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Tuesday, April 30, 2013

Notes from the USA – a guest post

Of late, reports coming out of the USA point to a jobless economic growth rate that is lower than the rate of Quantitative Easing, low inflation, greater propensity to pay off debts and add to savings, a ‘sequestration’ that may cut government jobs and benefits. In other words, not a drift down into another recession, but certainly slower than healthy growth.

In this month’s guest post, KKP provides a ‘ground zero’ view of the state of the US economy from the point of view of a consumer and investor, and strategies that he is adopting to negotiate the likely pitfalls in the days to come.

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Macro Economics from the US

It’s time we look at the forest from the trees and evaluate where we are going….

From a bigger picture of our global economy, we heard a lot of buzz on the bearishness of Emerging Markets, which started with the corrections in China and Brazil, followed by India and other countries in the developing markets. Of course, one cannot avoid the negative buzz on gold also, where brokers and analysts are piling on with a feeling of relief that gold/silver/platinum are finally correcting after huge run-ups.

For equities and gold, the underlying theories that people talk about are based on lots of media and print accounts (whether true and not) that are driving part of market behavior.  Lots of those accounts cannot be proven, and there are often 'opposites written up' that counter those theories.  So, as investors, how do we decipher all of that stuff? The simple answer is: ‘charts’. Conspiracy theories have been going around for a long time, talking about what Obama is secretly doing and how the US Gold ETF vaults are filled with zinc bars coated with fine gold foil. Don’t believe any of it, and don’t even waste a lot of time investigating it, since price discounts almost 99.5% of those theories.

All of those stories are like the health care news that come out talking about "goodness or harm of caffeine", "goodness or harm of artificial sweeteners", "goodness or harm of weight loss with a protein filled diet" etc. I am a health-nut now, and read all of it. When you do, find out both sides of it, and there are usually caveats on BOTH sides of the equation, and without those caveats, it is “information out of context” (like you hear about what spouses do to their better halves!).

So is the case with Gold Bulls and Gold Bugs.  There are two sides of that gold coin! In a bull market forums print all of the positives and ride on the wave, and now that we have a correction (not a crash), we have the opposite side of the story being printed.  In BOTH cases mind you, we are trying to justify.  Why?  Because we are humans and like to justify the emotional behavior of the masses.

Best approach is to look at the macro element of gold and recall the folks talking about the extremes: gold is a useless investment instrument - all the way to gold being the currency of choice by 2020. The ride from $300 to $350 to $250 to $500 to $750 to $900 to $1100, back to $900 and then off to the races to $1900 (fast forwarding) proved this fact, and now it is the turn of the nay sayers to remind us that gold is a useless investment instrument. In Fibonacci terms, we are seeing the correction after the huge move from $750 to the $1900 levels, back down to one of the support levels. Being that gold holds a high beta, we might see a correction to $1000 (or the nearest support), to shake off the weak holders. Very simply, the correction that we need in any big move is now happening in gold, and we are justifying it with rationale that it is because we will not have inflation or hyper-inflation, or Obama is doing really well, or Central Banks are starting to unload, or the US Govt has started to sell gold in massive quantities.

Let’s get to US equities now. One needs to look at the USA as a “stock” and understand that this stock is generating Revenue, has Debt and Expenses, results in Net Income/Deficit and has issues related to Growth, Loss of Market-share and "Free Money" handouts.  Once we analyze this and realize that this is not a good “stock” to put money into, we get to understand that this is not a “stock” that one should count on long term unless it goes through a major restructuring of some kind. Put that into the perspective of lower job growth and early retirements, and you will start to understand the loss of Super-Power or  Monopolistic status of this “stock”. It is like GM or Chrysler from their hey-days. With Obama being the current CEO of this “company”, with responsibility for increasing the debt to the HIGHEST level ever relative to any other CEO in the history, one has to wonder what has he really accomplished with $6 Trillion in debt, or what is he going to realize from that debt in the next 3 years. $6 Trillion of additional debt can run entire economies of over 100 small countries.  Well, has he got the results to show in the USA? In my opinion, he let the US float and not sink, but the Titanic still has a crack in it and water is pouring into the bottom of the ship, albeit a bit slower than 2008-09-10.  With this being a known fact, how much of our portfolio do we want to ride on this optimism?

USD plays a very critical role in part of the sell-off in Gold.  The fact that shale oil might strengthen the USD in future is a potential strong variable that is predicting the upward move in USD and hence a downward push to the metals (inverse relationships). In fact, while all of that talk on oil is going on, we are paying above $4 per gallon of gas in the US (this week), which is higher than what it has been for months!

Gold is very widely considered as an inflation hedge, as well as a hedge against risk of the unknown. In reality, inflation is already here, although headlines in US newspapers will not agree.  We might not have hyper-inflation in the traditional sense of economic definition, but it is hard to understand why cost of grains, cereals, construction materials, tools, contractors, auto-parts, repairs, paint, utensils, electrical goods, decor, some clothing, furniture etc have all gone up every year for the last 5 years.  I measure these things by roaming around the stores quite a bit to get a first hand sense of it.   For example, I just bought a new property and got it fixed up (Jan 19th to Apr 28th).  I had to buy lots of materials, and I almost paid 2x of what I paid 3 years ago in the US.   And, for each property I buy (every 4-5 months), prices keep going up, and hence I now have a storage shed, where I buy and store materials when they come at a deep discount (dry wall, 2x4 wood, nails, screws, paint, doors, glass, screens, handles, shower-heads, faucets, glue, caulking etc).  I used to buy paint for $10 to $20 and now it is $30 to $40 per gallon, in just 3 years timeframe.  I have almost 34 gallons of paint sitting at home for the next job, and it will only last me one home, so I am still collecting and buying more.  Today, I bought 31 boxes of cereal based on an introductory price by a new chain of products introduced. These are prices that I used to pay in 1996-99 and I loaded up on it, and stored it in a well maintained temperature zone. How is this inflation going to play out in the next few years? And, what are you doing about it for your own personal situation?

Finally, EU and US still have 'structural issues'.  As soon as we get back to facing these head-on, we will once again have reasons to get out of Equities and back into Bonds, Cash, Gold, Silver and Platinum safe havens.   In the meantime, personally, I am going to continue to acquire of bit of gold and silver as “option” contracts as I have been doing, which allows me to invest small money with huge leverage (expiration 2015) in the US.  Risk of holding option contracts is limited to the premium paid, but the upside is huge, and can be converted into gold ETF shares at contract expiration. I still hold the view that we can see $1000 at the low in Gold (as I have for 3 years or so), but it is yet to be seen how gold reacts to its lower support levels based on the economic forecasts unfolding.  The possibility of it going to $1000 is less than 50% now (based on the recent correction), but I could be proven wrong, although I would be glad to double my position in gold at $1000, if it gets there.   In the meantime, equity markets in the US can go up temporarily, but with IBM and Caterpillar breaking some bad news and showing structural damage, Apple sinking to the $400 levels and the upcoming summer (“sell in May and go away”), the likelihood of Dow going to anything beyond 16000 is unlikely. A correction mode is around the corner (as seen in the RSI/STOC divergences and the Volume shrinking on up-days) in another 2 weeks to 2 months and it might affect the global markets in a similar manner (bearish). The ‘Sell in May’ theory is about to be proven right although the moving averages and price points have not shown clear signs of a break down as yet!

Bottom line, the macro picture shows that markets are climbing the proverbial wall of worry and has done a good job of doing that in Q1’13. Gold, which was overvalued, has done a good job in finally correcting (been expecting that correction for a while), and now, it will be the turn of equities to show its last hurrah by either going up to Dow 16000 or just going down from here into the summer. Hence, gold and equities might be good to buy in the correction mode this summer, and until then just trade in and out, or hold onto to your dry-powder until things settle down.

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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.

Monday, April 29, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Apr 26, ‘13

S&P 500 Index Chart

S&P 500_Apr2613

In last week’s analysis of the 6 months daily bar chart pattern of S&P 500 index, it was mentioned that the drop to the 50 day EMA was an adding opportunity because the index is in a bull market. However, the bull market is getting a bit long in the tooth.

The index is trading close to its all-time high, and more than 100 points above its 200 day EMA. Despite the sharp rally last week, the index touched a slightly lower top. The upside risk is increasing. Stay invested but maintain strict stop-loss.

Daily technical indicators are bullish, but showing some signs of weakness. MACD has moved up to touch its signal line in positive territory. RSI is above its 50% level, but sliding down. ROC has slipped into negative zone. Slow stochastic has moved above its 50% level.

Q1 GDP growth of 2.5% was much better than the 0.4% growth in Q4 ‘12, but lower than estimates. Consumer spending was better than expected. The jobless growth continues at a slow pace.

FTSE 100 Index Chart

FTSE_Apr2613

The FTSE 100 rallied smartly to close above all three EMAs, and gained 2.2% over the previous week. The 20 day EMA did not fall below the 50 day EMA, but the index failed to rise above its Apr 2 top of 6502.

The low of 6214 touched on Apr 5 hasn’t been breached either. The index has spent the month in a sideways consolidation within a 300 point range. The down trend that started after the Mar ‘13 double-top at 6534 is still in progress. But it looks like a mild bull market correction.

Daily technical indicators are looking bullish, but showing signs of weakness. MACD has moved above its signal line into positive territory. RSI is above its 50% level but turning down. ROC is positive, but falling towards the ‘0’ line. Slow stochastic has risen above its 50% level.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are back in bull territories after brief corrections. Dips can be used to add to existing positions, but maintain trailing stop-losses to protect profits.

Saturday, April 27, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 26, 2013

BSE Sensex index chart

Another truncated week of trading didn’t cool down the buying fervour of FIIs. Despite selling by DIIs, the Sensex rose to cross and close above the blue down trend line (marked by down arrow). A week earlier, the index had bounced up from the ‘gap’ area formed back in Sep ‘12 (marked by up arrow).

The index is trading above all three EMAs; the 20 day EMA has bounced up from the 200 day EMA and is getting ready to cross above the 50 day EMA. Looks like the three months long bear phase is coming to an end.

One more technical hurdle remains in the path of the bulls. The level of 19760 had acted as a resistance during Feb and Mar ‘13. Crossing 19760 will negate the current bearish pattern of lower tops and lower bottoms.

SENSEX_Apr2613

Daily technical indicators are looking bullish, but a bit overbought. MACD has moved up sharply above its signal line, and entered its positive zone. ROC is inside its overbought zone, and turning down. RSI is on the verge of entering its overbought zone. Slow stochastic is well inside its overbought zone.

The drop from the Jan ‘13 peak (20204) to the Apr ‘13 trough (18144) corrected 41% of the entire rise from Dec ‘11 to Jan ‘13, and 46% of the rise from Jun ‘12 to Jan ‘13. Both those numbers are close to the 50% Fibonacci retracement level that is often treated as the LOC (Level of Control) between bulls and bears.

If you have been waiting patiently for the index to fall to much lower levels, your wait may be never–ending. Bears can try to put up a fight to keep the index below 19760. Expect some consolidation before the index moves higher.

NSE Nifty 50 index chart

The NDA is up to its old trick of stalling parliamentary proceedings and demanding the PM’s resignation due to one scam or the other. Coal block allocation is the latest. Important bills are getting delayed or postponed indefinitely.

A massive ‘chit-fund’ scam in West Bengal has drawn the Left parties and the ruling TMC into a blame game while the poorest of the poor have been fleeced. Falling interest rates of small savings schemes at post offices lured many into the trap of various chit-funds. Central government financial regulatory agencies have once again been caught napping.

Nifty_Apr2613

The weekly bar chart pattern of Nifty shows a breach of, and close above, the blue down trend line. Don’t be misled by the apparent lower volume bars of the last two weeks – which had only 4 trading days each due to holidays.

Weekly technical indicators are beginning to turn bullish. MACD has started to move up in positive territory, but remains below its falling signal line. ROC has crossed above its 10 week MA, and looks ready to enter positive territory. RSI is moving sideways below its 50% level, after bouncing up from the edge of its oversold zone. Slow stochastic is rising towards its 50% level.

The blue uptrend line connecting the lows of Dec ‘11 and Jun ‘12 wasn’t tested. A new (slightly steeper) up trend line connecting the Jun ‘12 and Apr ‘13 lows may need to be drawn if the Nifty moves above its Mar ‘13 top of 5970.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices have crossed and closed above their down trend lines. Respective Mar ‘13 tops will be hurdles that bulls need to cross before regaining control. One can add to their positions selectively, and add more once the Mar ‘13 tops are crossed.

Thursday, April 25, 2013

Stock Chart Pattern: Akzo Nobel (ICI) India – An Update

The previous technical update of the stock chart pattern of Akzo Nobel (ICI) India was posted back in Nov ‘11 (marked by grey vertical line in chart below). The stock price had been in a corrective mode after touching an all-time intra-day high of 1045 in Jul ‘11.

Disappointment with quarterly results was compounded by the merger with three unlisted subsidiary companies that increased the shareholding of the overseas promoter. Bears slammed the stock, and the price dropped to an intra-day low of 693 in Dec ‘11.

The low, which coincided with the low made by the Sensex, also happened to fall within the long-term support/resistance zone between 680 and 750. A further signal to bulls came in the form of positive divergences in all four technical indicators that touched higher or flat bottoms (marked by blue arrows) while the stock’s price touched a lower bottom.

The 18 months daily bar chart pattern of Akzo Nobel shows why it is a stock that small investors should think of accumulating on dips:

ICI_Apr2513

After making a ‘V’ shaped recovery from the support zone between 680 and 750, the stock price has been in a steady uptrend characterised by sharp price spurts on high volumes, followed by periods of correction and sideways consolidation – typical price behaviour for a buy-and-hold kind of stock.

The regular corrections and consolidations may have tested the patience of investors interested in making quick profits, but improved the technical ‘health’ of the price chart, allowing it to move upwards.

While the Sensex and Nifty topped out in Jan ‘13 and have been correcting for nearly 4 months, Akzo India kept moving higher. The stock rose to touch a new all-time intra-day high of 1095 on Apr 4 ‘13, but formed a ‘reversal day’ pattern (higher high, lower close) that started another spell of correction.

Daily technical indicators are looking bearish. MACD is below its signal line and slipped back into negative territory. ROC crossed above its 10 day MA but remains negative. RSI is about to enter its oversold zone. Slow stochastic has emerged from its oversold zone. Some more correction/consolidation is likely.

Note that the stock is trading above its rising 200 day EMA, and is in a bull market. A 50,000 tonne greenfield manufacturing facility at Gwalior – expected to start commercial production later in the year – should add to top and bottom line growth. The company is debt-free and sitting on a sack full of cash.

Bottomline? The stock chart pattern of Akzo India (ICI) Ltd is undergoing a correction in a bull market after touching an all-time high. Such corrections offer entry opportunities, but it pays to be careful near all-time highs. So maintain a strict stop-loss if you decide to enter. Alternatively, check the forthcoming annual results before entering.

Tuesday, April 23, 2013

WTI and Brent Crude Oil charts: an update

WTI Crude chart

WTI Crude_Apr2313

The 1 yr daily bar chart pattern of WTI Crude oil had been trying to stay in bullish territory since the beginning of this year. But a sharp high-volume drop below all three EMAs and the Mar ‘13 low has put paid to bullish hopes.

Note that oil’s price has bounced up from the edge of a support zone between 84 and 86. Will the support hold – like it did during Oct – Dec ‘12, or is it just a ‘dead cat bounce’? Bearish daily technical indicators seem to suggest the latter.

MACD is below its signal line in negative territory. RSI has bounced up from the edge of its oversold zone, but remains below its 50% level. Slow stochastic is trying to emerge from its oversold zone.

If oil’s price drops below 84, it is likely to test the next support zone between 77 and 81.

Brent Crude chart

BrentCrude_Apr2313

The following were the concluding comments in an analysis of the daily bar chart pattern of Brent Crude oil two weeks back: “Oil’s price may attempt to bounce up, but bears are likely to sell again. Strong volumes on down days indicate such a possibility.”

An attempt to move up to 106 was met with heavy selling by bears, and a drop below 97. Another upward bounce is in progress, but receding volumes indicate that the bounce is probably due to short covering.

Daily technical indicators have recovered from oversold conditions, but remain bearish. Oil is in a bear market. Every rise will be a selling opportunity for bears. A drop to 90 is a possibility.

Monday, April 22, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Apr 19, ‘13

S&P 500 Index Chart

S&P 500_Apr1913

Last week, negative divergences in all four daily technical indicators that failed to touch new highs, and tepid volumes had pointed to some more correction or consolidation. The 6 months daily bar chart pattern of S&P 500 index shows a quick drop to test support from the 50 day EMA, followed by a bounce.

The index closed 2.1% lower for the week. More ominously, the volumes on the three down days during the week were higher than the two up days. A sign of distribution? Daily technical indicators are showing bearish signs. MACD is positive, but falling below its signal line. RSI is trying to regain its 50% level after dropping below it. ROC has moved up to the ‘0’ line after a dip inside negative territory. Slow stochastic is below its 50% level.

The index is trading well above its rising 200 day EMA, which is the sign of a bull market. Such dips are adding opportunities. However, strict stop-losses must be maintained to protect profits.

Initial claims for unemployment rose slightly. Consumer confidence has weakened. Retail sales slipped. So did new home sales. Manufacturing index dipped. The jobless economic recovery still has a long way to go.

FTSE 100 Index Chart

FTSE_Apr1913 em

The 6 months daily bar chart pattern of FTSE 100 index dropped and stayed below its 50 day EMA, closing 1.5% lower for the week. Though the index is trading above its rising 200 day EMA, it has been in a down trend since touching an intra-day high of 6534 on Mar 12 ‘13.

The good news for bulls is that the Apr 5 ‘13 intra-day low of 6214 has not been breached yet. But that may be a temporary respite. The 20 day EMA is about to cross below the 50 day EMA, and both have started to move down.

Daily technical indicators are bearish. MACD is falling below its signal line in negative territory. RSI is below its 50% level. ROC bounced up from its oversold zone, but remains negative. Slow stochastic is just above its oversold zone. The down trend may continue.

Will exports save UK’s economy from a triple-dip recession? The answer will be known later this week when GDP number is announced.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are undergoing corrections. Both indices are trading above their rising 200 day EMAs, and are in bull markets. Stay invested, but tighten stop-losses to protect profits.

Friday, April 19, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 18, 2013

BSE Sensex index chart

What a difference a (truncated) week made! Gold’s price crashed. Oil prices slipped further. Rupee strengthened a little. Exports grew. Inflation dropped. Prospects of another interest rate cut by RBI brightened.

All of a sudden, a wave of good news for the stock market turned into a tidal wave of buying and short covering. The Sensex spiked up sharply to cross above all three EMAs into bull territory. The support from the ‘gap’ formed back in Sep ‘12 held.

The worst is over – or so the bulls may be thinking. But is it? What has really changed for the better? Yes, the current account deficit has reduced a bit. The drop in inflation is heartening – but that may be more due to ‘base effect’ than any real drop in prices. The grocery bills of housewives have not reduced.

SENSEX_Apr1813_V1

Technically also, there is not much to cheer about. Not yet, anyway. The down trend that started after the index touched its Jan ‘13 top is intact. The bearish pattern of lower tops and lower bottoms continues. That pattern will break only after Sensex crosses its Mar ‘13 top of 19755.

Daily technical indicators are beginning to look bullish. MACD is rising above its signal line, but remains in negative territory. ROC has moved up to its ‘0’ line, and is poised to enter positive zone. RSI and slow stochastic have both crossed above their 50% levels.

Expect bears to become active in the zone between 19300 and 19800. The Jun ‘13 deadline is looming over several companies – both private sector and PSU - that need to dilute promoter stakes to abide by SEBI rules. A lot of liquidity will get sucked out by the dilutions.

NSE Nifty 50 index chart

Good results declared by HCL Tech and TCS undid some of the damage done to market sentiment by so-so results from Infosys and RIL. Smaller private sector banks like Yes and IndusInd came out with decent numbers. Results from FMCG majors will be analysed keenly. A court order allowing operations at some of the iron ore mines in Karnataka will be positive for steel companies.

NDA leaders are going public with their bickering about who will be the next PM candidate. UPA has started fishing in troubled waters by announcing a handsome financial package for Bihar in an effort to woo the JD(U). Politics is taking precedence over policies.

Nifty_Apr1813

The weekly bar chart pattern of Nifty shows a jump above the 20 week and 50 week EMAs into bull territory by the index. However, overhead resistance from the blue down trend line may push the index lower once again.

Weekly technical indicators are showing signs of turning around, but haven’t turned bullish yet. MACD is well below its signal line, and just about managed to stay in positive territory. ROC has crossed above its 10 week MA, but is still negative. RSI bounced up from the edge of its oversold zone, but is below its 50% level. Slow stochastic is trying to emerge from its oversold zone.

The good news is that the longer-term up trend that started from the Dec ‘11 low – marked by the blue up trend line - continues. A test of the up trend line – currently at 5250 - followed by an upward bounce may open up the next leg of the bull market. A breach of the up trend line will be bearish.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are still continuing in their respective down trends, despite last week’s rally. Hold on to your positions and let the results season unfold. Consensus is building over another down move before the bull market resumes. But markets have a strange way of proving the consensus view wrong.

Wednesday, April 17, 2013

A look at Cap Goods and Infra sectors – a guest post

After rallying from their Dec ‘11 lows to their Jan ‘13 tops, both Sensex and Nifty indices have been undergoing corrective moves. While both indices are within 10% of their Jan ‘13 tops, some sectors have done much worse than the indices.

In this month’s guest post, Nishit takes a look at two such beaten down sectors – Capital Goods and Infrastructure, and builds a case for investing in stocks from these sectors with a long-term point of view.

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The Markets are going down every day and several sectors are being beaten out of shape. Capital Goods and Infrastructure are two such sectors. Fresh orders have dried up and stocks from these sectors are at multi-year lows. Let us try and examine these sectors.

Capital Goods and Infrastructure are the heart of any country’s economy. If infrastructure is not built well, no country can expect to do well. These sectors typically work in about 8 year cycles. They see a boom phase for a long time and then an equally long downturn as well.

The last cycle of investments stopped around 2008-2010 period. Hardly any new orders are being booked by most of the companies. The expansion of industry has also halted, and hence the Capital Goods sector is doing horribly.

Now, there will be two factors at play here. First, the existing infrastructure - specially the power plants and manufacturing industry - is getting old. This will lead to replacement demand. Second, as India grows there will be demand for additional power plants and machinery. More interior areas will get developed and become urbanised. This will lead to a lot of work for the Infrastructure companies.

There have been several companies both in the Capital Goods and the Infrastructure space which have been around for decades and have seen several business cycles and have returned stronger. Siemens, L&T, Bharat Bijlee, HCC to name a few.

We do not know how long the current downturn will last. It may well go on for a couple of years more. A smart way of playing this is by doing Systematic Investment in these companies. Most of them are at around 40-50 % from their peak valuations. Investments may be divided into 4 lot sizes. Add one lot now and then add another lot at about 15% higher or lower than the current valuation.

Metals is another sector where valuations have been beaten down. Remember no country can ever expect to grow without Steel being produced. Tata Steel and SAIL have been beaten badly out of shape and these companies have been around for several decades now. They certainly merit a look.

The downturn can go on for some time to come and all investments in such sectors need to be done with a time horizon of at least 3 – 5 years. It is a tough task for most of us but only by investing on such larger time frames can real money be made in the equity markets. The Benchmark Nifty may be down only around 10–12% from its peak in January ‘13 but Steel, Capital Goods and Infra stocks are down almost 40-50%. In every fresh leg of down move, different sectors get beaten down. Banks are currently facing the music. Information Technology Sector could be the next one.

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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.)

Tuesday, April 16, 2013

Gold and Silver charts: an update

Gold Chart Pattern

Gold_Apr1513

Two weeks back, the analysis of gold’s 6 months daily bar chart pattern contained the following cautionary comments: “Gold’s price is trading below its three EMAs and is in a bear market. Rallies may be used for selling … In longer-term weekly chart, gold’s price is trading above its rising 200 week EMA. The long-term bull market is still intact. However, the 20 week EMA has crossed below the 50 week EMA for the first time in 3 years. That is a bearish sign.”

On the 3 years weekly bar chart pattern of gold (above), a break down below the 1525 level – which had acted as a support in Sep ‘11, Dec ‘11 and May ‘12 – followed by a sharp fall below the 200 week EMA, may have hit the last nail in the coffin of the decade-long bull market.

What caused the sudden fall? One theory is the fresh dose of QE in the Japanese economy that led to a devaluation of the Yen, which in turn, caused profit booking since the Yen value of gold spiked up. Impending sale of gold by Cyprus – reportedly as much as 10 tons, or, breach of a technical support level (1525) may have caused a rush for the exit doors.

Looking for causes is a futile exercise. Some times prices fall due to their own ‘weights’ – specially when they had stayed up too high for too long. Weekly technical indicators are looking bearish and oversold. Any upward bounce towards the 200 week EMA is likely to be met with more selling.

At some level – 1250? 1000? - gold’s price will attract investment buying once again. Till then, stay away from this ‘falling knife’.

Silver Chart Pattern

Silver_Apr1513

Silver’s price had broken down below a narrow range two weeks ago, and was poised just above its 200 week EMA. However, the long-term weekly moving average could not provide any support.

After falling below the 200 week EMA, silver’s price dropped below the 26 level that had provided support back in Sep ‘11, Dec ‘11 and Jun ‘12. Breach of a long-term technical support level is often followed by heavy selling, as bulls cover their long positions and bears open up shorts.

Weekly technical indicators are bearish and looking oversold. Any upward bounce towards the 26 level is likely to cause more selling. The next support level is 20, but that support is unlikely to hold for long.

Monday, April 15, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Apr 12, ‘13

S&P 500 Index Chart

S&P 500_Apr1213

The following were the concluding comments in last week’s analysis of the 6 months daily bar chart pattern of S&P 500 index: “…the market was looking for an excuse to sell after touching an all-time high. The index is in a bull market. Such dips provide adding opportunities.”

The index gained more than 2% for the week and touched a new high of 1597 on Thu. Apr 11 ‘13, but closed at 1589 by the end of the week. Profit booking emerged  due to lower than expected retail sales in March.

Daily technical indicators are looking bullish, but all four are showing negative divergences by failing to touch new highs with the index. Volumes have not been great either. Some correction/consolidation may be on the cards.

Initial claims for unemployment dropped. Continuation of QE3 was another positive for the bulls. However, consumer sentiment index was lower than expectations.

FTSE 100 Index Chart

FTSE_Apr1213

The 6 months daily bar chart pattern of FTSE 100 index shows a spirited rally by the bulls that took the index above all three EMAs and the 6400 level.

Though the index gained more than 2% on a weekly closing basis, it slipped below the 6400 level. A bearish pattern of lower tops and lower bottoms means the down trend that started after the index touched a high of 6534 on Mar 12 ‘13 is now a month old.

Daily technical indicators failed to enter their respective bullish zones. MACD is negative and below its signal line. RSI managed to reach its 50% level, but has flattened out. ROC briefly entered positive territory, only to slip down to its ‘0’ line. Slow stochastic climbed up to its 50% level but its upward momentum is waning.

UK economy is stagnating, but rise in factory output may prevent a triple-dip recession.

Bottomline? The S&P 500 index is facing profit-booking after touching another all-time high. FTSE 100 is in the midst of a month-long down trend. Both indices are trading above their rising 200 day EMAs, and are in bull markets. Stay invested, but tighten stop-losses to protect profits.

Saturday, April 13, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 12, 2013

BSE Sensex index chart

Whatever hopes the bulls had of halting the down trend in the Sensex were dashed by the sharp fall in the Infosys stock following its Q4 results announcement. Despite showing improvement in top and bottom lines, muted guidance for the next year hurt sentiments.

With FIIs and DIIs turning net sellers, the index had only one way to go. It closed below the 50 week EMA for the second week in a row. The last time it had done that was back in May ‘12.

All is not lost yet for the bulls. Note the blue up trend line connecting the Dec ‘11 and Jun ‘12 lows. That trend line has not yet been tested. A convincing breach of the trend line – currently at 17000 – may end the bull market.

Sensex_Apr1213

Weekly technical indicators are quite bearish, though looking a bit oversold. MACD is falling rapidly below its signal line and is poised to enter negative territory. ROC is below its 10 week MA at the edge of its oversold zone. RSI is about to enter its oversold zone. Slow stochastic is already inside its oversold zone.

The correction is likely to continue. With economic growth grinding to a halt, bulls will hope for some positive policy decisions from the government before the elections next year.

NSE Nifty 50 index chart

The men who want to be the next Prime Minister of India (so far, no women have raised their hands) have started jockeying for positions – even though Lok Sabha elections are a year away.

Modi’s oratory have been drawing appreciative audiences at various Chambers of Commerce. May be the UPA leaders will learn a lesson or two that governance and not corruption is the key that unlocks votes.

Nifty_Apr1213

The down trend in the Nifty chart – marked by blue trend line – continues. Support from the ‘gap’ area (formed back in Sep ‘12, and marked by dotted lines in the Nifty chart) has held so far. Even if the ‘gap’ gets completely filled and the index falls below it, the up move is likely to resume.

However, Nifty has spent seven trading sessions in a row below its 200 day EMA. The 20 day EMA has crossed below the 200 day EMA. The 50 day EMA is falling towards the 200 day EMA. These are bearish signs.

Daily technical indicators are looking bearish, after correcting from oversold conditions. That means the down trend, which has paused at the ‘gap’, is likely to resume.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are continuing in their respective down trends, but it is still too early to call them bear markets. Don’t get paralysed by fear. Money is made by looking for buying opportunities during down trends. But be selective and maintain stop-losses.

Thursday, April 11, 2013

Should you enter healthcare sector stocks now?

Like the FMCG sector, the healthcare sector is also considered a ‘defensive’ sector. What does ‘defensive’ sector mean? It means stocks from the sector usually don’t fall as much as the Sensex or Nifty during down trends. Nor do they rise as much as the Sensex or Nifty during up trends.

Is that good or bad? Well, let us say they provide more stability to your portfolio by being less volatile. The added advantage of owning healthcare sector stocks is that they don’t go in and out of fashion. If you are a diabetic or suffer from hypertension, you have to take a regular dose of medicines regardless of the state of the economy, or a change of government, or an increase in real-estate prices.

With the Sensex and Nifty under bear attacks, is this a good time to enter healthcare sector stocks? Yes, as long as you are selective. Not all stocks from the sector are performing well – as the 1 yr daily bar chart patterns of 10 stocks from the sector show.

Sanofi-Aventis

Sanofi-Aventis_Apr1113

After consolidating sideways with an upward bias for 10 of the past 12 months, the stock has broken out upwards. However, the stock trades in very low volumes, which causes large price swings and makes buying or selling a difficult proposition.

Glaxo Pharma

GlaxoPharma_Apr1113

The stock has been in a sideways consolidation for the past year. It is also prone to big price swings because it trades in low volumes. Investors holding such stocks usually treat them as family heirlooms and pass it on to future generations.

Novartis

Novartis_Apr1113

The stock had been consolidating sideways with a downward bias before dropping deeper into a bear market. The recent Supreme Court judgement against its patent application for a modified form of its popular cancer drug ‘Gleevec’ has been a setback.

Cadila

Cadila_Apr1113

The stock has been in a down trend since touching a peak in Sep ‘12, and has dropped into a bear market.

Dr. Reddy’s Lab

DrReddysLab_Apr1113

The stock is in a bull market, despite a sharp correction during Feb ‘13. It appears to have formed a bullish ‘double bottom’ pattern.

Ipca Labs

IpcaLabs_Apr1113

The stock has been in a steady up trend for the past 12 months. Periodic corrections below its 50 day EMA has helped it to move higher. This is what a bull market looks like on a chart.

Lupin

Lupin_Apr1113

This stock is also in a year-long up trend that has twice received support from its rising 200 day EMA.

Sun Pharma

SunPharma_Apr1113

Another stock that has been moving up in a bull market for the past year.

Opto Circuits

OptoCkt_Apr1113

Once a favourite of small investors, the stock has been in a down trend for the past 12 months, though it is showing some signs of a recovery. THis is what a bear market looks like on a chart.

Poly Medicure

PolyMedicure_Apr1113

The stock is in a bull market, but has been consolidating sideways for the past 5 months.

Wednesday, April 10, 2013

Nifty and Sensex charts: a mid-week technical update

Nifty chart

Nifty_Apr1013

The down trend on the Nifty chart is continuing. Yesterday (Apr 9 ‘13), the index dropped into, and closed inside, the ‘gap’ zone between 5450 and 5525 – formed back in Sep ‘12. (Though the ‘gap’ was filled by the ‘flash crash’ on Oct 5 ‘12, it was due to an ‘error trade’ and will be ignored.)

Today (Apr 10 ‘13), the index dropped 10 points lower intra-day; just when it looked like the ‘gap’ will get properly filled, the index did an about-turn to climb out and close above the ‘gap’. In the process, it formed a ‘reversal day’ pattern (lower low, higher close).

Is the down trend over? The daily technical indicators are not suggesting that. MACD is below its signal line at the edge of its oversold zone. ROC is above its 10 day MA and moving up, but remains inside negative territory. RSI is trying to emerge from its oversold zone. Slow stochastic is inside its oversold zone. A rally towards the 200 day EMA is a possibility.

A convincing move above the blue down trend line – currently at 5850 – may end the down trend.

Sensex chart

SENSEX_Apr1013

The daily bar chart pattern of Sensex is moving in tandem with Nifty. An identical drop and close inside the ‘gap’ zone between 18060 and 18290, followed by formation of a ‘reversal day’ pattern and a close above the ‘gap’ zone.

Daily technical indicators are bearish, but appears to be correcting oversold conditions. That can mean one of two things: either the start of a rally; or, a mere bounce followed by a deeper correction. FIIs have been net sellers of late, and if they continue selling, a deeper correction is more likely.

A convincing move above the blue down trend line – currently at 19400 – may change the sentiment from bearish to bullish.

Tuesday, April 9, 2013

WTI and Brent Crude Oil charts: bears on a roll

WTI Crude chart

WTI Crude_Apr0913

The following comments, in a post analysing the 6 months bar chart pattern of WTI Crude Oil two weeks back, seem almost prophetic on hindsight: “Daily technical indicators are turning bullish, which means a test of the recent top at 98 is a possibility… However, note that RSI and slow stochastic are showing negative divergences by failing to reach higher tops with oil’s price. Strong volumes on down days is another bearish sign.” 

A few days after the previous post, oil’s price rose to test the 98 level, but formed a bearish ‘reversal day’ pattern (higher high, lower close) and collapsed in a heap. Despite dropping below its 200 day EMA three days in a row on intra-day basis, oil’s price hasn’t yet closed below the long-term moving average. But that may be a temporary respite.

Daily technical indicators are turning bearish. MACD has crossed below its signal line and falling towards its negative zone. RSI has slipped below its 50% level. Slow stochastic has fallen sharply below the 50% level from its overbought zone. Strong volumes on recent down days means the correction isn’t over yet.

Brent Crude chart

BrentCrude_Apr0913 

The 6 months daily bar chart pattern of Brent Crude Oil was looking quite bearish in a post two weeks ago, and the following concluding comments were made: “Bears have been using every rise to sell. Bulls will require special effort to prevent a ‘death cross’ of the 50 day EMA below the 200 day EMA.”

Bulls did try to engineer a rally that took oil’s price briefly past its 200 day EMA. But the effort wasn’t good enough. Bears pounced on the opportunity to sell, and pushed oil’s price down to its lowest level in 8 months. The ‘death cross’ has technically confirmed a return to a bear market.

Daily technical indicators are looking bearish to the point of being oversold. MACD has crossed below its signal line and poised to drop inside its oversold zone. RSI has bounced up weakly from the edge of its oversold zone. Slow stochastic is inside its oversold zone. Oil’s price may attempt to bounce up, but bears are likely to sell again. Strong volumes on down days indicate such a possibility.

Monday, April 8, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Apr 05, ‘13

S&P 500 Index Chart

S&P 500_Apr0513

Negative divergences observed in all four daily technical indicators of the S&P 500 index last week had led to the warning that a correction/consolidation was around the corner. Some profit booking was advised.

The index rose to touch another new high of 1574 on Apr 2 ‘13, but slipped more than 2% to fall below the 20 day EMA to touch 1540 on Apr 5 ‘13, before recovering to close about 1% lower for the week. Is this the beginning of a deeper correction?

Daily technical indicators are suggesting more downside, but haven’t turned bearish yet. MACD is positive, but has started falling below its signal line. RSI has just slipped below its 50% level. ROC is resting on its ‘0’ line. Slow stochastic is falling towards its 50% level. Higher volumes on down days also suggest that the correction may not be over.

Dismal employment data was blamed for the correction, but the market was looking for an excuse to sell after touching an all-time high. The index is in a bull market. Such dips provide adding opportunities.

FTSE 100 Index Chart

FTSE_Apr0513

In a holiday-shortened week, the 6 months daily bar chart pattern of FTSE 100 attempted a futile rally that stalled near the 6500 level. Bears got active and the index crashed through its 20 day and 50 day EMAs and almost dropped to the 6200 level, before recovering a bit.

The index lost 2.5% on a weekly closing basis. More importantly, it has formed a bearish pattern of lower tops and lower bottoms. All four daily technical indicators are not only looking bearish, but are showing negative divergences by touching lower bottoms than the one’s touched in Dec ‘12, while the index touched a higher bottom.

Any attempt by the index to move up towards its 50 day EMA, is likely to be met with more selling. Disappointing manufacturing data continues to show weakness in the UK economy. However, improvement in the services data may prevent a triple-dip recession.

Bottomline? The S&P 500 index is facing profit-booking after touching an all-time high. FTSE 100 is in the midst of a stronger correction after touching a 5 yr high. Both indices are trading above their rising 200 day EMAs, and are in bull markets. Bull market corrections are adding opportunities. But don’t forget to use stop-losses – just in case the tide turns.

Sunday, April 7, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 05, 2013

BSE Sensex index chart

Two days of net selling by FIIs last week and already the market is in a panic. Interestingly, DIIs turned net buyers – but their buying could not stop the Sensex from dropping below its 200 day EMA. Retail investors had mostly stayed away from the market during the rally from Jun ‘12 to Jan ‘13. They may continue to run scared – and miss opportunities for buying that such corrections provide.

Q4 and annual results are just around the corner. But there is unlikely to be many positive surprises – considering the slowdown in GDP growth and delay/postponement of large projects. These are times when the men get separated from the boys. So, look out for good performers – not on the basis of one quarter’s results, but for the year as a whole.

Small investors have a penchant for obscure mid-cap and small-cap stocks, in the hope of latching onto multibaggers. But during a downtrend in the Sensex, small and mid-cap stocks fall a lot more. So this is a good time to pick large-cap stocks. Once the market starts showing signs of recovery, then think of buying mid-caps and small-caps.

SENSEX_Apr0713

The index has dropped close to the ‘gap’ area between 18060 and 18290 that was formed back in Sep ‘12. The ‘gap’ acted as support in Oct ‘12 and Nov ‘12. A bounce from the ‘gap’ area is a possibility. What if the ‘gap’ gets filled? Chances are that the index is likely to resume its up move thereafter.

The Sensex appears to be correcting its entire up move from the Dec ‘11 low of 15136 to the Jan ‘13 top of 20204. The 38.2% Fibonacci retracement level of the up move is at 18270 – inside the ‘gap’ area marked by dotted lines in the chart above. The 50% retracement level of the up move is at 17670 – which is close to the Apr ‘12 top of 17664 and Jul ‘12 top of 17632.

Since the index doesn’t understand arithmetic, it is better to look at previous tops for support. So, observe index action near the ‘gap’. If the ‘gap’ gets filled, then look for support around 17650. If that gets breached, then it is likely to be a change of trend from bull to bear.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line towards its oversold zone. ROC has bounced up from its oversold zone and crossed above its 10 day MA, but remains negative. RSI and slow stochastic have dropped back inside their oversold zones. Note that MACD, ROC and slow stochastic are showing positive divergences by not falling lower with the Sensex. A bounce towards the 200 day EMA can be expected.

NSE Nifty 50 index chart

With the stock market in a jittery mode, any remotely negative news is causing more selling. BJP’s L K Advani hinted at an early Lok Sabha election, and FIIs started selling. But the selling was not limited to India. Profit booking took place across Asia, Europe and USA.

Government’s efforts at curtailing inflation, managing deficits and promoting investments have been a failure. Periodic inflated tax demands on foreign entities have not helped. There are rumours about arm-twisting of telecom players to force them to participate in spectrum auctions. Instead of enabling new investments, government seems to be dissuading foreign investors. No wonder inflow of FDI has been paltry.

Nifty_Apr0713

The weekly bar chart of Nifty has closed below its 50 week EMA for the first time since Jul ‘12. Weekly technical indicators are suggesting that worse may follow. MACD is falling below its signal line towards its negative zone. ROC is dropping deeper into negative territory below its 10 week MA. RSI is about to fall into its oversold zone. Slow stochastic has already entered its oversold zone.

How low can the Nifty fall? The 38.2% Fibonacci retracement level of the entire up move from the Dec ‘11 low of 4531 to the Jan ‘13 top of 6112 is about 5510. That is inside the ‘gap’ area between 5450 and 5525 formed in the daily chart (shown here) back in Sep ‘12. The 50% Fibonacci retracement level of the up move is at 5320 (which is close to a long-term support/resistance level of 5340).

Since technical analysis deals with approximate and not exact levels, 5300 can be taken as the ‘trend decider’ level. A fall below may push Nifty into a bear market.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices have dropped close to their respective ‘gap’ areas formed back in Sep ‘12. Both indices may bounce up from the ‘gaps’. Filling of the ‘gaps’ is possible – specially if FIIs continue to sell. However, both indices are expected to resume their up moves. Keep accumulating fundamentally strong stocks – but keep strict stop-losses.

Thursday, April 4, 2013

Stock Chart Pattern - State Bank of India (An update)

The previous update to the stock chart pattern of State Bank of India was posted back in Nov ‘11 (marked by grey vertical line in chart below). The stock price had touched an all-time high of 3515 a year earlier (on Nov 8 ‘10), and since then had been in a bear market along with the Sensex.

The stock touched a low of 1576 on Dec 20 ‘11 – a drop of 55% from its peak of 3515, which is almost twice the fall of the Sensex in percentage terms. The subsequent sharp rally took the stock above all three EMAs to touch a high of 2475 on Feb 21 ‘12.

Bullish hopes were belied as the stock entered a period of sideways consolidation – alternately moving above and below its 200 day EMA that frustrated long-term investors, but provided good trading opportunities. The 18 months daily bar chart pattern of State Bank of India shows that the stock is far from regaining its former glory.

SBI_Apr0413

The stock price twice received support from the 1820 level before bouncing up. On Sep 17 ‘12, the stock moved up with a ‘gap’ between 1975 and 2005. The ‘gap’ remains unfilled till date, which is a bullish sign. However, the stock has formed a bearish head-and-shoulders pattern since then – with the peak of the ‘head’ touching 2550 on Jan 10 ‘13.

The 2050 level, which has acted as a support/resistance level, is also the ‘neckline’ of the head-and-shoulders pattern. The downside target of the head-and-shoulders pattern is 1550. (Why? 2550 – 2050 = 500; 2050 – 500 = 1550.) If the downside target is met, not only will the ‘gap’ between 1975 and 2005 get filled but the Dec ‘11 low of 1576 will also get breached.

Note the negative divergences in all four technical indicators (marked by blue arrows), which failed to touch new highs along with the stock price. Also, by touching a high of 2550 and turning down, the stock price just reached the 50% retracement level of the entire bear market fall from 3515 to 1576. Technically, the stock remains in a bear market till it can move convincingly above the level of 2550.

Most PSU banks have substantial unreported NPAs – called ‘restructured assets’ – thanks to loans given to power and airlines sectors. Fund managers and investors can hardly ignore the largest PSU bank in the country. However, the stock chart pattern reflects a distinct wariness among investors. Notice the volume spikes on down days.

All four technical indicators are in bearish zones – though they have corrected from oversold conditions.

Bottomline? The stock chart pattern of State Bank of India is poised near an important support at 2050. The support may not hold. If it fails to find support from the 1820 level and drops lower, it can drag the Sensex down into a bear market. Extreme caution is advised.

Wednesday, April 3, 2013

Sensex and Nifty charts: a mid-week technical update

Sensex chart

SENSEX_Apr0313

After touching a high of 20204 on Jan 29 ‘13, the Sensex formed a ‘reversal day’ pattern and started on a down trend (marked by the blue line). Trends remain in force till they are broken. The index needs to move above the blue down trend line convincingly for the bull market to resume its up move.

Note that the index dropped below the 19000 level in early-Mar ‘13, but received good support from the 200 day EMA and bounced up all the way towards the 19800 level. It touched a lower top of 19755, and resumed its down move. By end-Mar ‘13, Sensex slipped below its 200 day EMA to touch a lower bottom – forming a bearish pattern of ‘lower tops and lower bottoms’.

The subsequent bounce faced twin resistance from the falling 20 day EMA and the 19000 level. Is the bull market over? Not yet. That doesn’t mean the index won’t fall more. Bearish daily technical indicators are suggesting a continuation of the down move.

The ‘gap’ between 18060 and 18290 - formed back in Sep ‘12 – is likely to provide support on the downside. Note what happened in Nov ‘12. Even if the ‘gap’ gets filled, Sensex should resume its up move subsequently.

Nifty chart

Nifty_Apr0313

Nifty is following in the footsteps of Sensex. Strong volumes on down-days is an indication that the correction isn’t over. Daily technical indicators are bearish, but hovering near their oversold zones – so a further up move can’t be ruled out.

The ‘gap’ between 5450 and 5525 – formed back in Sep ‘12 – was filled by the ‘flash crash’ on Oct 5 ‘12. However, since it was caused by an ‘error trade’ and is not visible on the Sensex chart, the ‘flash crash’ will be ignored for the purposes of technical analysis. In other words, the ‘gap’ will be treated as ‘unfilled’.

Till the ‘gap’ gets filled, Nifty may consolidate sideways with a downward bias – with the blue uptrend line providing upside resistance and the ‘gap’ providing downside support.

Tuesday, April 2, 2013

Gold and Silver charts: bears back on top

Gold Chart Pattern

Gold_Apr0213

In a post two weeks ago, the following were the concluding remarks: “Gold’s price may try to move above its 50 day EMA towards the 200 day EMA. Bears are likely to use the opportunity to sell.” The selling began even before gold’s price could reach its falling 50 day EMA. Strong volumes on down days do not augur well for the bulls.

A brief flirtation with bankruptcy by the island nation of Cyprus had caused a mini rally in gold’s price. EU troubleshooters cobbled together a bail-out package and the rally fizzled out. With stock markets in Europe and USA showing continued strength, investors are focussing on risky assets.

Daily technical indicators are beginning to look bearish. MACD is above its signal line, but has stopped rising and remains in negative territory. RSI has slipped below its 50% level. Slow stochastic has dropped from its overbought zone, and is drifting down towards its 50% level. Gold’s price is trading below its three EMAs and is in a bear market. Rallies may be used for selling.

In longer-term weekly chart (not shown), gold’s price is trading above its rising 200 week EMA. The long-term bull market is still intact. However, the 20 week EMA has crossed below the 50 week EMA for the first time in 3 years. That is a bearish sign.

Silver Chart Pattern

Silver_Apr0213

Two weeks ago, silver’s price was consolidating within a narrow range in a bear market. The following were the concluding remarks: “Expect some more consolidation before silver’s price can break out of its narrow range between 28.25 and 29.50.” 

A rectangular consolidation pattern is usually a continuation pattern. So, it wasn’t a surprise that silver’s price broke downwards – since the price was falling before it entered the consolidation range. What is ominous for bulls is the strong volumes on down days.

However, all three daily technical indicators – though bearish – are showing positive divergences by touching higher bottoms while silver’s price dropped lower. That could lead to an upward bounce.

In longer-term weekly chart (not shown), silver’s price is barely above its 200 week EMA. The longer-term bull market is under threat. However, a bounce from the 200 week EMA is a possibility.

Monday, April 1, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Mar 28, ‘13

S&P 500 Index Chart

S&P 500_Mar2813

The inevitable happened. The 6 months daily bar chart pattern of S&P 500 touched a new all time high of 1570. Time to celebrate and open the bubbly? Depends on your viewpoint. From the lows of 2009, the climb seems absolutely spectacular. From the top, it seems like one slip could lead to a devastating fall. That is the challenge of stock markets. There are always polar opposite views.

Unless an investor is disciplined and nimble-footed, taking a ‘wrong’ view can be injurious to one’s wealth. What should one do at the very top? Stay invested, but tighten stop-losses. Buying isn’t recommended because the downside risk is greater – specially since the index is trading more than 100 points above its 200 day EMA. Selling off may be counter-productive if the index continues to defy gravity; but taking some profits off the table won’t be a bad idea.

All four technical indicators are looking bullish – but showing negative divergences by failing to move higher with the index. A correction/consolidation may be around the corner. Liquidity can keep propelling the index ever higher. If corporate earnings fail to catch up with the progress of the index, fortunes could turn around quickly.

Weekly jobless claims moved up again. GDP growth was a measly 0.4%. All is not yet well with the US economy.

FTSE 100 Index Chart

FTSE_Mar2813

The 6 months daily bar chart pattern of FTSE 100 index completed a decent (3%) correction from its Mar ‘13 top that found good support from its rising 50 day EMA. The index may be getting ready to scale new highs.

Daily technical indicators are looking bearish, but there are signs of a turnaround. MACD is below its signal line in positive zone, but has stopped falling. RSI has dropped below its 50% level. ROC is negative, but turning up. Slow stochastic is below its 50% level, but turning up.

The index is in a bull market – despite the sad state of the UK economy. Such dips can be used to add.

Bottomline? The S&P 500 index touched an all-time high and looks ripe for a correction. The FTSE 100 index has undergone a decent correction and looks ready to move higher. Both indices are in bull markets despite their weak economies. Stay invested, and use dips to add – but with stop-losses in place. Downside risk increases as indices move higher.