Nifty chart: a mid-week update (Dec 31 ‘14)

Nifty ended the previous year at 6304. It gained 1978.70 points to end the current year at 8282.70 – a fairly substantial inflation-beating return of 31.4% – despite a sharp correction during Dec ‘14.

An investor who regularly invested in an index fund or Nifty BeES (1 yr return: 30.94%) would have made similar returns. If your portfolio return was less than 30% during the year, you may reconsider/relearn your stock picking skills (or, take the help of a market expert).

What kind of returns can be expected in 2015? Expecting another 30% year on a higher base may be too optimistic. But with inflation and oil prices moving down, and a majority government - which is not averse to taking tough decisions - in place, a 15-20% gain is in the realm of possibilities.

That would mean a Nifty level in the range between 9500-9900 on Dec 31, 2015.

The zone between 7840 and 8180 (corresponding to Nifty’s Jul ‘14 and Sep ‘14 tops) – marked by blue dotted lines – provided good support to the index during its recent correction.

A rising US Dollar index, and indications of slow growth in China and Europe caused FIIs to book profits – their net selling in equities touching Rs 4400 Crores during Dec ‘14. DII net buying of close to Rs 6000 Crores during the month failed to propel Nifty to a new high.

Daily technical indicators are turning bullish. MACD has moved up to touch its sliding signal line in negative territory. ROC is rising sharply in positive territory above its 10 day MA, which has formed a bullish ‘rounding bottom’ pattern. RSI is moving up towards its 50% level. Slow stochastic has crossed above its 50% level.

Volumes have been on the lower side during this week, but it is gradually rising. Many FIIs are on their year-end break, which may be the reason for low volumes.

Trading activity should pick up from next week – allowing Nifty to resume its upward march. The correction during the month has not deterred the 200 day EMA from continuing its gradual rise. The long-term bull market is alive and well.

(Wishing all blog visitors, blog followers, blog subscribers, newsletter subscribers and twitter followers a peaceful and prosperous 2015.)

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 26, ‘14

S&P 500 Index Chart

In a truncated trading week due to Christmas holiday, volumes were expectedly low. That did not prevent the daily bar chart pattern of S&P 500 to rise to new intra-day and closing highs. All three EMAs are rising and the index is trading above them in a long-term bull market.

The index is coming close to testing resistance from the upward-sloping line of the bearish ‘broadening top’ pattern. A convincing move above the pattern will allow bulls to regain total control.

However, bears may use the opportunity to initiate another sharp correction. Note that two of the three daily indicators – MACD and RSI – failed to touch new highs with the index. The negative divergences is a warning sign for bulls.

On longer term weekly chart (not shown), the index is trading well above its three weekly EMAs in a long-term bull market. But all three weekly technical indicators are showing negative divergences by failing to touch new highs with the index. Brace yourself for a roller-coaster ride.

FTSE 100 Index Chart

In a holiday-shortened trading week, the daily bar chart pattern of FTSE 100 crossed above its 50 day EMA and the 6600 level, but faced strong resistance from its 200 day EMA. Failure to re-enter bull territory may encourage bears to mount another attack.

Daily technical indicators have corrected oversold conditions, but haven’t quite turned bullish yet. MACD is rising above its signal line in negative territory. RSI is moving up towards its 50% level, but its upward momentum is slowing down. Slow stochastic is looking bullish by rising sharply above its 50% level.

Can the index return to bull territory in a convincing manner and show some gains for the year? Bears will try their best not to let that happen.

On longer term weekly chart (not shown), the index is trading well above its 200 week EMA in a long-term bull market, but faced strong resistance from its entangled 20 week and 50 week EMAs. Weekly technical indicators are looking bearish.

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 26, 2014

Activity was comparatively low in F&O expiry week that was shortened by Christmas holiday. Both Sensex and Nifty flattered to deceive – their gains during the earlier part of the week getting wiped out by the end.

FIIs net sold equities worth Rs 3500 Crores. DIIs were net buyers of Rs 1830 Crores. Strong US GDP number and rising Dollar index motivated FIIs to book profits. Both indices showed some resilience by falling marginally.

The President signed ordinances to increase foreign equity in insurance (from 26% to 49%) and to initiate auction for reallocation of coal blocks. The respective legislations were held up in the Rajya Sabha by opposition parties during the recent winter session of parliament.

The Government adopted the ordinance route to send a strong message that needed reforms can not be held hostage by petty politics.

BSE Sensex index chart

The daily bar chart pattern of Sensex moved briefly above its 20 day and 50 day EMAs during the early part of the week, but dropped below both EMAs into the support zone between 26300 and 27350 by the end of the week.

Technical indicators have corrected oversold conditions, but remain in bearish zones. MACD is sliding below its falling signal line in negative territory. ROC crossed above its 10 day MA, but failed to enter positive zone. RSI emerged from its oversold zone, but has dropped down. Slow stochastic failed to rise above its 50% level, and is slipping down.

Some more consolidation is likely. Several good stocks have corrected from their recent highs – giving entry opportunities.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty briefly dropped inside the support zone between 7840 and 8180 (marked by blue dotted lines), but received good support from its 20 week EMA and closed just above the support zone.

Weekly technical indicators have corrected overbought conditions, but remain in bullish zones. MACD has crossed below its signal line, and dropped from its overbought zone. ROC has crossed above its 10 week MA in positive zone. RSI is sliding down towards its 50% level. Slow stochastic is falling rapidly towards its 50% level.

Expect some more consolidation before Nifty resumes its up move. The index is trading above both its weekly EMAs in a long-term bull market. The dip provided an entry opportunity.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are recovering from sharp bull market corrections. Long-term up trends are intact. Both indices should resume the next legs of their bull rallies after some consolidation.

Hope of better days – a guest post

The recently concluded winter session of Parliament was marked by controversies and obstructive demonstrations by opposition parties. Lok Sabha, with its BJP majority, was in session for almost 100% of its schedule – one of its best performances in several years.

Not so for the Rajya Sabha where BJP was in a minority. Several sessions were abandoned on some pretext or the other due to virulent attacks by the opposition parties. BJP got a taste of its own medicine. They had noisily obstructed parliament proceedings during the previous regime.

What about Narendra Modi’s poll promise of ‘acche din’? With important bills getting stuck, there is talk of the government resorting to the ordinance route to move ahead with its reform agenda. In this month’s guest post, Nishit takes a realistic look at the prospect of better days for the country, and the stock market.

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The Modi Government got elected on the promise of ‘Good Governance’ and the hope of India seeing better days ahead. Ten years of UPA rule had left the country’s spirit broken especially in the last few years.

The Modi Government has completed about 7 months in power. They have made all the right noises about reform in Parliament, hosted foreign dignitaries and announced various cleanliness drives.

The key concern was the lack of majority of the BJP in the Rajya Sabha and their ability (or lack of it) to push through key reform bills like the Insurance Bill.

To add to the confusion, various BJP members have been making controversial statements leading to Parliament getting stalled.

Since this is the first full session in Parliament, the Modi Government may get the benefit of doubt. The same benefit will not be available from the Budget session onwards. They will have to come up with an alternative to the chaos in Rajya Sabha.

One of the solutions could be having a joint session of Parliament, or winning over some regional parties.

The honeymoon period is over now and it is time for action. The decisive moment will arrive sometime in middle of February when the Budget session kicks off.

The Government has been lucky with the decline in crude oil prices, which is a once in a lifetime event for any Government. They have been given an extended lifeline thanks to this.

The entire market rise so far - on the hope and hype of Modi - is over. Further rises will be dictated by performance alone.

Progress on the GST Bill, the Insurance Bill, the Union and the Rail budgets are some points which the FIIs and the investment community will be keenly watching over the next few months.

If the Global factors settle down, then one could see a buoyant pre-Budget rally on hope. But if the budget disappoints then one could expect a major correction post the budget.

‘Acche Din’ was a good marketing slogan. Falling oil price helped bring in some cheer but the real battle starts now.

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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. You can reach him at nish.stockid@gmail.com)

WTI and Brent Crude Oil charts: an update

WTI Crude chart

The following comment appeared on a previous post on the daily bar chart pattern of WTI Crude oil: “…oil’s price touched a 5 year low of 63 -  and may fall even lower.” After falling below 55, oil’s price has been consolidating sideways in an effort to find a bottom around 55.

All three technical indicators have formed bullish ‘rounding bottom’ patterns inside their respective oversold zones. Does that mean that the strong down trend is about to get reversed?

Strong volumes and sharp volatility in the past few trading sessions indicate investor uncertainty – which often precedes a trend change. However, bears have a strong grip which they are unlikely to release in a hurry. Any upward bounce may be used to sell.

On longer term weekly chart (not shown), oil’s price is trading well below its three weekly EMAs in a long-term bear market. However, the fall since Jul ‘14 has been a bit too sharp. A bounce up is a possibility. Weekly technical indicators are well inside their oversold zones.

Brent Crude chart

The daily bar chart pattern of Brent Crude oil continued its waterfall-like descent and slipped below the 60 level. For the past 4 trading sessions, oil’s price has been consolidating sideways as it tries to find a bottom around 60.

MACD, RSI and Slow stochastic are still inside their respective oversold zones – though all three have formed ‘rounding bottom’ patterns that may lead to an upward bounce in oil’s price. Will it provide a bottom-fishing opportunity? Not really.

On longer term weekly chart (not shown), all three weekly EMAs are falling, and oil’s price is trading below them in a long-term bear market. Technical indicators are well inside their oversold zones.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 19, ‘14

S&P 500 Index Chart

The daily bar chart pattern of S&P 500 index dropped briefly below 1975, but suddenly turned around and recovered almost all its losses from its Dec 5 top in just three trading sessions. US Fed’s decision not to raise interest rates in the near future provided just the impetus the bulls needed.

All three EMAs are rising and the index is trading above them. The bulls are back in control after a sharp correction. Or, are they? Note that the index is still within the ‘broadening top’ pattern, and needs to overcome the resistance of the upward-sloping blue line of the pattern for the bull market to continue.

An increase in volatility – as witnessed during the formation of the ‘broadening top’ pattern – is a sign of nervousness among investors. Does that mean a change of trend is in the offing? One needs to wait for technical confirmation – but the formation of a bearish reversal pattern should be respected.

Daily technical indicators are back in bullish zones. A continuation of the rally is likely.

On longer term weekly chart (not shown), the index is trading above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones.

FTSE 100 Index Chart

The daily bar chart pattern of FTSE 100 dropped to an intra-day low of 6145 on Dec 16 ‘14, but bounced up strongly on the next three days to move above the 6550 level – where it faced resistance from its falling 50 day EMA.

On Oct 16 ‘14, the index had touched an intra-day low of 6073. By touching a slightly higher bottom on Dec 16 ‘14, the index appears to have formed a ‘double bottom’ reversal pattern. However, volumes were higher when the index touched its Oct 16 low.

Also, on a closing basis, the Oct ‘14 low was 6196 whereas the Dec ‘14 low was 6183. That means a bearish pattern of ‘lower tops and lower bottoms’ has been formed.

Technical indicators have corrected oversold conditions, but remain in bearish zones.

On longer term weekly chart (not shown), the index dropped below its 200 week EMA, but managed to close well above it. However, the index is trading below its 20 week and 50 week EMAs. Weekly technical indicators are looking bearish. Bears may mount another attack.

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 19, 2014

In the last full week of trading in calendar year 2014, both Sensex and Nifty indices bounced up after testing support levels to close marginally higher for the week. However, neither index is technically out of the woods yet – so caution is advised.

FIIs continued their selling spree in equity throughout the week. DIIs were net buyers. For the month of Dec ‘14 so far, FIIs have been net sellers of about Rs 940 Crores while DIIs turned bulls by buying equity worth Rs 3630 Crores.

Important bills are getting stuck in Parliament as opposition parties – particularly a scam-tainted one – have been obstructing proceedings on various pretexts. Offshoots of the ruling party have done their bit in stalling proceedings with their respective divisive agenda.

BSE Sensex index chart

The following comment appeared in last week’s analysis of the daily bar chart pattern of Sensex: “The index may find support in the zone between 26300-27000.” Note that the index dropped to an intra-day low of 26469 on Wed. Dec 17 before bouncing up.

Though the index has managed to climb above the 27350 level by the end of the week, it is facing twin resistance from its falling 20 day and 50 day EMAs. A new high may elude bulls during the remainder of this calendar year.

Technical indicators are in the process of correcting oversold conditions, but are in bearish zones. MACD has stopped falling, but is well inside negative zone and below its signal line. ROC has formed a small ‘rounding bottom’ bullish pattern inside its oversold zone, and is trying to cross above its falling 10 day MA. RSI has also formed a small ‘rounding bottom’ pattern inside its oversold zone. Slow stochastic has just emerged from its oversold zone.

The correction has improved the technical ‘health’ of the chart. The index is trading well above its rising 200 day EMA in a long-term bull market. By touching a higher bottom, the bullish pattern of ‘higher tops and higher bottoms’ continues.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty dropped below its 20 week EMA intra-week for the first time since Feb ‘14, but found strong support from the 7840 level and the rising Up trend line 2 (in dark blue). The index bounced up to close above its 20 week EMA and the 8180 level – closing flat for the week, but on an uptick in volumes.

Weekly technical indicators have corrected overbought conditions, but remain in bullish zones. MACD has crossed below its signal line, and is about to drop below its overbought zone. ROC is trying to cross above its 10 week EMA in positive zone. RSI and Slow stochastic have dropped from their respective overbought zones, but are above their respective 50% levels.

A bit of consolidation can’t be ruled out. The index is trading above both its weekly EMAs in a long-term bull market.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are overcoming sharp bull market corrections. Both indices should resume the next legs of their bull rallies soon. The corrections provided good entry opportunities.

Realty Sector stocks – worth a look? Nah!

The realty sector has been in the doldrums for quite some time now. Builders are hanging on to their unsold inventory in a bid to keep prices from crashing. Buyers are in no great hurry to relieve the builders of their pain.

Many builders are now being forced to liquidate some of their land banks and unsold projects to try and keep their heads above water. The charts of most realty sector stocks are in long-term bear markets.

As in any sector, a couple of companies are able to swim against the tide. Does that make their stock worth buying? Their fundamentals don’t justify it. If you are really keen about the sector, you may be better off buying land.

Hubtown (Ackruti City)

The stock closed at a 52 week high of 194.50 and forayed into bull territory for about 4 months. But the good times didn’t last. The stock is back in a long-term bear market.

Ashiana Housing

Since a 5:1 stock split back in Oct ‘13, the stock has been climbing relentlessly, gaining 4 times from its post-split low. Though it is one of the few charts in a bull market, valuations are astronomically high.

DLF Ltd

The stock closed at a 52 week high of 241.30 back in Jun ‘14, but lost more than 50% due to strictures from the Competition Commission. The Vadra Haryana land deal is turning out to be another thorn in its flesh. Despite a rally from its low, the stock is back in a long-term bear market.

DS Kulkarni

The stock price closed at a 52 week high of 103.25 in Nov ‘14, more than doubling within a year. After a brief correction from its top, the stock is trying to resume its up move, and is clearly in a bull market. However, valuation is stretched and fundamentals are weak.

Ganesh Housing

The stock price closed at a 52 week high of 211.40 back in Jul ‘14, gaining more than 3 times from its 52 week low. Its subsequent correction is still ongoing. The stock price has dropped below its three EMAs and may soon be back in a bear market.

HCC

The stock gained almost 4 times from its 52 week low by closing at 48.45 in Jul ‘14. It has been correcting since then, and is struggling to stay in a bull market. A fall below 27 will mean a continuation of the bearish pattern of lower tops and lower bottoms.

Omaxe

The stock briefly entered bull territory and touched a 52 week high of 151.05 in Jun ‘14, but soon dropped below all three EMAs into a long-term bear market.

Purvankara

The stock price more than doubled from its 52 week low by touching a high of 123.95 in Jul ‘14. It has been in a corrective mode since then, and has dropped into a bear market.

Unitech

The stock touched a 52 week high of 37.80 in Jun ‘14, gaining more than 3 times from its 52 week low. It has been all downhill since then, as the stock slides deeper into a bear market.

Vijay Shanti Builders

The stock chart pattern isn’t much different from most of the others from the sector. A gain of about 70% from its 52 week low, and a brief entry into bull territory was followed by a steady slide back into a long-term bear market.

Related Post

Chart Patterns of 10 Realty Sector stocks (an update)

Q&A about falling petrol and diesel prices, and its effect on investor psychology

Q. Rapidly falling crude oil price should reduce India’s current account deficit – which should be good for the economy and therefore, the stock market. Then why did the market correct sharply?

A. Because FIIs suddenly turned heavy sellers of equity.

Q. Was it routine year-end profit booking, or is there more to it than meets the eye?

A. Year-end profit booking was only a part of the story. FIIs are worried about oil price falling even further, which will hurt the economies of oil exporting countries like Russia and Venezuela. Also, economic slowdown in China and Europe means lower consumption of oil, which in turn will affect the global economy.

Q. Isn’t Saudi Arabia a big oil exporter? How will they survive at lower oil prices?

A. Saudi Arabia’s earnings from oil are far in excess of their expenses. They have built up huge savings that will allow them to survive in a low oil price regime. Also, by not reducing their output, they are helping to keep oil prices low in a bid to close down costlier shale oil extraction in the USA, which partly caused the supply glut in the oil market.

Q. So, what should small investors be doing in this scenario?

A. From anecdotal evidence – confirmed by a local petrol station owner – sale of petrol was actually higher when price was above Rs 80/litre. Sales have gone down since petrol price dropped below Rs 70/litre.

Q. Isn’t that counter-intuitive? Shouldn’t consumers be buying more when prices are lower?

A. That psychology works well during a day-long sale at a department store or an online store because lower prices are available only for a limited time period.

Q. Does that mean consumers are going slow on their buying because they expect petrol and diesel prices to fall even further?

A. Exactly! That is also what happens during stock market corrections. Investors who rush into buying when the market is at a lifetime high panic and sell when the market corrects sharply – and hold off on re-entering expecting the market to fall even lower. Then one day (like today), the market suddenly jumps up, and small investors blame their luck.

Q. Is that one of the reasons why small investors don’t make much money in the stock market?

A. Definitely. The behavioural term for it is ‘loss aversion’. Behavioural scientists have established through their research that a loss of profit is psychologically half as painful to investors than an actual loss. That is a major reason why small investors tend to hold on to their loss-making stocks – because they think by not selling, they are not incurring a loss.

Q. Is there a way out of this behavioural cycle?

A. Of course. Learning to manage ‘loss aversion’ comes with experience. It also helps if investors learn the basics of technical analysis that will help them to identify the underlying trend of the market. In a bull market, one makes money by ‘buying the dips’. In a bear market, one makes money by ‘selling the rises’.

Nifty chart: a mid-week update (Dec 17 ‘14)

The sharp and continuous fall in the price of crude oil – though beneficial for India – has spooked FIIs big time. Plummeting oil demand is a sign of slow economic growth, particularly in Europe.

Eventually, it will hit shale oil production in USA, as extraction costs will become unremunerative. Some countries that are dependent on oil revenues – like Russia, Venezuela, Nigeria – can slip into recession.

During the first three trading days of this week, FIIs net sold a huge Rs 3300 Crores worth of equities. DII buying worth Rs 2100 Crores could not stop the slide in Nifty.

The WPI number was 0% – which means the wholesale price basket a year ago in the same month was at the same level. The stage is being set for an interest rate cut by RBI sooner than later. That should bring cheer to a market currently devoid of positive triggers.

Nifty has dropped below its 20 day and 50 day EMAs into the support zone between 7840 and 8180 (corresponding to its Jul ‘14 and Sep ‘14 tops). Can the index fall more?

Yes, if the FIIs continue with their heavy selling. However, technically, 7840 should provide strong support because the blue ‘Up trend line 2’ (drawn through Aug ‘13 and Feb ‘14 lows) is currently just above 7840.

In case 7840 gets breached, the next support will be at 7600 – corresponding to the May ‘14 top and the current level of the 200 day EMA.

Daily technical indicators are looking oversold.  MACD has fallen rapidly below its signal line into negative territory. ROC is falling below its 10 day MA and is on the verge of entering its oversold zone. Both RSI and Slow stochastic have dropped inside their respective oversold zones.

A technical bounce can be expected at any time. Whether it causes an immediate resumption of the up move remains to be seen.

As long as the 200 day EMA keeps rising and Nifty trades above it, there should be no fears of a reversal of the bull market. The correction is providing an adding opportunity.

Gold and Silver charts: an update

Gold Chart Pattern

In the previous post on the daily bar chart pattern of gold, daily technical indicators were looking bullish, but the support/resistance zone between 1240-1260 was expected to come into play if the bear market rally continued.

A sharp surge above the 20 day and 50 day EMAs – backed by strong volumes – faced resistance from the 1240 level. Gold’s price has dropped below its 20 day and 50 day EMAs once again. The bearish pattern of ‘lower tops and lower bottoms’ remains intact.

Daily technical indicators are turning bearish. MACD has started falling towards its rising signal line in positive zone. RSI has slipped below its 50% level. Slow stochastic has dropped from its overbought zone. Gold’s price may fall towards 1000.

On longer term weekly chart (not shown), gold’s price briefly crossed above its falling 20 week EMA, but is now trading below its three weekly EMAs in a long-term bear market. Technical indicators corrected oversold conditions, but are looking bearish. The down move may gather strength.

Silver Chart Pattern

The bear market rally on the daily bar chart pattern of silver crossed above both 20 day and 50 day EMAs, but failed to test the support/resistance zone between 18-19 as its upward momentum stalled short of 17.50. The bearish pattern of ‘lower tops and lower bottoms’ continues to rule the chart.

Daily technical indicators are turning bearish. MACD is barely positive, and is falling towards its rising signal line. RSI has moved sharply below its 50% level. Slow stochastic looks ready to drop from its overbought zone.

On longer term weekly chart (not shown), silver’s price faced resistance from its falling 20 week EMA, and is trading below its three weekly EMAs in a long-term bear market. Technical indicators corrected oversold conditions, but remain in bearish zones. Silver’s price may drop below 14.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 12, ‘14

S&P 500 Index Chart

The following concluding remark was made in last week’s analysis of the daily bar chart pattern of S&P 500: “Caution is advised - the ‘broadening top’ can lead to a sharp correction.” Readers were also cautioned in two previous posts about the possibility of a sharp correction.

The ‘broadening top’ pattern formation started from Aug ‘14. The pattern got confirmed in Oct ‘14 when the index dropped to a lower bottom, but a 260 points rally touched a new lifetime high. Reversal patterns should always be respected – more so if they appear at lifetime highs.

Has the bull market ended? A reversal pattern that took more than 4 months to form is hinting at the possibility. However, a technical confirmation requires the index to fall below its Oct ‘14 low of 1820, and the 50 day EMA to cross below the 200 day EMA.

Daily technical indicators are looking bearish. MACD is still in positive zone, but is falling sharply below its signal line. RSI has dropped below its 50% level. Slow stochastic is inside its oversold zone. Strong volumes on down-days indicate that bears are not done yet.

On longer term weekly chart (not shown), the index dropped to its 20 week EMA on 2-months high volumes, but is trading well above its 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing strong downward momentum. More correction is likely.

FTSE 100 Index Chart

 

Bearish reversal patterns visible on MACD and Slow stochastic in last week’s analysis of the daily bar chart pattern of FTSE 100 led to the following warning: “The index may not be able to stay above its 200 day EMA much longer.”

However, the severity of the fall of 440 points (6.5%) during the week was a bit of a surprise. The index is trading well below its three EMAs in bear territory. Note that the ‘golden cross’ of the 50 day EMA above the 200 day EMA that confirms a return to a bull market failed to materialise.

A fall below the Oct ‘14 low of 6073 will form a bearish pattern of ‘lower tops and lower bottoms’. That hasn’t happened yet.

Daily technical indicators are looking a bit oversold. MACD is below its signal line and falling deeper into negative territory. RSI and Slow stochastic have entered their respective oversold zones. An upward bounce may follow, which bears may avail as a selling opportunity.

On longer term weekly chart (not shown), the index collapsed below its entangled 20 week and 50 week EMAs, but managed to close above its 200 week EMA. Weekly technical indicators are looking bearish, and showing strong downward momentum. A strong bear attack is threatening the long-term bull market.

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 12, 2014

FIIs turned heavy sellers of equity during the last 2 days of the week. DII’s turned buyers, but could not keep pace with FII selling. Both Sensex and Nifty indices suffered sharp falls that wiped out more than 50% of the gains made from their respective Oct ‘14 lows.

The IIP number for Oct ‘14 unexpectedly dropped to –4.2%, its lowest in 3 years. In Sep ‘14, IIP was at 2.5%, while in Oct ‘13 it was –1.2%. A sharp decline in manufacturing output – the lowest in nearly 6 years – was the main culprit.

Good news came in the form of lower CPI inflation of 4.4% in Nov ‘14 – compared to 5.5% in Oct ‘14. It was the fourth straight monthly fall. Coupled with a low IIP, the clamour for an interest rate cut will increase.

BSE Sensex index chart

 

Sensex dropped below its 50 day EMA but is seeking support from the 27350 level (which was the previous top in Sep ‘14). The next support is at 26300, which corresponds to its Jul ‘14 top. The index has so far corrected 1500 points (5.2%) from its Nov ‘14 top. Can it correct even more?

Three of the four technical indicators – ROC, RSI, Slow stochastic – have entered their respective oversold zones. MACD is about to enter negative territory. The downward momentum of all four indicators appear strong.

Some more correction seems likely, but the index may not breach the 26300 level. Why? The 61.8% Fibonacci retracement level of the entire rise from the Oct ‘14 low of 25911 to the Nov ‘14 top of 28822 is at about 27000. The index may find support in the zone between 26300-27000.

If you were waiting to enter after a correction, that opportunity has arrived.

NSE Nifty 50 index chart

Nifty lost more than 300 points for the week, and is close to the support level of 8180 (corresponding to its Sep ‘14 top). The next stronger support is at 7840 – its Jul ‘14 top. Up trend line 2 (in dark blue) is just below 7840.

Volumes were lower for the week despite the sharp fall in the index. The 20 week EMA (in light blue) is at 8070. It has provided support during the past 9 months, and may do so again.

Weekly technical indicators are correcting overbought conditions, but remain in bullish zones. MACD has crossed below its signal line inside its overbought zone. ROC has crossed below its 10 week MA in positive territory. RSI has dropped from its overbought zone. Slow stochastic is about to do the same.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices faced sharp bull market corrections during the week. Both indices are near support levels – so a big crash can be ruled out for now. Some stocks have corrected 10-20% from their recent tops – making them good SIPping targets.

Technical updates – Gayatri Projects and IRB Infrastructure

Stocks from the construction sector have emerged from long bear phases in anticipation of growth in the economy that may lead to revival of stalled projects and awarding of new contracts. The ground reality hasn’t quite lived up to the expectations – though there are some signs of increasing construction activity.

Gayatri Projects and IRB Infrastructure are two companies from the construction sector that have similar looking chart patterns (below), but looks can deceive. While the former has gained a considerable 270% from its bear market low to its 2 years high, the latter has gained an even more impressive 365%.

On the valuations front, Gayatri has a debt/equity ratio of almost 2, and its financial expenses are three times more than its net profit. IRB’s debt/equity ratio is a more manageable 1.06 and its financial expenses are marginally less than its net profit. No wonder Gayatri is trading at a P/E of 9.4 while IRB is trading at a three times higher P/E of 29.3.

Does that make one a better buy than the other? Or, should both stocks be avoided? You tell me!

Gayatri Projects

The stock price of Gayatri Project went through a long ‘double bottom’ bear market reversal pattern formation that took 7 months to complete. The subsequent rally was sharp, and was supported by strong volumes that launched the stock into a bull market.

Such sharp rallies are difficult to sustain. All four technical indicators reached extremely overbought conditions that led to a correction and then a small ‘double top’ pattern with a higher second top. But none of the technical indicators touched a higher top. The combined negative divergences was followed by a sharp correction that bounced back before testing support from the rising 200 day EMA.

For the past 4 months, the stock price has been consolidation sideways within a triangle pattern from which the break out can occur in either direction. Technical indicators are in bearish zones, but the 200 day EMA is still rising and the stock is trading above it in a bull market.

IRB Infrastructure

The stock price of IRB Infra dropped to a bear market low of 54 on a sharp volume surge, which was a sign of selling exhaustion. A ‘V’ shaped recovery was followed by a drop to a higher bottom – forming a small ‘double bottom’ pattern that preceded a gradually rally.

The rally faced resistance from the 200 day EMA and dropped to a higher bottom that indicated the start of a bull phase. The next leg of the rally was sharp and accompanied by strong volumes. But overbought conditions and negative divergences (marked by blue arrows) in three of the four technical indicators led to a sideways consolidation within a ‘rectangle’ pattern.

The consolidation within the ‘rectangle’ has consumed more than 5 months. Since rectangles are usually continuation patterns, the eventual break out is likely to be upwards. But rectangles are unreliable patterns, so one needs to wait for the break out to initiate any buy/sell action. Technical indicators are in bearish zones. The consolidation is likely to continue for a while longer.

Nifty chart: a mid-week update (Dec 10 ‘14)

Current account deficit climbed up during the quarter ended on Sep ‘14, but that wasn’t the real cause of the ongoing correction in Nifty. Slow down in the Chinese economy and political uncertainty in Greece led to a bout of profit booking in global markets.

The insurance bill – for raising FDI limit in the sector from 26% to 49% - has been tabled in Rajya Sabha, where BJP is in a minority. With Congress dropping its earlier opposition, the bill may finally be passed in both houses.

The unnecessary hold-up in Parliament proceedings due to intemperate remarks made outside the house by a novice BJP minister and a TMC MP have now been amicably concluded. More important activities for nation building may hopefully proceed without further interruptions.

India Inc. is getting impatient with the slow progress of the government on the reforms front, and RBI’s insistence on waiting for a more appropriate opportunity to lower interest rates. However, international fund managers have appreciated RBI’s stance.

After almost a one-way rise from the Oct 17 ‘14 low of 7724 to the Dec 4 ‘14 top of 8627 – a gain of 903 points (11.7%) in 6 weeks – Nifty formed a small ‘double-top’ reversal pattern that has so far led to a correction of 310 points from the top.

That amounts to a 34.3% retracement of the rally from the Oct 17 ‘14 low - which is slightly less than the Fibonacci retracement level of 38.2%. Does that mean that the correction hasn’t ended?

Daily technical indicators are looking bearish, but not oversold. MACD is falling below its signal line in positive territory. ROC has dropped below its 10 day MA into negative zone. RSI has slipped below its 50% level. Slow stochastic has just entered its oversold zone.

The index has dropped below its 20 day EMA, and is trying to find support from its rising 50 day EMA. If the support does not hold, the Sep ‘14 top of 8180 (marked by dotted horizontal line) should provide stronger support.

Expect the index to consolidate a bit around current levels before resuming its up move. The correction has neutralised overbought conditions and improved the technical ‘health’ of Nifty’s chart.

The rising 200 day EMA, and a bullish index chart pattern of ‘higher tops and higher bottoms’ are indications that the long-term bull market is under no threat.

WTI and Brent Crude Oil charts: fall to 5 year lows

WTI Crude chart

In its previous attempt at a rally two weeks back, the daily bar chart pattern of WTI Crude oil had tested resistance from its falling 20 day EMA and resumed its downward journey. On Dec 8 ‘14, oil’s price touched a 5 year low of 63 -  and may fall even lower.

Daily technical indicators are in their respective oversold zones. MACD is diving deeper, but RSI and Slow stochastic are showing positive divergences by touching higher bottoms while oil’s price fell lower.

Oil’s price is trading well below its 20 day EMA. A bounce up is a possibility. But bears are in no mood to relent. Every rise is being used to sell.

On longer term weekly chart (not shown), oil’s price has closed below its 200 week EMA for 14 straight weeks. Weekly technical indicators are falling deeper inside their respective oversold zones. The 50 week EMA has crossed below the 200 week EMA – the ‘death cross’ technically confirming a long-term bear market.

Brent Crude chart

 

The daily bar chart pattern of Brent Crude oil continued its waterfall-like descent, touching a 5 year low of 66 on Dec 8 ‘14. The recent OPEC meeting ended without an agreement about reducing oil production in a market flooded with oversupply and shrinking demand. Bears pounced on the opportunity and pushed prices lower.

Daily technical indicators are in their respective oversold zones. While MACD is still falling, RSI and Slow stochastic are showing positive divergences by not moving lower with oil’s price. A rally may ensue – but is likely to encounter bear selling again.

On longer term weekly chart (not shown), oil’s price has closed below its 200 week EMA for 17 weeks in a row. Weekly technical indicators have fallen deeper inside their respective oversold zones. The ‘death cross’ of the 50 week EMA below the 200 week EMA had technically confirmed a long-term bear market.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 05, ‘14

S&P 500 Index Chart

The daily bar chart pattern of S&P 500 dropped briefly below the 2050 level on Mon. Dec 1 ‘14, but rose to touch new intraday (2079) and closing (2075) highs on Fri. Dec 5 ‘14. However, the index failed to move above the upper resistance line of the ‘broadening top’ pattern (re-drawn last week).

Monday’s down-day volumes were the highest during the week. The rally during the rest of the week was accompanied by sliding volumes. The index is trading above its three rising EMAs in a long-term bull market, but the bear threat will remain as long as the index trades within the ‘broadening top’ pattern.

Daily technical indicators are still looking overbought, and are showing negative divergences by failing to touch new highs with the index. MACD is sliding below its signal line inside overbought territory. RSI is moving sideways – just below its overbought zone. Slow stochastic has re-entered its overbought zone after dropping below it.

On longer term weekly chart (not shown), the index touched new intra-week and closing highs, and is trading well above its three weekly EMAs in a long-term bull market. Weekly technical indicators are looking overbought, and showing negative divergences by failing to touch new highs with the index. Caution is advised - the ‘broadening top’ can lead to a sharp correction.

FTSE 100 Index Chart

The daily bar chart pattern of FTSE 100 underwent a second week of sideways consolidation but managed to stay above its 200 day EMA in bull territory. The index closed above the 6700 level and gained a modest 20 points for the week.

The 20 day EMA has crossed above the 200 day EMA. The 50 day EMA is gradually rising, but is yet to cross above the 200 day EMA. So, the technical confirmation of a return to a bull market is still awaited.

Daily technical indicators have corrected overbought conditions, but remain in bullish zones. Note the bearish ‘rounding top’ patterns formed by the MACD signal line and Slow stochastic %D line. The index may not be able to stay above its 200 day EMA much longer.

On longer term weekly chart (not shown), the index slipped below its entangled 20 week and 50 week EMAs, but managed to close above its three weekly EMAs. Weekly technical indicators are looking bullish, but their upward momentum is slowing down. MACD is still in negative zone. RSI is moving sideways above its 50% level. Slow stochastic has reached the edge of its overbought zone. The index overcame a strong bear attack to return to a long-term bull market, but continues to face technical headwinds in the near term.

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 05, 2014

Sensex and Nifty indices took a much-needed breather after rallying for six straight weeks. FIIs were net buyers of equity worth Rs 850 Crores during the week, but were net sellers on Monday and Friday. DIIs were net buyers on Friday, but were net sellers of equity worth Rs 1170 Crores during the week.

As expected by most market analysts, the RBI Governor left interest rates unchanged – but kept the door open for a rate cut early next year if inflation continues its downward trajectory. Some banks have reduced their longer term fixed deposit rates, as there seems to be adequate liquidity in the banking system.

A 5% equity disinvestment by the government in SAIL got oversubscribed by 2 times. More disinvestments are in the pipeline – including 10% in Coal India and 5% in ONGC – in the current fiscal year ending Mar ‘15. The divestments, and sliding oil price should help in considerably reducing India’s twin deficits.

BSE Sensex index chart

 

Sensex consolidated sideways and closed 0.82% lower for the week. Negative divergences in all four technical indicators – observed in last week’s analysis – had provided advance warning of a possible correction or consolidation. Some investors were disappointed by the lack of an interest rate cut by the RBI, and resorted to profit booking.

Daily technical indicators have corrected overbought conditions, and are still in bullish zones. But their downward momentum is hinting at a continuation of the consolidation. The index has formed a small ‘double top’ pattern that can lead to a test of support from (or a drop below) the rising 20 day EMA.

Sensex is trading above all three EMAs in a long-term bull market. Consolidations and corrections improve the technical ‘health’ of the market and enable adding or entry opportunities. Anticipating corrections and benefitting from them are part of the learning process of becoming a better investor.

NSE Nifty 50 index chart

 

Nifty closed 50 points lower for the week and formed a small ‘reversal week’ pattern (higher high, lower close) that stalled the 6 weeks long rally. The index is trading above its two weekly EMAs and the blue up trend line in a long-term bull market.

All four technical indicators are inside their respective overbought zones. However, three of them – MACD, RSI, Slow stochastic – are either moving sideways or starting to slide down. ROC is the only one showing increasing upward momentum.

Volumes were strong on a ‘down’ week, which means some more selling or profit booking may be on the cards. That may improve technical conditions for the sustainability of the bull rally.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices took a pause last week after soaring to touch new lifetime highs. No need to be afraid of a big crash. Take part profits, or set a trailing stop-loss – if that will help you to sleep better. Riding out corrections in bull markets will help to build wealth for the long-term.

New to investing? Try a balanced fund

The stock market is hitting new highs on a regular basis. Many stocks are touching their 52 week or lifetime highs. New and astonishingly higher targets for Sensex and Nifty are being floated by market experts in a mad scramble to outdo each other. A frenzy of bullishness is being built up – but for whose benefit?

If you are a new or first-time investor in the market, it won’t be surprising if you are getting caught up in the frenzy. With stories of fantastic multi-bagger returns from unknown stocks doing the rounds, getting the ‘left behind’ feeling is quite natural. Who doesn’t want to get on the bull bandwagon and make a ton of money in quick time?!

Jumping in feet first into the market is precisely what stock brokers and market experts want you to do. Brokers make money on the number of transactions they do. The more the merrier. Market experts have bought at much lower levels. They want to dump their holdings on to unsuspecting novices at higher prices.

What should a small investor do? In a sensible article published in Business Standard, new investors have been advised to take a look at balanced funds. The advice is sound. The growth option is often preferred by young investors. The dividend option is safer – as it acts like partial profit booking when NAVs become too high.

Related post

Should you invest in Balanced Funds?

Gold and Silver charts: bear market rallies continue

Gold Chart Pattern

In the previous post on the daily bar chart pattern of gold, daily technical indicators were turning bullish. The rally from the Nov 7 ‘14 low of 1130 was expected to continue – and so it has. After facing resistance from its falling 50 day EMA, gold’s price started sliding and dropped sharply below its 20 day EMA, backed by strong volumes, on Nov 28 ‘14.

A big ‘reversal day’ pattern (lower low, higher close) on huge volume support propelled gold’s price above its 20 day and 50 day EMAs to an intra-day high of 1220 on Dec 1. Note that gold is trading well below its falling 200 day EMA in a bear market. The bearish pattern of ‘lower tops and lower bottoms’ is intact. Can the rally continue a little longer?

Daily technical indicators are still looking bullish. MACD is negative, but is rising above its signal line. RSI has moved above its 50% level after a sharp drop below it. Slow stochastic has dropped from its overbought zone, but its downward momentum has stalled. As mentioned in the previous post, the support/resistance zone between 1240-1260 may come into play if the rally continues.

On longer term weekly chart (not shown), gold’s price is trading below its three weekly EMAs in a long-term bear market. Technical indicators have corrected oversold conditions, but remain in bearish zones. The next long-term support is at 1000; that is where gold’s price may find a bottom.

Silver Chart Pattern

The daily bar chart pattern of silver dropped to a new intra-day low of 14.20 on Dec 1 ‘14, but formed a ‘reversal day’ pattern (lower low, higher close) backed by strong volumes. The support at 14 was tested but not breached.

However, silver’s price failed to get past the strong resistance from its falling 50 day EMA, and is trading well below its falling 200 day EMA in a long-term bear market. Expect the bears to get active at any time.

Technical indicators are looking bullish. MACD is rising above its signal line in negative zone. RSI managed to climb above its 50% level after a sharp fall below it. Slow stochastic has dropped from its overbought zone, but is above its 50% level.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMAs in a long-term bear market. Technical indicators have corrected oversold conditions, but remain in bearish zones.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 28, ‘14

S&P 500 Index Chart

The daily bar chart pattern of S&P 500 touched a new intra-day high of 2076 on Fri. Nov 28, but formed a ‘reversal day’ pattern (higher high, lower close). Thanksgiving week was characterised by sliding volumes during a sideways consolidation with a slight upward bias.

Based on the trading pattern of the previous 5 days, the bearish ‘broadening top’ pattern has been slightly redrawn because it appears to make more sense technically. All three EMAs are rising and the index is trading above them in a long-term bull market.

All three technical indicators are inside their respective overbought zones, but showing negative divergences by failing to touch new highs with the index. As mentioned in last week’s post, the index may be setting itself up for a sharp correction.

On longer term weekly chart (not shown), the index touched new intra-week and closing highs, and is trading well above its three weekly EMAs in a long-term bull market. Weekly technical indicators are looking overbought, and showing negative divergences by failing to touch new highs with the index. Time to take some profits home.

FTSE 100 Index Chart

The daily bar chart pattern of FTSE 100 underwent a week of sideways consolidation with a slight downward bias after a month-long rally. On Fri. Nov 28, the index tested support from its 200 day EMA, but bounced up to close above the 6700 level.

The index spent the entire week above the 6700 level and its 200 day EMA in bull territory, but technically, a return to a bull market has not been confirmed yet. Why? Because the ‘golden cross’ of the 50 day EMA above the 200 day EMA is still awaited.

Daily technical indicators have started correcting overbought conditions, and two of them – MACD, Slow stochastic – have formed bearish ‘rounding top’ patterns inside their respective overbought zones. At the time of writing this post, the index has again dropped to test support from its 200 day EMA.

On longer term weekly chart (not shown), the index tested support from its entangled 20 week and 50 week EMAs, and managed to close above its three weekly EMAs. Weekly technical indicators are still looking bullish, but their upward momentum is slowing down. MACD has crossed above its signal line in negative zone. RSI is falling back towards its 50% level. Slow stochastic is rising towards its overbought zone. The index has overcome a strong bear attack and has returned to a long-term bull market, but is facing some technical headwinds in the near term.