BSE Sensex and NSE Nifty 50 index chart patterns – Jun 28, 2013

Just when everyone started wailing ‘bear, bear’ and speculating about the depths to which the Indian stock market would collapse, the bears turned into bulls. The FIIs bought big on the last day of the week.

Shorts went scurrying to the exit doors. Government’s announcement of an increase in gas prices could not have come at a more opportune time. Suddenly, the dark clouds of gloom and doom parted and the sunshine of higher index levels shone through.

Did the fundamentals change suddenly? It never does. Technically, indices were oversold. That doesn’t always mean a turn around in trend. Is this a relief rally, or a return to a bull market?

Some concluding comments from last week’s analysis are worth repeating: “Both indices should rise to new highs after the corrections are over. Use the dips to add to existing portfolios, but maintain suitable stop-losses.”

BSE Sensex index chart

The daily bar chart of the Sensex briefly breached the up trend line connecting the Jun ‘12 and Apr ‘13 bottoms. But the breach wasn’t convincing, as the index remained within the 3% ‘whipsaw’ limit. Technically, the support from the trend line held.

The subsequent bounce created an upward ‘gap’ as Sensex moved above its 200 day EMA. A break out with a ‘gap’ is considered a ‘stronger’ break out. Note that the ‘gap’ zone between 18060 and 18290 (formed back in Sep ‘12) again provided support to the Sensex – just as it had done in Nov ‘12 and Apr ‘13.

Daily technical indicators are turning bullish. MACD has turned up from its oversold zone to touch its falling signal line. ROC has climbed above its 10 day MA into positive territory. RSI has moved up to its 50% level. Slow stochastic is also rising towards its 50% level.

Sensex has moved above all its three EMAs, back into bull territory. The up move is likely to resume.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty shows two blue up trend lines – the first is a longer-term up trend connecting the Dec ‘11 and Jun ‘12 lows (marked ‘1’) and the second is a shorter-term up trend connecting the Jun ‘12 and Apr ‘13 lows (marked ‘2’).

Ignoring the ‘error trade’ on Oct 5 ‘12 because it isn’t technically significant, up trend line ‘1’ has not yet been breached. Up trend line ‘2’ was breached intra-week during the past two weeks, but the index failed to close below the trend line. Technically, up trend line ‘2’ has not been breached either.

Nifty formed a ‘reversal week’ bar (lower low, higher close) that should end the previous 5 weeks’ corrective move. The index crossed above its 50 week EMA on strong volumes and closed exactly on its 20 week EMA.

Weekly technical indicators are showing some signs of strength. MACD is below its signal line in positive territory, but has stopped falling. ROC has crossed below its 10 week MA, but remains positive. RSI has moved above its 50% level. Slow stochastic has slipped below its 50% level, but its downward momentum is waning.

Nifty is likely to resume its up move and attempt to scale new highs – provided FIIs continue their buying.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices received good support from their up trend lines after correcting from 2 year highs. Both indices should rise to new highs on the back of renewed FII buying. This is a good time to accumulate fundamentally strong stocks for the long-term.

(PS: If you are planning to add good mid-cap/small-cap stocks to your portfolio, but are not sure which stocks to pick, book your subscriptions to my Monthly Investment Newsletter. New subscriptions will be offered from July 1-21, ‘13.)

Nifty chart: a mid-week technical update

Nifty’s daily bar chart pattern seems poised at an interesting cross road, though bears (i.e. FIIs) seem to have the upper hand. Here are some technical indications why bears may retain their dominance in the near term:

1. The down trend from the May ‘13 top has breached the blue uptrend line connecting the Jun ‘12 and Apr ‘13 bottoms. The breach is not quite convincing as yet – since Nifty has not dropped more than 3% below the trend line. But it is a breach nevertheless – which is bearish.

2. The 20 day EMA is about to drop below the 200 day EMA, though it hasn’t done so yet. If the falling 50 day EMA drops below the 200 day EMA also, the ‘death cross’ may end the bull market.

3. Daily technical indicators are bearish, and looking oversold. However, markets can remain oversold for long periods – so there may not be any immediate prospect of a turnaround.

Bulls are not completely out of the game. Here is why:

1. Nifty is just above the gap area – formed in Sep ‘12 between 5447 and 5527. The ‘flash crash’ on Oct 5 ‘12 was due to an ‘error trade’ that did not show up in either Nifty Futures or Sensex charts, and will be ignored for technical analysis purposes.

That means, the ‘gap’ has not yet been filled completely. The ‘gap’ provided support to Nifty back in Nov ‘12, and again in Apr ‘13 (when the ‘gap’ was partially filled); it may do so again.

2. Even if the ‘gap’ gets completely filled, the index is likely to resume its up move soon thereafter. The longer-term uptrend line connecting the Dec ‘11 and Jun ‘12 lows (not shown in chart above) is currently at about 5400 – just below the ‘gap’ zone.

3. During the last 5 trading sessions, the up-day volumes on Fri. Jun 21 and Tue. Jun 24 have been higher than on the three down-days. The selling pressure may be easing.

The scales will remain tilted towards the bearish side, as long as the FIIs keep selling. But DIIs have turned buyers, and that is preventing a crash in the Nifty chart – even though there seems to be no respite for mid-cap and small-cap shares.

WTI and Brent Crude Oil charts: an update

WTI Crude chart

The 1 yr daily bar chart pattern of WTI Crude oil briefly breached the resistance level of 98 to touch 99 on an intra-day basis. Sliding volumes and proximity to the resistance level were not encouraging signs for bulls. After forming a ‘reversal day’ pattern (higher high, lower close) oil’s price plunged below all its three EMAs before bouncing up.

For the last 3 months, oil’s price has made a bullish pattern of higher tops and higher bottoms. The 200 day EMA is gently rising. These are bullish signs. However, strong volumes on down days means bears are using every opportunity to sell.

Daily technical indicators are turning bearish. MACD is positive, but has crossed below its signal line. RSI has slipped below its 50% level. Slow stochastic has dropped below its 50% level.

For nearly 12 months, oil’s price has traded in a broad sideways range between 84 and 100 – providing decent trading opportunities. A convincing move above 100 can bring bulls to the fore.

Brent Crude chart

Two weeks back, an analysis of the 1 yr daily bar chart pattern of Brent Crude oil contained the following concluding comments: “Remember that oil’s price is in a bear market, so any further up move is likely to attract selling pressure. The zone between 106 and 108 is going to provide strong resistance.”

Sometimes, chart patterns play out almost exactly as expected. Oil’s price rose above the 106 level four days in a row, but couldn’t quite get past the 107 level. The falling 200 day EMA wasn’t even tested. High volume selling pushed oil’s price down below its three EMAs – deeper inside a bear market.

Daily technical indicators have turned bearish. MACD has crossed below its signal line into negative territory. RSI has dropped below its 50% level. Slow stochastic is dropping like a stone towards its oversold zone. Bears have regained control.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jun 21, ‘13

S&P 500 Index Chart

The following comments were made in last week’s analysis of the daily bar chart pattern of S&P 500 index: “All three technical indicators are showing negative divergences by touching lower bottoms (than the ones touched in Apr ‘13) while the index touched a higher bottom. Some more correction/consolidation is likely.”

The index rose to touch an intra-day high of 1654 on Tue. Jun 18 ‘13, but formed a bearish ‘rising wedge’ pattern (marked by dark blue lines), from which it dropped sharply below the 1600 support level on a volume spurt. Friday’s upward bounce failed to cross above the 1600 level despite strong volumes – highest volumes seen since Dec ‘11 – which means the support level may have turned into a resistance level.

Daily technical indicators are looking bearish. MACD has fallen into negative zone below its signal line. RSI is moving down towards its oversold zone. Slow stochastic has already entered its oversold zone. At the time of writing this post, the index is trading 1.5% below last week’s closing level of 1592.

A test of support from the rising 200 day EMA is on the cards. A breach of the long-term moving average may put the bull market in jeopardy. Wait for the correction to play out. Initial jobless claims and manufacturing data continues to signal modest economic growth.

FTSE 100 Index Chart

The following comments made in last week’s analysis of the daily bar chart pattern of FTSE 100 index bear repetition: “While the bull market is still intact, keep a close watch on the 6200 level, which had earlier provided support during Feb ‘13 and Apr ‘13. A breach of 6200 would also mean a breach of the 200 day EMA – which would be bearish.”

The upward bounce from the 200 day EMA took the index up to the 6400 level before the bears took charge. High volume selling pushed the index well below the 6200 support level and the 200 day EMA. At the time of writing this post, the index is trading more than 1.5% below Friday’s close.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line and ready to enter its oversold zone. RSI is at the edge of its oversold zone. Slow stochastic has remained inside its oversold zone for most of the month.

If the index falls below the 6000 level – which is the next support level – it can drop to the next support zone between 5500 and 5800. Caution is advised.

Bottomline? The 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are in the midst of strong corrections after touching new highs in May ‘13. Both indices have breached support levels, and more correction is likely. Wait for the corrections to play out.

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 21, 2013

There is an old proverb: Misfortunes never come singly. The Indian Rupee – already reeling from the burgeoning current account deficit due to imports far exceeding exports – was dealt a body blow by US Fed’s recent announcement of a possible slow down in its bonds buying programme (better known as QE3).

There was a global sell off in equity and bond markets, and India wasn’t spared. Was the reaction overdone? Apparently so. First, QE3 will be tapered down by the end of this year, not now. The availability of cheap money will continue for at least another 6 months. Second, the tapering down will depend on continued growth of the US economy – and there is every possibility that growth will be tepid at best.

That means the present correction may be providing a good opportunity to add fundamentally strong stocks at fair prices. The best way to make money in the stock market is to think and act differently from the herd. 

BSE Sensex index chart

There is good reason for investors to feel bearish. FIIs have been selling for two straight weeks. Technically, the weekly bar of Sensex has closed below its 50 week EMA. Weekly technical indicators are turning bearish. MACD is positive, but has crossed below its signal line. ROC is also positive, but is falling towards its 10 week MA. RSI and Slow stochastic are below their 50% levels.

But bulls are not going to keel over and die. The concluding comment in last week’s analysis was: “Keep a close watch on the blue up trend line connecting the Jun ‘12 and Apr ‘13 bottoms – currently at 18660. A drop below may lead to a deeper correction.” Note that last week’s bar dropped below the up trend line (marked 2) intraweek, but closed above it.

The 18500 level (marked by blue dotted line) – corresponding to the previous top touched in Feb ‘13 – is likely to act as a support. Also, the longer-term up trend line (marked 1) connecting the Dec ‘11 and Jun ‘12 lows has not been tested.

A drop below 18500 may lead to a test of the up trend line (marked 1). A breach of this up trend line – currently at 17250 – may end the 18 months long bull phase. So, be cautious and keep proper stop-losses, but no need to panic.

NSE Nifty 50 index chart

The daily bar chart pattern of Nifty shows a break down below a ‘falling wedge’ pattern (usually a bullish pattern) followed by a ‘pullback’ to the lower edge of the wedge. Such a pullback offers a selling opportunity that was gleefully utilised by bears. Note that despite an intra-day breach of the blue uptrend line, the index closed on top of the line, giving temporary respite to bulls.

Daily technical indicators are bearish, and looking oversold. MACD is below its falling signal line, and hurtling down towards its oversold zone. ROC has moved up from its oversold zone and touching its falling 10 day MA. RSI and Slow stochastic are inside their oversold zones. Two of the four indicators – ROC and Slow stochastic – are showing positive divergences by touching higher bottoms while Nifty touched a lower bottom.

A continuation of last Friday’s bounce is possible. But the correction is expected to resume if FIIs continue their selling spree.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are at import support levels after correcting from 2 year highs. Both indices should rise to new highs after the corrections are over. Use the dips to add to existing portfolios, but maintain suitable stop-losses. If FIIs continue to sell, the bull markets may be in jeopardy.

(PS: If you are thinking of using the correction to add good mid-cap/small-cap stocks to your portfolio, but are not sure which stocks to pick, book your subscriptions in advance to my Monthly Investment Newsletter. New subscriptions will be offered from July 1 ‘13.)

Sensex falls 500 points – time to buy or time to run?

To succeed in the stock market, one needs to think and act differently from the herd. Most small investors enter the market with very little knowledge about how the stock market functions, which sectors perform consistently, which sectors are cyclical in performance, and which sectors are perennial laggards.

A motley collection of stocks are acquired based on well-meaning advice from friends or colleagues, and not-so-well-meaning tips from web sites and SMS marketers. When many of these stocks start to fall in price soon after buying, more quantities are purchased in a desperate hope that ‘averaging’ will some how retrieve the situation. End result is loss of capital.

Such a pattern of behaviour gets repeated again and again, and is one of the main reasons why small investors rarely make money from stocks. Some learn from their mistakes by spending the time and effort to read investment books written by well-known stock market ‘guru’s. Most give up stock investing all together.

How does one think and act differently from the herd? Step one is to do some basic preparation before entering the market. Visit web sites like investopedia.com. Read books by Peter Lynch, Jeremy Siegel, Martin Pring to get an idea about how to invest for better returns.

Step two is to make a financial plan, based on one’s likely income and expenditure. Without a plan, goals can’t be set; without goals, not much can get achieved. Goals should be specific and realistic - ‘x’ amount of money for buying a car/bike in 2 years; ‘y’ amount for children’s education in 15 years; ‘z’ amount for a holiday every 3 years.

Step three is to make an ‘asset allocation’ plan. Such as, 40% of savings to be invested in fixed income instruments (like bank FD, PO MIS, NSC); 50% of savings to be invested in stocks; 5% in gold; 5% in cash for exigencies. The percentages can be tweaked according to one’s age and risk tolerance.

Only when you have completed the three steps should you start to buy stocks. What if you don’t have enough money yet to buy stocks? Build up your capital by regularly investing in a bank recurring deposit or a good balanced fund. It may take 3 years or 5 years before you accumulate sufficient capital to invest according to your asset allocation plan.

So be it. What is the rush? Rome wasn’t built in a day. A strong investment portfolio that can generate wealth takes years and years of effort of disciplined investing and monitoring. It is not rocket science. Neither is it sexy or exciting.

John Templeton had famously said: The best time to invest is when you have the money. If you are diligent about saving and investing according to your plan, you will always have some money available for taking advantage of sudden opportunities – like the one provided by a sudden drop in the Sensex for no apparent reason.

It takes courage to buy, when every one else seems to be selling and running. Easier said than done. But being a contrarian and acting differently (not foolishly) is the key to investment success.

That was the long answer. The short answer is: Your asset allocation plan should dictate what you should do.

Related post

What you can learn about contrarian investing from a great tennis player

How to reallocate your assets

Gold and Silver charts: an update

Gold Chart Pattern

The 6 months daily bar chart pattern of gold continues its sideways consolidation in a bear market. A similar sideways consolidation in a price range between 1550 and 1625 during Feb-Mar ‘13 had ended with a high volume ‘panic bottom’ pattern.

Since a ‘panic bottom’ seldom holds, gold’s price is likely to seek levels lower than its Apr ‘13 low. Daily technical indicators are looking bearish. MACD is rising above its signal line, but remains in negative territory. RSI is moving sideways below its 50% level. Slow stochastic is sliding down below its 50% level.

Higher volumes on down days is a sign of distribution. Avoid the temptation to do any bottom fishing. Enter only on a convincing move above 1500.

Silver Chart Pattern

The 6 months daily bar chart pattern of silver is consolidating sideways with a downward bias. The falling 20 day EMA is providing strong resistance to all attempted up moves since Feb ‘13.

Daily technical indicators are bearish. MACD is above its signal line, but inside negative territory. RSI continues to drift below its 50% level. Slow stochastic has bounced up weakly from the edge of its oversold zone.

Only a revival in worldwide industrial production can change the fortunes of silver bulls. Stay on the sidelines till then. Enter only if silver’s price convincingly crosses above 25.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jun 14, ‘13

S&P 500 Index Chart

Two weeks back the daily bar chart pattern of S&P 500 index had closed at 1631 - below its 20 day EMA. The index had earlier touched a high of 1687 on May 22 ‘13, but formed a ‘reversal day’ pattern (higher high, lower close) on a volume spurt – ending the intermediate rally from the Apr ‘13 low of 1536.

During the past 2 weeks, the index has consolidated sideways in a range between 1600 and 1650, with the rising 50 day EMA providing good support. Note that on Jun 6 ‘13, the index dropped to an intra-day low of 1598 – which corresponded almost exactly with the highs touched during Apr ‘13. This is another example of how previous tops tend to provide support.

Daily technical indicators are looking bearish. MACD is falling below its signal line, and is barely positive. RSI is oscillating around its 50% level. Slow stochastic bounced up from its oversold zone, but is in bearish zone (below its 50% level).

All three technical indicators are showing negative divergences by touching lower bottoms (than the ones touched in Apr ‘13) while the index touched a higher bottom. Some more correction/consolidation is likely. The index is trading above its rising 50 day and 200 day EMAs – so there is no immediate threat to the bull market.

The growth of the US economy continues to be unexciting. Retail sales rose a bit. Initial jobless claims dropped more than expectations. But industrial production remains lacklustre.

FTSE 100 Index Chart

Two weeks ago, bearish technical indicators had led to the following comment about the daily bar chart pattern of the FTSE 100 index: “A test and possible breach of the 50 day EMA is likely.” The index not only breached its 50 day EMA, but dropped all the way to its 200 day EMA last week before bouncing up.

While the bull market is still intact, keep a close watch on the 6200 level, which had earlier provided support during Feb ‘13 and Apr ‘13. A breach of 6200 would also mean a breach of the 200 day EMA – which would be bearish.

Daily technical indicators are bearish but looking oversold. MACD is falling below its signal line towards its oversold zone. RSI is trying to bounce up from the edge of its oversold zone. Slow stochastic is well inside its oversold zone. All three indicators are showing negative divergences by touching lower bottoms than the ones touched in Apr ‘13.

The upward bounce may last a little longer. Overhead resistance is likely from the falling 20 day and 50 day EMAs. The index may correct/consolidate some more before deciding its next move.

Bottomline? The 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are still in the midst of corrections after touching new highs in May ‘13. Both indices have bounced up from support levels, but more correction/consolidation is likely. Bull markets are intact, so the corrections are adding opportunities. However, maintain suitable stop-losses.

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 14, 2013

A week of net selling by FIIs have changed the technical picture of the stock market in the near term – proving how dependent our market has become to FII flows. However, the longer-term bull markets – visible in the Sensex and Nifty charts below – are intact.

Note that FIIs sold across the emerging markets last week, but the slide in the value of the Rupee against the US Dollar – thanks to the large CAD - exacerbated the bearish mood in India. Contrary to popular belief, the fundamental picture is actually getting better.

The IIP number was lower than expected, in spite of two subsequent upward revisions (from 2% to 2.3%). But WPI inflation is moving down – partly due to the base effect. The Finance Minister made some positive noises about boosting the investment climate. If talk translates to action, the market will rejoice.

BSE Sensex index chart

Contrary to expectations, Sensex broke down below a ‘falling wedge’ pattern and closed below the 200 day EMA for a day, before Friday’s upward bounce on short covering and some investment buying pulled the index back towards the ‘wedge’. Such pullbacks are selling opportunities, so it won’t be surprising if the down move resumes next week.

Bulls may point out that the price action of the last three trading sessions has formed a small bullish ‘island reversal’ pattern. But the pattern will get confirmed only if the Sensex resumes its up move.

Daily technical indicators are looking bearish. MACD is falling below its signal line in negative zone. ROC has bounced up from its oversold zone to cross above its 10 day MA, but remains negative. RSI is crawling at the edge of its oversold zone. Slow stochastic is inside its oversold zone.

Keep a close watch on the blue up trend line connecting the Jun ‘12 and Apr ‘13 bottoms – currently at 18660. A drop below may lead to a deeper correction.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty dropped briefly below its 50 week EMA intra-week, but managed to close above it. The correction has completed 4 weeks, but the long-term uptrend (marked by the blue trend line) that started from the low of 4531 touched in Dec ‘11 is under no immediate threat. In fact, such corrections should be welcomed as they provide adding opportunities, and improve the technical health of the market.

Weekly technical indicators are beginning to turn bearish. MACD has crossed below its signal line in positive territory. ROC is showing positive divergence by rising above its 10 week MA in positive zone. RSI has slipped below its 50% level. Slow stochastic is falling towards its 50% level.

Some more correction is likely, but any drop towards the Apr ‘13 low of 5477 may trigger buying by the bulls.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are still correcting after touching 2 year highs. Both indices should rise to new highs after the corrections are over. Use the dips to add to existing portfolios, but maintain suitable stop-losses.

(PS: If you are thinking of adding good mid-cap/small-cap stocks to your portfolio but are not sure which stocks to pick, book your subscriptions in advance to my Monthly Investment Newsletter. New subscriptions will be offered from July 1 ‘13.)

The ‘second coming’ of Narayana Murthy – a guest post

Once a darling of IT professionals and FIIs, and a beacon of transparency and corporate governance, the fortunes of Infosys have been on a downward drift for more than 2 years. What has been going wrong?

The global economic downturn affected all IT services companies. A strategy of moving up the services value chain by focussing on business consulting activities didn’t quite pan out as expected. Failure to make big ticket acquisitions despite a cash surplus reduced growth options.

Most crucially, the able stewardship of Narayana Murthy and Nandan Nilekani could not be emulated by lesser mortals like Gopalakrishnan and Shibulal. In this month’s guest post, Nishit takes a look at Narayana Murthy’s return to the helm of Infosys, and its likely outcome.  

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Last week, the markets were abuzz with the announcement that Narayanamurthy was returning to head Infosys. Let us try and examine if this is a good thing and if there will be any change in the fortunes of Infosys.

As we all know, Infy has been doing pretty badly when compared with top IT firms like Cognizant, TCS and HCL Tech. It was in danger of being left behind in the race. It was becoming a laggard like Wipro.

Much of Infy’s prime position was due to the aura built around Murthy and Nandan Nilekani. After the departure of these two, it became just another software company. It also had a weird succession plan. Each of the founders got to be the CEO in rotation. This wasn’t a good plan. Being one of the founders and being able to lead are two different things.

Also, this policy led to many talented second rung executives leaving the company, like Mohandas Pai. Infy had become just like some of our political parties, where leadership is all in the family. Here it was all with the founding fathers.

One more area of concern being raised is Murthy will be assisted by his son. Now, this may or may not be a good thing, although his son is well qualified.

Throughout history, one has seen companies where leaders have returned to revive stagnating fortunes like Steve Jobs for Apple, Starbucks CEO, Google founders, and so on.

The return of Murthy also means that his succession plan was flawed. The challenges in front of him are two-fold. First is winning back the confidence of customers, employees and shareholders. Second is getting the succession policy right the second time around.

In life, very few get a second chance and a third chance never happens. This is the last chance for Murthy to lay down his legacy. The second attempt is fraught with danger - if there is a mess up, his legacy may get tarnished.

We live in an era of fast food. People want quick results. Unfortunately, the results in this case, will take time to show up. It could take even two or more years. He will not have a magic wand which will conjure up results immediately.

Once upon a time, Infy was a place where people aspired to work. Salary was not the issue; it was the brand which people wanted on their CV. The brand has lost its allure now. Will the lost glory days return or will it be another failed experiment?

Another issue with the comeback is that all the talk of morality and Corporate Governance goes out of the window. For the immediate term, the move has been greeted with universal acclaim but will that be the story two years down the line?

All said and done, one must acknowledge and appreciate Murthy’s guts to come back and try and set things right. It is very easy to sit back and relax. At the age of 67, to take this risk speaks volumes of the courage and spirit of Murthy.

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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.)

WTI and Brent Crude Oil charts: consolidating sideways

WTI Crude chart

The following concluding comments were made two weeks ago about the daily bar chart pattern of WTI Crude oil: “The negative divergences could lead to a drop below the 200 day EMA. For the past 6 months, oil’s price has been consolidating in a broad range between 86 and 98. Since the 200 day EMA is rising, the scales are slightly tilted towards the bulls for now.”

Note that oil’s price did drop below its 200 day EMA, only to bounce up above all three EMAs and back into bull territory. The sideways consolidation within 86 and 98 continues. The 200 day EMA is rising gently. For a change, up-day volumes have been stronger than down-day volumes during the past two weeks – which is a bullish sign.

Daily technical indicators are looking bullish. MACD has crossed above its signal line in positive zone. Both RSI and Slow stochastic have risen above their respective 50% levels. However, oil’s price is nearing the 98 level, where bears have resorted to selling. Disappointing economic data from China may also put a lid on the upward movement of oil’s price.

Brent Crude chart

The 1 year daily bar chart pattern of Brent Crude oil continues its sideways consolidation in a bear market. The 200 day EMA is steadily sliding downwards, and attempts at up moves are being thwarted by the 50 day EMA.

Good news for the bulls is that volumes have been higher on up-days of late, and oil’s price managed to close above its 50 day EMA for the first time since Feb ‘13 – even if only for a day.

Daily technical indicators are looking slightly bullish. MACD has crossed above its signal line, and looks ready to enter positive territory. RSI has just above its 50% level. Slow stochastic is about to enter its overbought zone.

Remember that oil’s price is in a bear market, so any further up move is likely to attract selling pressure. The zone between 106 and 108 is going to provide strong resistance.

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 07, 2013

Both Sensex and Nifty indices faced a week of profit booking. FIIs decided to turn net sellers for a couple of days. Predictably, DIIs turned net buyers on those days. Some doomsayers have been predicting a big crash. Technical indicators are not showing any signs of such a calamity.

Depreciation of the Rupee against the US Dollar was the major talking point among experts trying to analyse the fall in the market. The Finance Minister increased the duty on gold imports in a bid to curb the increasing CAD (current account deficit).

Europe continues to struggle in a recession. Many Indian companies had shifted their export focus from USA to Europe in the aftermath of the subprime crisis 5 years back and made large acquisitions. The stocks of such companies – including Bharat Forge and Tata Steel – have taken a beating.

BSE Sensex index chart

The weekly bar chart of the Sensex has taken support from its 20 week EMA. The 50 week EMA is rising. The blue up trend line marking the up trend from the Dec ‘11 low is intact. The Sensex has undergone periodic corrections on its way up. All are pointers to a technically healthy bull market, now in its 18th month.

Weekly technical indicators are showing some weakness, but remain bullish. MACD is about to touch its rising signal line in positive territory. ROC is moving sideways above its rising 10 week MA in positive zone. RSI is moving sideways just above its 50% level. Slow stochastic has dropped from its overbought zone, but is in bullish zone.

The dip can be used as an adding opportunity.

NSE Nifty 50 index chart

The daily bar chart pattern of Nifty has formed what looks like a head-and-shoulders reversal pattern to the untrained eye. What looks like a snake may actually be a harmless piece of rope – unless it hisses or bites.

For a head-and-shoulders pattern to ‘hiss or bite’ and start a big slide in prices, volume confirmation is necessary. Volumes should be the highest during the formation of the ‘left shoulder’. Volumes can be equal or slightly less during the formation of the ‘head’. During the formation of the ‘right shoulder’, volumes should be much lower.

Note that volume action was just the opposite on the Nifty chart above, with volumes during the ‘right shoulder’ formation being the highest. The ‘snake’ is really a ‘rope’. In fact, the entire correction from the May 20 top has formed a bullish ‘falling wedge’ pattern, from which the eventual break out should be upwards.

Remember that technical analysis is an art and not a science. Patterns don’t always play out as expected. Protect the downside with a suitable stop-loss. Daily technical indicators are looking bearish, and a little oversold. That means the correction can continue a bit longer.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are correcting after touching 2 year highs. Both indices should rise to new highs after the consolidation is over. Use the dips to add to existing portfolios.

(PS: If you are thinking of adding good mid-cap/small-cap stocks to your portfolio but are not sure which stocks to pick, book your subscriptions in advance to my Monthly Investment Newsletter. New subscriptions will be offered from July 1 ‘13.)

Notes from the USA – a guest post

Three successive rounds of QE (Quantitative Easing) programmes has pulled the US out of a recession and on the road to economic recovery. Or, has it? While a recession has been prevented and the value of the US Dollar is reigning supreme again, the state of the economy leaves a lot to be desired.

Those who were laid off and failed to get re-employed are simply leaving the job market, or doing part-time work at lower pay. College graduates are not finding jobs. Education loans are remaining unpaid. People are paying down debt. Durable goods are finding few buyers. Without job growth, there can be no spending growth and no economic recovery.

In this month’s guest post, KKP gives a ‘ground zero’ view of the state of the US economy, and discusses the consequences of tapering down of the current QE programme.

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Good Comes After Bad and Bad Comes After Good Comes

We have been talking about the ‘money pumping’ that the US Fed has been doing for a few years now, to ‘stop the global economy from entering into recession’. Of course, money printing (buying bonds, actually) that has created a level of debt unprecedented by any economy, in any prior times is something that has been supported by politicians and government economists. Who can stop them? No one.

We all know what happens when there is TOO MUCH float in the hands of businesses and consumers. Inflation. Too much money chasing too few goods, right? Well, the Fed now realizes that the housing market is starting to turn a bit, although most of the housing turn is money that cannot sit at 0.01% annual interest, and that is pouring into Real Estate, showing the artificial demand for ‘housing’. What is not associated with it is the reduction in Foreclosures, Short Sales and also First Time Home Buyers. Most of the housing demand is ‘upgrading’ (if it is not ‘investors’ like me).

Let’s look at jobs growth…..Unemployment is coming down, but when the government stops counting the people who are NOT paid unemployment benefits, then you are counting less people entering unemployment, and you are dropping a large number of unemployed at the back end of the pipeline (ones who have run out of their 27 or 52 weeks of unemployment benefits). Bottom line, it is showing that unemployment levels have improved from 9.5%+ to just under 7.5% recently. In reality, the Federal Reserve Act calls for 'maximum employment', not 'minimum unemployment' which is a more popular phenomenon.

The quarterly GDP is coming out with decent numbers, but the subsequent revisions are always down. True inflation is much higher, but the numbers (like India) are being reported with some skew in it, showing 3% to 4%. If that is the case, and if I am even partly right about everything above, then why “stop the QE program”? See announcement below:

“Federal Reserve officials have mapped out a strategy for winding down an unprecedented $85 billion-a-month bond-buying program meant to spur the economy – an effort to preserve flexibility and manage highly unpredictable market expectations.”

As I said, all of this is Fed’s business with very little that we can do/influence. We just have to be proactive to their moves, since some people are calling this a bubble itself, built on a ‘house of cards’ that will not need much of a ‘phook’ (whiff of air) to crumble down quickly. Markets come down 3 times faster than they go up! Remember that adage.

As and when this happens, we will feel like being driven off the cliff, with the government driving, and of course, we are in a car without a parachute.

All of this started to show that ‘US is not going to run out of money in its massive $14T economy’. The economy has not improved from the $14T number at all, so what does Obama and Bernanke have to show with the additional $4T (to a debatable $6.5T) debt that we have amassed already.

The current buying of $45 billion a month of Treasuries is to fund the government and throw liquidity at the banks to flow to the consumers. If it did not do this, of course, rates would rise and therefore, we would owe more money through debt payments, and naturally, we would have to cut our spending (government, military, other programs etc). And of course, cutting back might also starve some of the credit programs through Fannie Mae and Freddie Mac (lenders for people to buy houses). Not happening. Therefore, it will be a slow cutback of the $45B and not a sudden shutdown.

A lot of this money is showing up as ‘excess credit’ at cheap lending rates through businesses and investors, pouring money into ‘investable real estate’ and ‘investable funds in stock market’. As a result, the real estate indices are going up, and stock market indices…..well you know (going to New Highs). Consumers are feeling good, and saying that Fed has averted the ‘bad times’ and we are ‘off to the races’. Barrons, Times, Forbes, Wall Street Journal etc are all printing this positive news and smaller investors (retail) have been calling me again to find out what to invest in. Gold going down simultaneously is also part of the same move, squeezing the ‘inflation believers’ out of commodities, by putting funds into equity investments.

In reality, with this news coming out, the markets got affected a bit, but it seems we are stabilizing. Fed wins again in its move. If the support of the parent is moving away, will the child fall down again? We are in for a wild volatile ride, and Asian markets will ride up and down with this.

Keep your eyes open, and let your fingers itch to get out of the non-long-term positions……Protecting capital is a key to success.

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KKP (Kiran Patel) is a long time investor in the US, investing in US, Indian and Chinese markets for the last 25 years. Investing is a passion, and most recently he has ventured into real estate in the US and also a bit in India. Running user groups, teaching kids at local high school, moderating a group in the US and running Investment Clubs are his current hobbies. He also works full time for a Fortune 100 corporation.

Gold and Silver charts: consolidating before the next fall?

Gold Chart Pattern

The 6 months daily bar chart pattern of gold dropped to a high volume ‘panic bottom’ in April, and has since been consolidating within a broad range between 1300 and 1500. Note that the falling 20 day EMA has so far been providing resistance to all attempts by gold’s price to move up.

Gold’s price is clearly in a bear market – with the 200 day EMA and the 50 day EMA both falling. The strategy to follow in a bear market is to sell the rises, instead of hoping that gold’s price can’t/won’t fall any lower and therefore, this must be a good time to enter. ‘Panic bottoms’ seldom hold; gold’s price is likely to fall below the Apr ‘13 low.

Daily technical indicators are showing signs of bullishness. MACD is rising above its signal line, but remains in negative territory. RSI has been trying to move above its 50% level for the past 2 months, but without any success. Slow stochastic has climbed above its 50% level. However, any further up move from here may lead to bear selling.

Silver Chart Pattern

The 6 months daily bar chart pattern of silver shows consolidation within a narrow range between 22 and 23 during the past 2 weeks. Higher volumes on down-days indicates distribution. The likely break out from the narrow range is downwards.

Daily technical indicators are showing some signs of bullishness – particularly from the Slow stochastic, which is rising above its 50% level. However, MACD is negative, and RSI is below its 50% level.

For the past 4 months, silver’s price has faced resistance from its falling 20 day EMA. It is trading below all three EMAs and is in a bear market. Lower levels are likely.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – May 31, ‘13

S&P 500 Index Chart

The 6 months daily bar chart pattern of S&P 500 index tried to stay above its 20 day EMA in a holiday-shortened week, but dropped sharply on high volumes on Fri. May 31 and closed lower for the second straight week. High volumes on a down-day is a bearish sign.

However, the 50 day and 200 day EMAs are still rising and the index is trading above them. So, the correction should be treated as a bull market correction – which means it is an adding opportunity.

Daily technical indicators are showing bearishness. MACD is positive, but falling rapidly below its signal line. RSI is resting at its 50% level, but looks ready to enter bearish zone. Slow stochastic is already below its 50% level in bearish zone, and heading down towards its oversold zone. The correction isn’t over yet.

The US economy continues its laboured progress of two steps forward and one step back. Initial jobless claims rose above the 350,000 mark. Consumer spending dropped a bit. But inflation was lower than expected, which means tapering down of QE3 may not happen soon. That should help the bullish cause.

FTSE 100 Index Chart

The 6 months daily bar chart pattern of FTSE 100 index shows a drop below the 20 day EMA on a volume surge. The index closed lower for the second week in a row. The index is trading almost 400 points above its rising 200 day EMA, so the bull market is intact.

Daily technical indicators are turning bearish. MACD is positive, but falling below its signal line. RSI has slipped below its 50% level. Slow stochastic has fallen sharply below its 50% level and looks all set to enter its oversold zone. A test and possible breach of the 50 day EMA is likely. (At the time of writing this post, the index is down more than 100 points.)

Britain's manufacturers enjoyed a stronger than expected rebound in business last month, fuelling hopes that the sector will boost overall economic growth this quarter. However, an ILO report warned that the UK is trapped in the "vicious spiral" of falling real wages and depressed investment.

Bottomline? The 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are in the midst of corrections after touching new highs. Such bull market corrections provide opportunities to add to existing holdings. But maintain stop-losses to protect the downside.

BSE Sensex and NSE Nifty 50 index chart patterns – May 31, 2013

The volatility in the Sensex movements last week seems to have stumped even seasoned investors and analysts. Too bad they don’t spend a little time looking at chart patterns and technical indicators, that had pointed to the possibility of the correction continuing for a while.

Heavy selling by FIIs on the last day of the week saw a steep fall in the index, but a slightly higher weekly close. The gyrations over the past two weeks have been within a small symmetrical triangle, from which the likely break out is upwards. Why? Because a triangle is usually a continuation pattern.

Since the triangle has formed after an up move, the break out should, logically, be upwards. But triangles are notorious for being unreliable. That means there can be a downward break out or even a negation of the pattern if the index rolls out through the apex of the triangle. In other words, any buying should be done with a strict stop-loss.

BSE Sensex index chart

Daily technical indicators are looking mildly bullish - except the ROC, which has dropped below its falling 10 day MA into negative territory. MACD is positive, but falling below its signal line. RSI is resting at its 50% level. Slow stochastic is ready to slip below its 50% level. Note that MACD and ROC are showing negative divergences by touching lower bottoms; but RSI and Slow stochastic touched higher bottoms along with the index. Such confusing and contradictory signals do occur during periods of consolidation.

The new up trend line (connecting the Jun ‘12 and Apr ‘13 bottoms) is intact. Both the 50 day EMA and 200 day EMA are rising, with the index trading above them. The consolidation within the triangle is providing an opportunity to add to existing holdings.

NSE Nifty 50 index chart

The drop below 5% in the Q4 GDP number wasn’t really a surprise for the market. Results announced by biggies like Tata Motors and M&M weren’t great, but beat expectations. Then why the selling by FIIs? Well, they can’t just go on buying every day. Some times profits need to be booked – otherwise how do you make money?

There were rumours of a buy-back announcement by Glaxo Pharma. The stock price spiked up in anticipation. A similar announcement some time back had done wonders to Glaxo Consumer stock’s fortunes. A low floor price announced for Novartis’ OFS (offer for sale) led to buying. Horrible results from Opto Circuits saw a steep drop in the stock’s price.

Negative divergences in all four weekly technical indicators (marked by blue arrows) were observed last week. Some correction/consolidation was expected. Nifty closed flat on a weekly basis, and traded above both its 20 week and 50 week EMAs.

All four indicators are in bullish zones. There is no immediate threat to the bull market. However, to comply with SEBI’s orders, many companies are expected to offer shares for sale during June to bring down the promoter’s holding to 75% (for private sector)/90% (for public sector). Some liquidity will get diverted from the secondary market.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are consolidating after touching 2 year highs. Both indices should rise to new highs after the consolidation is over. Hold (or add to) existing portfolios.

(PS: If you are thinking of adding good mid-cap/small-cap stocks to your portfolio but are not sure which stocks to pick, book your subscriptions in advance to my Monthly Investment Newsletter. New subscriptions will be offered from July 1 ‘13.)