BSE Sensex and NSE Nifty 50 index chart patterns – Aug 30, 2013

Volatility dominated trading in both Sensex and Nifty indices during the week – in sync with the value of the Rupee, which threatened to touch the 70 mark against the US Dollar before recovering a little.  According to an unconfirmed report, speculators with inside information about RBI intervention action went short on the Rupee in the forex market and made a killing.

FIIs continued to sell – even long-only funds getting spooked by the passing of the food security bill. The Finance Minister tried to restore some confidence in the market by stating that the fiscal deficit won’t worsen as there will be cuts in other subsidies to finance the food bill. DIIs played contrarian by turning net buyers.

The Q1 GDP number came in lower than expectations after market hours on Friday. To meet the year-end target of 5.5%, each of the next three quarters would need growth close to 6%. There are a few signs that exports to Europe and USA are in revival mode. Good monsoon should help agricultural growth. But the joker in the pack will be manufacturing growth.

BSE Sensex index chart

The daily bar chart pattern of Sensex continued to oscillate about the ‘gap’ that was completely filled in the previous week’s trading. The index tested the long-term up-trend line (in blue) and bounced up – keeping the up-trend intact. However, the falling 20 day EMA resisted the up move. The 50 day EMA has crossed below the 200 day EMA – the ‘death cross’ signifying a bear market.

Daily technical indicators have corrected from oversold conditions, but remain in bearish zones. MACD has bounced up from the edge of its oversold zone and is ready to cross above its signal line. ROC has climbed above its 10 day MA and about to enter positive territory. Both RSI and Slow stochastic have risen from their oversold zones and are just below their respective 50% levels. 3 of the 4 indicators – ROC, RSI, Slow stochastic – are showing positive divergences (marked by blue arrows) by touching higher bottoms.

If the rally continues next week, expect twin resistance from the 50 day and 200 day EMAs (around19000). On the downside, the up-trend line is likely to prevent a deep fall.

NSE Nifty 50 index chart

The long-term up-trend line on the weekly bar chart pattern Nifty was breached intra-week 2 weeks in a row (ignoring the Oct ‘12 breach that was caused by an ‘error’ trade).  However, the index has failed to close below the up-trend line, which technically keeps the up-trend intact. The index formed a ‘reversal week’ bar (lower low, slightly higher close) on strong volumes, which may be the sign of a ‘selling climax’.

Weekly technical indicators are trying to recover from oversold conditions. MACD is falling below its signal line in negative zone, but its downward momentum is slowing. ROC has touching its 10 week MA after bouncing up from the edge of its oversold zone. RSI and Slow stochastic are trying to emerge from their respective oversold zones.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices appear to have survived strong bear attacks, and look ready to recover and fight back. Q1 GDP number was a disappointment. The UPA government is belatedly clearing FDI proposals and making bullish noises about curtailing twin deficits. Ignore the gloom and doom mongers: neither is the economy as dismal as in 1991, nor are there any global headwinds like in 2008. Use the weak sentiment to accumulate fundamentally strong stocks with a 2-3 years timeframe.

WTI and Brent Crude Oil charts: an update

WTI Crude chart

The 6 months daily bar chart pattern of WTI Crude oil continues to consolidate sideways with a slight downward bias – bouncing around in a rectangular band between 102 and 109. Oil’s price has received good support from its rising 50 day EMA, but is failing to sustain for long above its 20 day EMA.

Rectangular consolidations tend to be continuation patterns – which means the eventual break out is likely to be above 109. But rectangle patterns are unreliable; one needs to wait for the eventual break out before initiating action. The rising 200 day EMA indicates that the bull market is intact.

Daily technical indicators are in bullish zones, but MACD and RSI are forming bearish patterns of lower tops and lower bottoms. Strong volumes on down-days is also a bearish sign. However, growing political unrest in Egypt and Syria may keep oil’s price from sliding.

Brent Crude chart

The 6 months daily bar chart pattern of Brent Crude oil had made a ‘false’ upward break out from its sideways consolidation at the beginning of the month, and had corrected from the 110 level down to its rising 50 day EMA. 

The bulls were in no mood to give up. Rising volumes propelled oil’s price past 110. The 50 day EMA is about to cross above the 200 day EMA – the ‘golden cross’ will technically confirm a return to a bull market after 5 months.

All three daily technical indicators are in bullish zones, but showing negative divergences by failing to touch higher tops. Though oil’s price formed a ‘reversal day’ pattern, volumes were low. The rally may continue a bit longer, before it faces strong resistance from the zone between 112.50 and 115.

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 23, 2013

Both Sensex and Nifty indices moved up and down like a yo-yo during the past week – sending shivers down the spines of investors who braced for a big crash. As per experts, the real culprit for the unsteady market was the value of the Rupee – which touched an all time low against the US Dollar and crossed the 3-digit mark against the UK Pound.

FIIs were in a selling mood, but it wasn’t a huge sell-off. DIIs, particularly LIC, helped by stepping in to buy. Both indices are poised once again near important supports – with bears trying to get the upper hand. But bulls are refusing to surrender without a fight. Since the broader market is scraping bottom, it is possible that large-caps may correct a bit more while mid-caps and small-caps may see some buying interest.

Meanwhile, there appears to be no truth behind the rumours that ‘Chhota Bhai’ and his well-endowed partner will be jointly nominated for an Oscar for playing the role of “Most Forgetful Couple” in a real-life drama by failing to remember the names of their own companies and senior executives.

BSE Sensex index chart

The daily bar chart pattern of Sensex (above) has several interesting patterns that may encourage bears as well as bulls. First, the bear case:

• Sensex is trading below all three EMAs; the 20 day EMA has crossed below the 200 day EMA, and the 50 day EMA is likely to follow suit – technically confirming a bear market
• The index has formed a bearish pattern of lower tops and lower bottoms
• The ‘gap’ that formed back in Sep ‘12 and had provided good support to the index has been completely filled
• All four daily technical indicators are in bearish zones

Now, the bull case:

• The correction from the Jul 23 top has been very steep and unlikely to sustain
• Even if the 50 day EMA crosses below the 200 day EMA (‘death cross’), it may reverse directions quickly if the rally continues
• A rally started immediately after the ‘gap’ got filled; this is typical bullish behaviour after an upward ‘gap’ that has acted as a strong support gets partly or completely filled
• Daily technical indicators have corrected from oversold conditions; three of the four indicators – ROC, RSI, Slow stochastic – are showing positive divergences by touching higher bottoms while the index dropped lower;RSI has formed a small inverted head-and-shoulders pattern in its oversold zone

If the rally continues next week – which is F&O expiry week – it is unlikely to cross above its 200 day EMA (currently at 19100); if the down move resumes, expect support from the blue up-trend line (currently at 17500).

NSE Nifty 50 index chart

After two tests of the lower edge of the rectangle – within which Nifty had been trading since Sep ‘12 – the index broke downwards on good volumes and comfortably breached the blue up-trend line intra-week. The index closed lower for the 5th straight week. Both the 20 week and 50 week EMAs are falling - showing bear domination.

However, bulls did fight back. The index closed the week above the up-trend line and almost on the lower edge of the rectangle. Technically, the week’s close above the up-trend line and just below the lower edge of the rectangle means neither the up trend nor the rectangle have been breached convincingly – leaving the door open for bulls to start a rally.

Weekly technical indicators are bearish, but showing some signs of turning around. MACD is falling deeper into negative territory below its signal line. ROC has bounced up from the edge of its oversold zone. RSI has slipped inside its oversold zone. Slow stochastic is inside its oversold zone, but trying to turn up. Note that ROC and Slow stochastic are showing positive divergences by touching higher bottoms while Nifty touched a lower bottom (marked by blue arrows).

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are undergoing strong corrections and are in danger of falling into bear markets. Q1 results and other macroeconomic data continue to disappoint. But the government is trying to take belated steps to steady the market. This is not the time to sell in a panic. Stick to regular investment plans. Better buys are available when the market is down, but don’t be aggressively bullish.

What caused the NSEL fiasco? – a guest post

The NSEL fiasco was primarily the result of greed getting the better of good sense. Rules and regulations are made to ensure that common investors are not duped. But without proper monitoring or enforcement, there will always be a few market players who will bend the rules to their own advantage.

Duping investors has been a regular ploy of greedy operators in stock and commodity exchanges the world over. Indian stock exchanges have witnessed a large number of scams despite progressively tightened rules and regulations, and greater authority to SEBI.

Commodity exchanges are a more recent phenomenon in India. FMC - the authority monitoring the NSEL exchange – has perhaps not done as good a job as they should have in stopping some of the blatant rule-bending that was going on. In this month’s guest post, Nishit provides his views on the NSEL crisis.

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The NSEL fiasco has led to a lot of questions in the minds of investors. What actually happened with NSEL?

NSEL is an electronic spot exchange meant for delivery-based trading of commodities at actual (spot) prices. It is a subsidiary of Financial Technologies, a listed company owned by Jignesh Shah. Two other commodities exchanges - NCDEX and MCX (the latter is also a subsidiary of Financial Technologies) – allow trading in futures contracts. Earlier, we only had two stock exchanges - the Bombay Stock Exchange (BSE) led by a consortium of brokers, and the National Stock Exchange (NSE), which is promoted by a group of Public Sector Banks and Institutions.

Now, the primary function of any exchange is to facilitate trading of stocks, currencies or commodities in a smooth manner without the risk of default. Risk of default occurs when one of the parties involved in a trade has made a loss and cannot or does not want to pay up either money or the instrument. The Exchanges have to do strict risk management and collection of margins so that such an event does not occur. All the Exchanges operate on the element of trust and once trust is lost, it is the end of the road.

What was NSEL doing that led to a financial crisis? It was offering contracts that had a settlement of T+2 and T+25, that is cycles of 2 days and 25 days. It was also allowing short-selling, which is against the rules of a spot exchange.

In T+2 contracts, farmers, producers and traders sell commodities for delivery on T+2 days and they get payment on T+2 days. The actual users, processors and exporters, buy commodities in T+25 contracts, make payment on T+25th day and get delivery. An investor buys the commodity in T+2 contract and sells the same in T+25 contract. As a result, trading volume for T+2 and T+25 is identical.

All back-end clearing is handled by the exchange. The problem arises when the actual commodities are not supplied on the 25^th day. By doing this arbitrage, investors were getting a risk-free return of 15% and the processors did not have to take a loan at the rate of 30%. Everything was fine, till one day the government asked NSEL not to introduce fresh contracts till regulation was in place.

The exchange suddenly on August 1^st stopped trading and the payout process following the government’s order, which led to the crisis. Now, there is an amount of about Rs 5500 Crores to be paid out, which would be done over the next 6 months in installments.

What are the implications:

• NSEL as an exchange led by Financial Technologies may be shut down or taken over by the Government
• The Promoters would have to make good the losses, which is why Financial Technologies stock was badly hammered
• This business happens on trust and this could impact the listed MCX exchange, as people may not be keen to trade with this promoter group anymore

So what should one do?

Wait and watch. Financial Technologies should not be touched at all for buying. Only those who can live with the loss of entire invested amount can take a bet on MCX. Risk is very high but so can be the reward. It may happen that Financial Technologies sells off MCX to new promoters.

Bottomline: better regulation should be in place before new exchanges are allowed to start operations. The culpability ultimately lies at the doorstep of the Government.

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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.)

Gold and Silver charts: an update

Gold Chart Pattern

The rally on the 6 months daily bar chart pattern of gold has formed a bearish ‘rising wedge’ pattern. After crossing above the 1375 level for the second day in a row, gold formed a ‘reversal day’ pattern (higher high, lower close).

A correction towards the lower edge of the wedge (at 1300), and a possible break below it is likely. Bear market rallies are opportunities to sell – but do maintain a stop-loss at the upper edge of the wedge (at about 1385), in case the bulls turn aggressive buyers. Weak volumes on up-days is an indication of waning confidence of bulls.

Daily technical indicators have turned bullish, but showing signs of weakening upward momentum. MACD is rising above its signal line in positive territory. RSI has turned down after failing to reach its overbought zone. Slow stochastic is inside its overbought zone, but beginning to turn down.

On the longer-term weekly bar chart (not shown), gold’s price is trading below its 200 week EMA (at 1425), and facing resistance from its 20 week EMA. Though the 50 week EMA has not crossed below the 200 week EMA yet, a long-term bear market is looming.

Silver Chart Pattern

The 6 months daily bar chart pattern of silver shows a sudden and sharp rally on strong volumes that crossed above the 23 level, but formed a ‘reversal day’ pattern (higher high, lower close) that usually marks the end of an intermediate rally.

Daily technical indicators are looking overbought. MACD is climbing rapidly above its signal line in positive territory. RSI and Slow stochastic have entered their respective overbought zones, but showing signs of turning down.

Bear market rallies provide opportunities to sell. On the long-term weekly bar chart (not shown), silver’s price has moved above its 20 week EMA, but the 50 week EMA has crossed below its 200 week EMA – the ‘death cross’ confirming a long-term bear market.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 16, ‘13

S&P 500 Index Chart

In last week’s analysis of the daily bar chart pattern of S&P 500 index, weakness in daily technical indicators led to the following cautionary remark: “Keep a watch on the 1680 level; a breach may lead to further correction.”

After receiving support from its 20 day EMA during the first three days of the week, the index dropped below the 1680 level with a downward ‘gap’ and closed below its 50 day EMA by the end of the week. Breach of a support level with a ‘gap’, backed by strong volumes, is an ominous sign.

It is a sign of ‘distribution’ and may turn the 1680 level into a resistance level for future up moves. Daily technical indicators are looking bearish. MACD is falling sharply below its signal line, and about to enter negative territory. RSI is moving sideways below its 50% level. Slow stochastic has dropped inside its oversold zone.

The index is trading well above its rising 200 day EMA, so there is no immediate threat to the bull market. However, the index appears to have broken down from a bearish ‘rising wedge’ pattern (formed during Jul ‘13). A deeper correction is possible.

Partial profit booking may be in order – if not done so already on breaching of the 1680 level.

FTSE 100 Index Chart

The 6 months daily bar chart pattern of the FTSE 100 index was expected to struggle near the 6600 level. It managed to move above 6600 on Tue. Aug 13, but formed a ‘reversal day’ pattern (higher high, lower close) the following day – ending the brief attempt at a rally. The index dropped below both its 20 day and 50 day EMAs on Thu. Aug 15 and closed exactly at the 6500 level by the end of the week.

The index has formed a bearish pattern of lower tops and lower bottoms during the first fortnight of Aug ‘13. A deeper correction appears likely. Daily technical indicators are looking bearish and supporting a further correction.

MACD is falling below its signal line, and is barely positive. RSI is below its 50% level, but showing positive divergence by touching a higher bottom. The positive divergence is not supported by MACD or Slow stochastic, which is falling towards its oversold zone.

The index is trading above its rising 200 day EMA, which is the sign of a bull market. But a test and breach of the long-term moving average is a possibility.

Bottomline? 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are in long-term bull markets, but undergoing corrections. With QE3 tapering a distinct possibility in the US and slow growth of the US and UK economies, plus a sell-off in emerging markets, this may be a good time to take some profits off the table.

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 16, 2013

Whenever there is unusual movement in stock indices, experts fall over each other to explain why. As if they know – and it really matters. There were no dearth of explanations for last Friday’s ‘crash’:

• rumours of control of forex outflows being extended to FIIs;
• more rumours about increasing margin requirements for short selling;
• improvement in US employment numbers that may lead to early tapering of QE3;
• fall in the value of the Rupee as FIIs hit the exit doors.

Take your pick. One reason for the ‘crash’ that no one mentioned was ‘wish-fulfillment’. For the past several weeks, fundamental and technical analysts have been predicting a big crash in India. So, when FIIs started to sell last Friday, every one jumped onto the bandwagon. Except for DIIs – they absorbed all that FIIs sold, and then bought some more.

Did anything change fundamentally or technically before or after the sell-off? The IIP number was again negative. CPI inflation dropped a bit, but WPI inflation rose. So, chance of reduction in repo rate is low. Let us look at the Sensex and Nifty charts below for technical guidance.

BSE Sensex index chart

The recovery in the daily bar chart pattern of Sensex during the first three days of a holiday-shortened week stalled at the 50 day EMA. Friday’s selling spree brought down the Sensex to a slightly lower close for the week. The index has closed below all three EMAs in bear territory.

Despite the 700 points fall, the bulls are still very much in the game. The ‘gap’ formed back in Sep ‘12 (marked by blue dotted parallel lines) has been providing support to the Sensex. The longer-term up trend – connecting the Dec ‘11 and Jun ‘12 lows – is still intact. Even if the ‘gap’ gets filled, the up trend line is likely to provide support.

Daily technical indicators had corrected from oversold conditions, but are once again looking oversold. MACD is falling below its signal line in negative territory. ROC failed to move back into positive zone, and is about to cross below its 10 day MA in negative zone.. RSI has slipped back into its oversold zone after a failed attempt to emerge. Slow stochastic couldn’t quite move up to its 50% level, and is falling towards its oversold zone.

Stay invested, with a stop-loss at the up trend line (at about 17500).

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty closed below both its weekly EMAs for the third week in a row, and is testing the lower edge of the rectangle pattern (marked by blue dotted lines) within which the index has traded since Sep ‘12.

Weekly technical indicators are looking oversold. MACD has dropped below its signal line into negative territory. ROC is at the edge of its oversold zone, and well below its falling 10 week MA. RSI is about to enter its oversold zone. Slow stochastic has dropped inside its oversold zone.

The lower edge of the rectangle is at 5477. The current level of the blue up trend line is at about 5430. Expect the bulls to put up a fight in the zone between 5430 and 5477. A convincing breach below the trend line may mark a change of trend from bull to bear.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are undergoing corrections within a longer-term consolidation pattern. Q1 results and other macroeconomic data are disappointing. But the government has belatedly taken some steps to steady the market. The negative sentiment can be used to add fundamentally strong stocks, but keep a long-term view and maintain appropriate stop-losses. Stick to regular investment plans that are already in place.

WTI and Brent Crude Oil charts: in consolidation mode

WTI Crude chart

The 6 months daily bar chart pattern of WTI Crude oil has been in a sideways consolidation mode for the past fortnight – bouncing around in a range between 102 and 109. Oil’s price fell below its 20 day EMA, jumped up to 109 and appeared to form a bearish double-top by forming a ‘reversal day’ pattern.

Five consecutive days of correction on rising volumes dropped oil’s price below its 20 day EMA once more, but the 50 day EMA provided good support. The subsequent bounce has taken oil’s price above all three EMAs. Such price volatility may be an investor’s nightmare but would have delighted traders.

Daily technical indicators are in bullish zones, but showing negative divergences by touching lower tops. If oil’s price fails to reach the 109 level during the current up move, it may breach the support from its 50 day EMA and the 102 level during the next fall. A convincing move above 109 will restore control to the bulls.

Brent Crude chart

The 6 months daily bar chart pattern of Brent Crude oil has been consolidating sideways with an upward bias. After dropping to, and bouncing from its rising 50 day EMA oil’s price rose to touch 110, but formed a ‘reversal day’ pattern that ended the brief up move.

A corrective down move received good support from the rising 50 day EMA once more. Oil’s price has moved up above all three EMAs into bullish territory. The good news for bulls is that the 20 day EMA has crossed above the 200 day EMA after 5 months, and the 50 day EMA is showing signs of following suit.

Daily technical indicators are in bullish zones. MACD is positive, but sliding below its signal line. RSI and Slow stochastic have both crossed above their 50% levels. However, all three indicators are showing negative divergences by touching lower tops, while oil’s price rose to touch a higher top.

Some more consolidation is likely. A failure to cross 110 may encourage bears to launch a stronger attack.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 09, ‘13

S&P 500 Index Chart

The daily bar chart pattern of S&P 500 had touched and closed at a life-time high of 1710 on Aug 2 ‘13, but in a technical analysis last week, blog readers were warned that “caution rather than euphoria should guide investment decisions near a lifetime high.” Daily technical indicators were looking overbought and showing negative divergences.

It came as no surprise that the index slipped below the 1700 level, but it has received good support from its 20 day EMA so far. Will the support hold, or will the index slip down towards its rising 50 day EMA? Keep a watch on the 1680 level; a breach may lead to further correction.

Daily technical indicators are showing signs of weakness, though they remain in bullish zones. MACD is falling below its signal line in positive territory. RSI is moving sideways above its 50% level. Slow stochastic appears to be resting on its 50% level. The index may consolidate a bit before deciding on its next move.

Despite weak corporate earnings, improving housing and job markets (though mostly part-time hiring is going on) are keeping sentiments positive for the index. The trade deficit number appeared good – but it was more due to falling imports. Positive consumer sentiment is not getting translated into higher consumption. The economic recovery remains painfully slow.

FTSE 100 Index Chart

The following comments were made in last week’s technical analysis of the daily bar chart pattern of the FTSE 100: “… the index formed a ‘reversal day’ pattern (higher high, lower close) on Fri. Aug 2 ‘13 – which may be the start of a corrective move… All three indicators are showing negative divergences by failing to move higher with the index. Some more consolidation or correction is likely.”

The index dropped below its 20 day EMA and tested support from its 50 day EMA, before bouncing up above all three EMAs and back into bull territory. However, volumes have not been encouraging, and the index may struggle to cross past the 6600 level.

Daily technical indicators are looking bearish, but showing some signs of turning around. MACD is positive, but falling below its signal line. RSI is rising towards its 50% level, but has formed a bearish pattern of lower tops and lower bottoms. Slow stochastic moved sharply below its 50% level, but has paused in its fall. The index may consolidate some more before trying to move up.

Bottomline? 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are in long-term bull markets, but showing technical weakness. The long and slow road to recovery of the US and UK economies does not justify an out-and-out bullish outlook. Stay invested, but maintain suitable stop-losses.

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 09, 2013

Bulls received some respite at the end of a holiday-shortened week. Both stock indices paused close to important support zones – thanks mostly to short covering. The respite may be temporary, as the bears are likely to renew their aggressive selling.

Q1 results continue to be less than stellar. Even companies that have shown decent top line growth – like Sun Pharma – had different reasons for lower bottom lines. Industrial growth is sliding. Capital expenditures are being put on indefinite hold. Hiring has been frozen. Entrepreneurs are looking at overseas options to grow their businesses.

Government is trying to take some belated steps to turn the situation around – but it seems to be a case of too little too late. With general elections around the corner, industry appears to have gone into a wait and watch mode. That doesn’t augur well for a strengthening stock market.

BSE Sensex index chart

The good news for bulls is that the longer-term up trend from Dec ‘11 (marked by blue up trend line UTL1) is still intact. Though the daily bar chart pattern of Sensex has dropped below its 200 day EMA and the up trend line UTL2, it stopped short of the ‘gap’ formed in Sep ‘12 (marked by dotted parallel lines).

Daily technical indicators are bearish, but showing signs of correcting from oversold conditions. MACD is still falling below its signal line in negative territory. ROC is trying to climb out of its oversold zone, but remains below its falling 10 day MA. RSI is turning up from deep inside its oversold zone. Slow stochastic has stopped falling, but remains well inside its oversold zone.

Any attempt by the index to move up further is likely to face strong resistance from trend line UTL2 and the 200 day EMA (both are at 19200).

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty tested the lower edge of the rectangular zone (marked by dotted lines) within which it has been consolidating since Sep ‘12. It was the second week in a row that the index closed below its 50 week EMA. The index has been in a down trend – marked by blue parallel lines – since touching its May ‘13 top.

Weekly technical indicators are bearish and beginning to look oversold. MACD has slipped into negative territory below its signal line. ROC is falling below its 10 week MA, and about to enter oversold zone. Both RSI and Slow stochastic are falling towards their respective oversold zones.

In case the index breaches the lower edge of the rectangular consolidation zone, support is expected from the blue up trend line (at 5400). Any breach of the trend line may lead to a reversal of the long-term up trend.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are undergoing corrections, but technically these are corrections in a long-term bull market. Despite negative sentiments compounded by disappointing Q1 results, there are still no signs of a huge fall. The dips can be used to add fundamentally strong stocks, but with a long-term view and with appropriate stop-losses.

Nifty chart: a mid-week update (Aug 07, ‘13)

Bears appear to have taken almost complete control of the daily bar chart pattern of Nifty (above). Why almost? Because a couple of technical confirmations are still awaited – and bulls just might put up a fight before capitulating. Many good stocks – large-cap as well as mid/small-caps – are trading at attractive valuations.

The index is trading below all three EMAs, and has formed a bearish pattern of lower tops and lower bottoms. The 20 day EMA is about to cross below the 200 day EMA. If the 50 day EMA also crosses below the 200 day EMA, the ‘death cross’ will technically confirm a bear market.

Nifty has entered the ‘gap’ zone (between 5447 and 5527 – marked by blue dotted parallel lines) that formed back in Sep ‘12. Ignoring the ‘error trade’ of Oct 5 ‘12 because the ‘error’ did not appear on Nifty Futures or Sensex charts, the ‘gap’ has provided good support to the index so far. The ‘gap’ was partly filled in Apr ‘13.

Will the ‘gap’ get completely filled this time, or will the index bounce up once again? Note that the blue up trend line connecting the Dec ‘11 and Jun ‘12 lows is currently at the lower edge of the ‘gap’. Filling the ‘gap’ completely would mean a breach of the up trend line as well – and that may lead to a reversal of the entire up trend since Dec ‘11.

Any further fall is likely to attract investment buying. Daily technical indicators are looking bearish and quite oversold. While an index can remain oversold for long periods, a technical bounce can occur at any time.

Remain cautious, but don’t panic. The best time to invest is when most investors are running away from the market. If you do have the courage to invest, select your stocks carefully. At the very least, prepare a ‘buy’ list. This bear phase will eventually pass.

Gold and Silver charts: bear market rallies fizzle out

Gold Chart Pattern

The 6 months daily bar chart pattern of gold was in the midst of a sharp 100 points rally two weeks back that had moved up to test the falling 50 day EMA. Such bear market rallies provide opportunities to sell.

After consolidating sideways for 8 trading sessions, during which several futile attempts were made to cross above the 50 day EMA, gold’s price has fallen below its 20 day EMA.

Daily technical indicators are beginning to turn bearish. MACD is barely positive, and is moving down towards its signal line. RSI has slipped below its 50% level. Slow stochastic has dropped from its overbought zone to the 50% level.

The down move looks all set to resume. On the longer-term weekly bar chart (not shown), gold’s price is trading below its three weekly EMAs, and the 50 week EMA is falling towards the 200 week EMA. These are signs of a long-term bear market.

Silver Chart Pattern

The bear market rally on silver’s 6 months daily bar chart pattern had formed a ‘rising wedge’ pattern two weeks back. The break out from the wedge was expected to be downwards.

It turned out to be more of a sideways break out that is trying to cling on to the sliding 20 day EMA. The good news for the bulls is that volumes have been strong on up-days, indicating some investment buying.

However, daily technical indicators are not holding out much hope of a recovery. MACD is moving sideways above its signal line, but inside negative zone. RSI is drifting sideways below its 50% level. Slow stochastic formed a bearish ‘double-top’ pattern inside its overbought zone, and dropped below its 50% level.

On the long-term weekly bar chart (not shown), silver’s 50 week EMA has crossed below its 200 week EMA – the ‘death cross’ confirming a long-term bear market.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 02, ‘13

S&P 500 Index Chart

The daily bar chart pattern of S&P 500 index was looking overbought two weeks back. Negative divergences in all three technical indicators gave advance warning of a period of correction or consolidation.

The index corrected a bit after testing the 1700 level, only to form a small, bullish ‘rounding bottom’ pattern and then smoothly crossed above 1700 to close at a lifetime high of 1710. All three EMAs are moving up and the index is trading above them.

The bulls are back in control – but caution rather than euphoria should guide investment decisions near a lifetime high. Daily technical indicators are looking overbought, and showing negative divergences by failing to touch new highs.

The index is trading well above its 200 day EMA, and the distance between the 50 day and 200 day EMA is widening. Such a situation occurred during May ‘13 and was followed by a sharp correction.

Advance Q2 GDP number was better than expected at 1.7%; however, Q1 GDP was revised down to 1.1% from 1.8%. The US economy continues to grow slowly – but only because interest rates are artificially low and QE3 is keeping the liquidity flow intact.

Maintain a trailing stop-loss – just in case the bull party comes to an end. Falling volumes when the index hit a lifetime high is a warning sign.

FTSE 100 Index Chart

The 6 months daily bar chart pattern of FTSE 100 index has been consolidating within a 200 points range for the past two weeks, with a slight upward bias. Good news for the bulls is that all three EMAs are rising and the index is trading above them.

Bad news is that the index formed a ‘reversal day’ pattern (higher high, lower close) on Fri. Aug 2 ‘13 – which may be the start of a corrective move.

Daily technical indicators are still bullish, but showing signs of weakening upward momentum. MACD is positive and touching its signal line. RSI is falling towards its 50% level. Slow stochastic has slipped down a bit after touching the edge of its overbought zone.

All three indicators are showing negative divergences by failing to move higher with the index. Some more consolidation or correction is likely.

Bottomline? 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are back in long-term bull markets, but showing signs of technical weakness. Stay invested, but maintain suitable stop-losses.

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 02, 2013

Q1 results season is proving to be a bit of a damp squib. Negative sentiments are hurting the stocks of the few companies that are meeting or beating analysts’ expectations. Most others that are missing top line and/or bottom line targets are getting hammered badly.

RBI kept a status quo on interest rates. The stock market didn’t like that at all. The Rupee also tanked, after a few days of consolidation due to a short-term liquidity squeeze. PSU banks are declaring poor results one after the other. Mid-cap and small-cap stocks are hitting 52 week lows, leaving small investors frustrated and perplexed.

Is this the beginning of a bear market, or is it another bull market correction? For answers, let us look at the charts of Sensex and Nifty below.

BSE Sensex index chart

The daily bar chart pattern of Sensex is tantalisingly poised at an important support. It has part-filled the small gap (marked by blue solid parallel lines) formed in Jun ‘13 by slipping below its 200 day EMA. However, the index found support from the blue up trend line and closed exactly on its 200 day EMA.

Daily technical indicators are looking bearish to the point of being oversold. MACD has dropped into negative territory below its signal line. ROC has fallen steeply below its 10 day MA to enter its oversold zone. Such steep falls are not sustainable. Both RSI and Slow stochastic have dropped inside their oversold zones.

The index can stay oversold for long periods. But because it is at an important support zone, the possibility of a bounce back can’t be ruled out. If the index closes the small gap and falls convincingly below the up trend line, support is likely from the earlier gap formed in Sep ‘12 (marked by dotted parallel lines).

Even if the Sep ‘12 gap gets filled (note that it was part-filled in Apr ‘13), the index should resume its up move thereafter. Though bears seem to be getting the upper hand, bulls still have a lot of ammunition to fight back.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty is beginning to turn bearish. The index has closed below its two weekly EMAs and the up trend line UTL2 (connecting the Jun ‘12 and Apr ‘13 lows). The ‘error trade’ of Oct 5 is being ignored for technical analysis since the trade didn’t show up on Sensex or Nifty Futures charts.

Nifty has been consolidating within a rectangle pattern for nearly a year. The lower edge of the rectangle is at about 5480 – which is just above the level of the up trend line UTL1 (connecting the Dec ‘11 and Jun ‘12 lows). Both should provide support to the falling index. If the index falls convincingly below UTL1 (currently at about 5400), a change of trend will occur.

Weekly technical indicators are turning bearish. MACD is falling towards negative territory below its signal line. ROC is falling below its 10 week MA and about to fall inside its oversold zone. RSI has slipped below its 50% level. So has Slow stochastic. A test of the lower edge of the rectangle is likely.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are undergoing corrections, but technically these are bull market corrections. There are still no signs of a huge fall - being predicted by some experts. The dips can be used to add fundamentally strong stocks, but with appropriate stop-losses.