IPO offerings start hitting the market, a lot of liquidity will get sucked out.

Wednesday, October 3, 2012

Stock Chart Pattern - Balrampur Chini (An Update)

The previous technical update of the stock chart pattern of Balrampur Chini was posted back in Jan 2010, with the following concluding remarks: “Existing holders may stay invested with a strict stop-loss at 115, with the hope that a white knight will appear on the scene soon. The risk-averse can book profits. Fresh entry is not recommended.”

The owners had been trying to sell the company, but the high asking price had deterred potential buyers like Bajaj Hindustan and Shree Renuka Sugar. No white knight appeared. After touching a high of 167 in Oct ‘09, the stock dropped into a prolonged bear phase. It received brief support at 115, but soon dropped to 70, where it received stronger support – in May ‘10 and then again in Dec ‘10 (marked by blue up arrows on left of chart below).

Once the support at 70 got breached in Feb ‘11, the stock made a couple of valiant efforts to climb back and stay above 70 but failed and dropped all the way down to a low of 33 in Dec ‘11 – just above its Oct ‘08 low of 30. The bear phase appears to have ended finally.

Balrampur_Oct2012

The daily bar chart pattern of Balrampur Chini shows an uptrend from the Dec ‘11 low of 33 (marked by blue uptrend line) that has already provided more than 100% gains in 8 months, but is facing strong resistance from the support/resistance level of 70 (marked by blue down arrow on right of chart above). This is another example of how an earlier support level can turn into a future resistance level.

Will the stock price be able to break out above the 70 level soon? Technical indicators seem to indicate otherwise. MACD is barely positive, and is below its signal line. ROC is above its 10 day MA but has slipped back into negative territory. RSI faced resistance from its 50% level, and is moving down. Slow stochastic has moved above its 50% level. Bulls have some more work to do before the stock price can move higher.

The company hasn’t been doing well. Top line shrank by 22% in FY ‘12 while bottom line shrank by 96% and was barely positive. Debt/Equity ratio is 1.42. Interest expenses continue to affect the bottom line. Q1 results showed top line growth of 21%, but hardly any improvement in the bottom line, which remained negative.

What should small investors do? If you are holding on from higher levels in the hope of getting back your ‘buy’ price, it may be a good idea to get out now. If you are one of those lucky few who managed to get in at lower levels, book part profits and hold the balance with a trailing stop-loss at the level of the uptrend line (now at about 60). If you are thinking of making a fresh entry, don’t. Much better stocks are available in the market.

Bottomline? The stock chart pattern of Balrampur Chini seems to have shrugged off the bears and is trying to enter a new bull market. That doesn’t make it a good investment candidate. There is too much political interference in the sugar sector as a whole. Stocks from the sector are best avoided.

Monday, October 1, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Sep 28, ‘12

S&P 500 Index Chart

S&P 500_Sep2812

The following remarks in last week’s analysis of the 6 months daily bar chart pattern of S&P 500 index, bear repeating: “In case the sideways consolidation turns into a correction – as it is showing signs of doing at the time of writing this post – support can be expected from the rising 20 day EMA (at about 1440) and stronger support from the 1425 level…”

After dropping below its 20 day EMA to the 1430 level during the week, the index closed almost exactly on its 20 day EMA. The good news is that the uptrend from the Jun ‘12 low is intact. The bad news is high volumes on down days last week. A drop below the 50 day EMA will be bearish.

Technical indicators have corrected overbought conditions, and beginning to look bearish. MACD is positive, but falling below its signal line. RSI bounced up from its 50% level, but is moving down again. Slow stochastic has dropped sharply below its 50% level towards its oversold zone. The correction may not be quite over yet.

Economic data hasn’t been cheerful. Final estimate of Q2 GDP growth was an annualised 1.3% – lower than the earlier estimate of 1.7%. Durable goods orders dropped more than 13% – much worse than estimates. New home sales were weaker than expected. The silver lining was soaring corporate profits.

FTSE 100 Index Chart

FTSE_Sep2812

The 6 months daily bar chart pattern of the FTSE 100 index dropped below its 50 day EMA but took support on the uptrend line (not shown) connecting the Jun ‘12 and Sep ‘12 bottoms. A further fall will be bearish.

Technical indicators are looking bearish. MACD is falling below its signal line in positive zone. RSI has dropped below its 50% level. Slow stochastic has entered its oversold zone. At the time of writing this post, the FTSE 100 has bounced up strongly, and all seems well with the uptrend and the bull market.

UK’s economy may come out of a double-dip recession after 9 months – if economic experts are to be believed. But the economy continues to stutter and stumble, as manufacturing activity contracted in September.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices are undergoing bull market corrections, but appear to have found supports. Such corrections improve ‘technical health’ of charts and provide entry opportunities.