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Friday, January 31, 2014

Getting started in stocks

Most small investors jump into the stock market without adequate knowledge or preparation. No wonder they end up losing money. I know because that is what I did when I first started out.

There was no Internet in those days, and no PCs or tablets or mobile phones. Charts had to be drawn manually. Nowadays, with all those technological marvels at hand plus several business TV channels spewing out stock information by the truckload, investor psychology hasn’t changed much at all.

If you are planning to enter the stock market, or have already entered and lost money, visit investopedia.com – one of the best websites about stock investing. Here is one of their recent articles about “Getting started in stocks”. Please go through it carefully, and re-read it. It may save you a lot of money.

http://www.investopedia.com/articles/basics/07/getting-started-stocks.asp?

Wednesday, January 29, 2014

Investment strategies in an election year – a guest post

Once again, general elections are upon us – an expensive exercise where Indian citizens get to elect their representatives to Parliament. India is a democracy – which is both good and bad. Good because everyone has a vote; bad because voters are forced to choose between candidates who are mainly in the fray for the money.

Opinion polls are pointing to a BJP victory. Such an outcome is likely to be good for business and economic growth – as per promises being made by the party’s PM nominee. How he will untangle the knots of bureaucracy and vested interests remains to be seen. A fractured mandate – which is a distinct possibility – could be disastrous for the stock market.

In this month’s guest post, Nishit looks at possible election outcomes and discusses investment strategies to navigate through post-election scenarios. Do you have an opinion on Nishit’s strategies? Feel free to express it.

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The National Elections are round the corner. So how does one play the elections? Elections tend to generate extreme reactions from the stock market. The Congress won in 2004 with Left support and we had 2 lower circuits. The Congress won in 2009 without Left support and we had a historic upper freeze in the market.

It would be interesting to see what happened in the months after that. In May 2004, the market hit a down freeze. The low point of May 2004 was never again breached by the market. This marked an important bottom for the market.

In May 2009, the market hit an upper circuit after the Congress victory. The market did give a buying opportunity in July 2009 but thereafter never dropped to those levels.

Let us see how the scenarios can play out. There are 3 possibilities after the election results.

  1. BJP-led coalition wins
  2. Congress-led collation wins
  3. Third Front government comes to power

If there is a clear mandate for either a BJP or a Congress led government, then expect the market to rise. If a Third Front comes to power, expect the market to have a free fall.

We have seen in 2004 and 2009 that the market always gives a chance to buy. Right now the market has already touched 6300 and there can be a possible 10% up side from here.

What one can do is start accumulating cash in Liquid Funds and keep the cash ready for any eventual fall. Liquid funds give a return of 8-9% easily per annum.

Also, one can keep buying quality stocks. These stocks eventually give returns and can always be averaged out at lower levels.

One thing is very clear - one needs to have some portion of cash ready for buying after the elections. I would say at least 20% cash to capitalise on post election scenario.

Another alternative - if one has already bought stocks and has lower cash levels - is to hedge using Put Options. Options are a hedging mechanism and if used properly can insulate one’s portfolio against sudden falls in the market.

So, there are 3 options one could possibly take:

  1. 80% stocks and 20% cash to buy on dips post elections
  2. 90% stocks and hedging using Puts to hedge against any falls in the market post elections; the money from the Puts may come in handy
  3. 70% stocks and using a mix of Puts and Calls to hedge one’s portfolio against election swings

It is essential to keep some portion in cash ready for buying after the elections. The opinion polls are pointing towards the BJP but polls can be unreliable. Opinion polls can point to a general trend but not the exact outcome. For all one knows, we may end up with a hung Parliament and a period of uncertainty.

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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, January 28, 2014

WTI and Brent Crude Oil charts: an update

WTI Crude chart

WTI Crude_Jan2714

Two weeks back, the 6 months daily bar chart pattern of WTI Crude oil had broken down from a bearish ‘rising wedge’ pattern below all three daily EMAs, and seeking support from its longer-term 200 week EMA (not shown on chart).

Daily technical indicators were looking oversold, which led to the following comments: “Bulls may attempt another rally. Bears are likely to use it as a selling opportunity.” Bulls did attempt a rally – but resistance from the falling 200 day EMA proved too strong.

Daily technical indicators are turning bearish. MACD is above its signal line, but is turning down after failing to enter positive territory. RSI had a brief foray above its 50% level, but is ready to drop below it. Slow stochastic entered its overbought zone, but its upward momentum has stalled.

Bulls may seek solace from the higher volumes seen on up-days during the past two weeks. Bears will try to tighten their grip and push oil prices lower.

Brent Crude chart

Brent Crude_Jan2714

The 6 months daily bar chart pattern of Brent Crude oil briefly dropped below the 106 level, recovered quickly on good volume support but could not rise beyond its 20 day EMA.

Bears pressed sales and oil’s price has dropped below all three EMAs once again. Note that the 50 day EMA has crossed below the 200 day EMA – the ‘death cross’ that technically signals a bear market.

Daily technical indicators are looking bearish. MACD is about to cross below its signal line in negative territory. RSI failed to move above its 50% level, and has started falling. Slow stochastic is turning down after crossing its 50% level.

On longer-term weekly charts (not shown), WTI and Brent Crude oil are trading above their respective 200 week EMAs. That means the longer-term bull markets are still intact.

Monday, January 27, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 24, ‘14

S&P 500 Index Chart

$SPX-001-001

In last week’s post, the daily bar chart pattern of S&P 500 seemed to be in complete control of bulls as it touched a new lifetime high of 1851. However, there were technically bearish signs that warned of a serious correction – negative divergences on the technical indicators, a wide gap between the 50 day and 200 day EMAs and the formation of a ‘broadening top’ pattern.

The concluding comments in the post are worth repeating: “On longer-term weekly chart (not shown), the index looks way overbought. Take some profits off the table. Live to fight another day.” If you did book profits, don’t be in a hurry to re-enter. The index is likely to correct some more.

Daily technical indicators have turned bearish. MACD is still in positive zone, but is falling rapidly below its signal line. RSI and Slow stochastic have both dropped sharply below their respective 50% levels.

Note that the 200 day EMA is rising and the index is trading above it. That means the long-term bull market is under no threat yet. However, the spike in volumes as the index plunged below its 50 day EMA on Friday means that bears aren’t quite done yet.

FTSE 100 Index Chart

FTSE_Jan2414

There were some worrying technical signs for bulls in last week’s analysis of the daily bar chart pattern of FTSE 100. MACD and Slow stochastic were looking overbought and RSI showed negative divergence.

Some consolidation was expected, but not a sharp correction. Looks like bears took a leaf out of the book of S&P 500 bears and decided to take some profits home. The index dropped below its 50 day EMA like a stone. At the time of writing this post, FTSE has fallen a further 2% - below the 6600 level to test its rising 200 day EMA.

Daily technical indicators have begun to turn bearish. MACD is positive, but is falling below its signal line. RSI has dropped below its 50% level. Slow stochastic has fallen sharply from its overbought zone to its 50% level.

There is no immediate threat to the long-term bull market. The profit booking is probably due to worries about slowing growth in emerging markets. Wait for the correction to play out before re-entering.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are facing corrections in long-term bull markets. The dips are providing adding opportunities. But waiting for the corrections to play out may be prudent – just in case they turn into a bear phases.

Saturday, January 25, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 24, 2014

For the second week in a row, there was a strong sell-off on the last day of the week. Both Sensex and Nifty indices withstood the onslaught by bears and managed to stay in bull territories (i.e. above their daily and weekly EMAs).

Q3 results declared so far have been mostly as per expectations. Large-cap stocks have fared better than mid-cap and small-cap stocks. Margin pressure is visible across the board. All eyes seem to be on the RBI policy announcement on Jan 28. A cut in interest rates, though unlikely, may propel both indices higher.

The sideways rectangular consolidations (marked by blue dotted lines on charts below) of both indices are now in their 4th month. The longer the consolidation, the stronger the eventual break out. Though an upward break out is the likely outcome, it may be prudent to await the break out because rectangles can sometimes form reversal patterns.

BSE Sensex index chart

SENSEX_Jan2414

The upper boundary of the rectangle pattern on the Sensex chart - at about 21350 – has been strongly defended by bears. Despite several recent tests, bulls have failed to overcome the resistance. Bears may try to get the upper hand in the near term.

Daily technical indicators are in bullish zones, but exhibiting weakness in upward momentum. MACD is positive, but moving down towards its rising signal line. ROC is also positive, but looks ready to cross below its rising 10 day MA. RSI has turned down from the edge of its overbought zone. Slow stochastic is about to drop down from its overbought zone.

Any dip can be a good adding opportunity. The long-term bull market is intact.

NSE Nifty 50 index chart

Nifty_Jan2414

The weekly bar chart pattern of Nifty is consolidating sideways within a rectangle pattern. However, it is trading above both weekly EMAs (which are rising) and the blue up trend line – indicating a long-term bull market.

For the second straight week, the index closed higher. But the weekly bar has formed a ‘shooting star’ pattern (in candlestick terminology), which can have bearish implications. Also, weekly volumes indicate that bears may be gaining the upper hand.

Weekly technical indicators are in bullish zones, but showing weakness. MACD is positive, but moving sideways and becoming merged with its signal line. ROC has crossed above its 10 week MA in positive territory, but its upward momentum is slowing down. RSI has fallen to its 50% level. Slow stochastic is falling towards its 50% level.

The sideways consolidation may continue some more.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are consolidating within ‘rectangle’ patterns. Both indices are in long-term bull markets, so the eventual break outs from the rectangles are expected to be upwards. This is a good opportunity to gradually add fundamentally strong stocks to your portfolios. If you are unable to choose the right stocks, invest in an established large-cap fund. 

Wednesday, January 22, 2014

Nifty chart: a mid-week update (Jan 22, ‘14)

Nifty continues to consolidate within a rectangle pattern (mentioned in the previous update) – with its lower boundary at 5970 and its upper boundary at 6350. The 6350 level has provided strong resistance – except for a single day’s breach on Dec 9 ‘13.

What is the index likely to do next? Drop to the lower edge of the rectangle – like it did in Nov ‘13? Fall down further? Continue to consolidate within the rectangle? Break out upwards? Lots of possibilities – so let me try and analyse what the Nifty chart is suggesting.

As mentioned earlier, a ‘rectangle’ is usually a continuation pattern. That means the previous trend before entering the rectangle should continue after the consolidation is over. That means an upward break out is the most likely outcome.

Nifty_Jan2214

However (and there is always a ‘however’ in technical analysis because it is not a science), rectangles tend to be unreliable. That means a downward break from the rectangle can’t be ruled out completely – even though the probability of such an occurrence may be low.

Daily technical indicators are looking bullish. MACD has started rising above its signal line in positive territory. ROC is also rising above its 10 day MA in positive zone. RSI is moving up towards its overbought zone. Slow stochastic has entered its overbought zone. Upward momentum of the index is increasing.

All three EMAs are also rising in tandem, and Nifty is trading above them. Technically, Nifty is in a bull market that is showing increasing upward momentum within a rectangular consolidation zone. An upward break out appears imminent.

Keep an eye on trading volumes, which have been a bit subdued of late. An upward break out above 6350 without a significant increase in volumes may turn out to be a ‘false’ one.

What if the upward break out does take place with strong volumes? Would that be a ‘buy’ signal? Yes, if you are trading the index. If you are a small investor with a portfolio of mid-cap and small-cap stocks, index movements should be less of a concern. Look at charts of the individual stocks instead.

Tuesday, January 21, 2014

Gold and Silver charts: an update

Gold Chart Pattern

Gold_Jan1714

The one year bar chart pattern of gold appears to have formed a ‘double bottom’ reversal pattern around 1180. However, lower volumes during the second bottom in Dec ‘13 and a subsequent weak rally on sliding volumes suggest that gold’s price may not have found a bottom yet.

Note that after crossing above its 50 day EMA and the 1250 level, gold’s price may be forming a bearish ‘rising wedge’ pattern. If the pattern plays out, the eventual break down below the wedge may touch a new low.

Daily technical indicators are in bullish zones, which means the price may see slightly higher levels. MACD has entered positive territory above its signal line, but its upward momentum is waning. RSI is above its 50% level. Slow stochastic is inside its overbought zone.

On longer-term weekly chart (not shown), all three weekly EMAs are falling and gold’s price is trading below them. A long-term bear market is in progress.

Silver Chart Pattern

Silver_Jan1714 

The one year bar chart pattern of silver has been consolidating sideways with a slight upward bias for the past couple of months – forming a bearish ‘flag’ pattern in the process. The eventual break down from the ‘flag’ may take silver’s price to a new low.

Daily technical indicators are in bullish zones, and have formed bullish patterns of rising tops and rising bottoms. But looks can be deceiving some times.

On longer-term weekly chart (not shown), silver’s price is trading below all three weekly EMAs in a long-term bear market.

Monday, January 20, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 17, ‘14

S&P 500 Index Chart

S&P 500_Jan1714

The 6 months daily bar chart pattern of S&P 500 had a sharp drop below its rising 20 day EMA on the first day of the week, only to bounce up and touch a new lifetime high midweek. Profit booking set in and the index closed slightly lower for the week on strong volumes.

Daily technical indicators are in bullish zones, but showing signs of weakness. MACD is positive, but below its falling signal line. RSI bounced up from its 50% level, but is falling back towards it. Slow stochastic re-entered its overbought zone, but its upward momentum has stalled.

What should concern bulls is the combined negative divergences visible in all three indicators, which failed to touch new highs with the index. The other concern is the formation of a bearish ‘broadening top’ pattern (lower low, higher high). The 100 point gap between the 50 day EMA and 200 day EMA is also suggesting that the index is ready for a serious correction.

Should investors worry about a collapse (like in 2007-08)? The short answer is: No. That doesn’t mean one should throw caution to the winds. The economy is showing gradual signs of improvement. Check the housing starts and manufacturing data. But the index appears to have run away a bit ahead of growth.

On longer-term weekly chart (not shown), the index looks way overbought. Take some profits off the table. Live to fight another day.

FTSE 100 Index Chart

FTSE_Jan1714

The 6 months daily bar chart pattern of FTSE 100 finally gathered the technical strength after two weeks of consolidation to cross and stay above the 6800 level. Friday’s strong volumes is an indication that bulls are in control.

Can a new 52 week high be reached soon? Daily technical indicators are bullish, but MACD and Slow stochastic are looking overbought, while RSI is showing negative divergence by falling. Expect the index to consolidate a bit, before attempting to cross its May ‘13 top.

The index is in a long-term bull market. Dips can be used to add.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are in long-term bull markets, and moved up to touch new highs. S&P 500 is looking overbought, and may face a correction. FTSE 100 looks poised to move higher. Use dips to add, but maintain stop-losses.

Saturday, January 18, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 17, 2014

The stock market welcomed lower CPI and WPI inflation numbers that were due to falling vegetable prices and a higher ‘base effect’. Inflation rate is calculated in comparison with the previous year’s inflation rate during the same period. The rate of increase was lower, but actual inflation continues to climb.

Q3 results of India Inc. declared last week have been as per expectations. Large IT services companies declared better bottom lines. Margin pressure is still visible. There have not been many positive surprises so far.

Both Nifty and Sensex have been in sideways consolidation modes for the past 3 months. Since both indices are in long-term bull markets, the eventual break outs from the consolidation zones should be upwards. However, it would be prudent to await the break outs.

BSE Sensex index chart

SENSEX_Jan1714

The daily bar chart pattern of Sensex tested the upper edge of the ‘rectangle’ within which it has been trading since the middle of Oct ‘13, but dropped down to seek support from its rising 20 day EMA. Interestingly, both FIIs and DIIs were net buyers during Friday when the Sensex fell.

Daily technical indicators are giving mixed signals – typical during consolidation periods. MACD is positive and above its signal line, but turning down. ROC is also positive and above its 10 day MA, but moving down. RSI has slipped below its 50% level. Slow stochastic is at the edge of its overbought zone.

Note that all three EMAs are gradually moving up, which confirms the underlying bullish bias despite negative sentiment among market participants. Times like these test investor patience.

NSE Nifty 50 index chart

Nifty_Jan1714

The weekly bar chart pattern of Nifty 50 closed higher for the week after 2 weeks of correction. The index hasn’t made much upward progress during the past 3 months, but the long term up trend line (in blue) as well as both weekly EMAs continue to rise. The long-term bull market is alive and well.

Weekly technical indicators are in bullish zones but showing signs of weakness. MACD has moved down to touch its signal line just below its overbought zone. ROC has climbed back into positive territory and looks ready to cross above its 10 week MA. Both RSI and Slow stochastic are sliding down towards their respective 50% levels.

The sideways consolidation may continue a bit longer.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are consolidating within ‘rectangle’ patterns. Since both indices are in bull markets, the eventual break outs should be upwards. This is a good opportunity to add fundamentally strong stocks. Enter with strict stop-losses.

(Note: Confused by index moves? Learn how to select fundamentally strong mid-cap and small-cap stocks by becoming a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions are being offered till Jan. 21, 2014. Contact me for details:mobugobu@yahoo.com.)

Thursday, January 16, 2014

Off topic: the truth about Graphene

This “wonder material of the 21st Century” is getting a lot of media coverage recently. Check out this video for the truth about Graphene:

http://in.screen.yahoo.com/verge-graphene-gold-rush-143711832.html

Wednesday, January 15, 2014

Nifty chart: a mid-week update (Jan 15, ‘14)

For more than 3 months, Nifty has been consolidating within a rectangle pattern – with its lower boundary at 5970 and its upper boundary at 6350. There was a single day’s spurt – on Dec 9 ‘13 – when the index breached the rectangle to touch an all-time high of 6415, but closed almost at the upper boundary of the rectangle.

Note that throughout the consolidation period within the rectangle, the 20 day EMA remained above the 50 day EMA and the 50 day EMA remained above the 200 day EMA. Other than a couple of brief drops below the 50 day EMA in Nov ‘13, Nifty has received good support from its medium-term moving average.

During the entire consolidation period, the 200 day EMA has gradually climbed up, and Nifty has remained above its long-term moving average. All these are clear signs that Nifty is in a bull market, and should continue its upward move once it breaks out of the rectangle.

Nifty_Jan1514

Rectangles are usually continuation patterns – which means the likely break out should be upwards, since the index entered the rectangle from below. There is another reason to expect an upward break out. For the past couple of months, Nifty has been testing the upper boundary of the rectangle, without falling to the lower boundary.

Technical analysis is not a science, but based on observation of price patterns over many years across various charts. Also, rectangles tend to be unreliable. So, it is better to await the eventual break out before taking a buy/sell decision.

However, if you are one of those who think and invest for the long-term, such a sideways consolidation in a bull market offers a good opportunity to gradually accumulate fundamentally strong stocks. If you feel worried about a downward break from the rectangle, keep a stop-loss at 5970 (which also coincides with the level of the 200 day EMA).

Daily technical indicators are turning bullish. MACD has formed a rounding bottom pattern and just crossed above its signal line in positive territory. ROC has crossed above its 10 day MA to enter positive territory. Both RSI and Slow stochastic have risen above their respective 50% levels.

Note that an upward break out from the rectangle should be accompanied by a volume surge – otherwise the break out may turn out to be a ‘false’ one. Lower CPI and WPI inflation numbers appear to have encouraged the bulls. But one must remember that a high base effect is at play here.

(Note: Not making money in the stock market? Learn how to choose fundamentally strong mid-cap and small-cap stocks. Become a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions are being offered till Jan. 21, 2014. Contact me for details:mobugobu@yahoo.com.)

Tuesday, January 14, 2014

WTI and Brent Crude Oil charts: back in bear country

WTI Crude chart

$WTIC-Jan1314

The 6 months daily bar chart pattern of WTI Crude oil shows a classic bear market rally that can confuse investors who are not sufficiently familiar with technical analysis. Two weeks back, oil’s price had moved above its 200 day EMA into bull territory. Daily technical indicators were in bullish zones.

Under ‘normal’ circumstances, that would have been a buying opportunity. But there were a couple of bearish signs – falling volumes and the formation of a ‘rising wedge’ pattern. ‘Rising wedge’ patterns typically form in a bear market, and are almost invariably followed by corrections.

The initial fall below the wedge (on the last day of 2013) was accompanied by comparatively lower volumes, and the 200 day EMA provided support – which made it appear like a pullback that provides a buying opportunity. But a high volume crash below all three EMAs on the first trading day of 2014 put paid to bullish hopes.

The point to note here is: ‘Don’t buy on pullbacks; wait for the subsequent move.’

What next for oil’s price? Daily technical indicators are bearish and looking oversold. MACD is falling deeper into negative territory below its signal line. RSI is bouncing around at the edge of its oversold zone. Slow stochastic is well inside its oversold zone.

Bulls may attempt another rally. Bears are likely to use it as a selling opportunity. On longer-term weekly chart (not shown), oil’s price is seeking support from its 200 week EMA. A breach below can drop oil’s price to 85.

Brent Crude chart

BrentCrude_Jan1314

In a post two weeks ago, it was observed that Brent Crude oil’s price had retreated a bit after facing resistance from the 113 level in bull territory. Though daily technical indicators were in bullish zones, they had started to fall. The concluding remark was: “Another fall below the 200 day EMA is likely.”

The new year began with oil’s price falling sharply below all three EMAs into bear territory, accompanied by strong volumes. A bearish pattern of ‘lower tops and lower bottoms’ has formed since the beginning of Dec ‘13.

Daily technical indicators are looking bearish. MACD is falling below its signal line towards its oversold zone. RSI is moving sideways below its 50% level. Slow stochastic is inside its oversold zone.

A fall below 106 can take oil’s price down to 103 – which is the current level of the 200 week EMA on longer-term weekly chart (not shown).

Monday, January 13, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 10, ‘14

S&P 500 Index Chart

S&P 500_Jan1014

The 6 months daily bar chart pattern of S&P 500 spent a week of sideways consolidation with a slight upward bias, closing marginally higher for the week. All three EMAs are rising and the index is trading above them, which shows a bull market in progress.

Daily technical indicators corrected from overbought conditions, but remain in bullish zones. MACD has just crossed below its signal line in positive territory. RSI is rising towards its overbought zone after briefly slipping below its 60% level. Slow stochastic has moved back inside its overbought zone.

A concern for the bulls is the high volumes on a mid-week down day. The index is still trading 150 points above its 200 day EMA – a condition that can lead to a sharp correction at any time.

Even though the unemployment rate has fallen much faster than expected in the past year — tumbling 0.3% in December — the decline has been driven mostly by increasing numbers of people deciding to "drop out" of the labor force, rather than by an increasing pace of hiring.

FTSE 100 Index Chart

FTSE_Jan1014

The 6 months daily bar chart pattern of FTSE 100 consolidated sideways between 6700 and 6800, closing a tad higher for the week. All three EMAs are rising and the index is trading above them. Bulls have regained control of the index after an interim down trend. Note that volumes rose during the week, which is a sign of ‘accumulation’.

Daily technical indicators are bullish, but looking overbought. MACD is above its rising signal line in positive territory. RSI is moving up towards its overbought zone. Slow stochastic is inside its overbought zone.

Some more consolidation may help the index to cross above the 6800 level.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are in long-term bull markets, but undergoing sideways consolidations. Both indices should move up further to touch new highs. Corporate results may provide the boost. Hold existing positions, but maintain trailing stop-losses.

Saturday, January 11, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 10, 2014

Infosys Q3 results positively surprised the market on Friday (Jan 10). IT stocks led a bull charge and both Sensex and Nifty indices briefly moved up into bull territory (i.e. above all three EMAs).

Bullishness disappeared by the end of the day as both indices struggled to hang on to support from their respective 50 day EMAs. Why is the market so jittery?

The IIP number was the culprit – contracting for the second month in a row. The economy seems to be stuck in reverse gear. Market participants are also spooked by the growing popularity of AAP, which may lead to a hung parliament in the upcoming general elections.

BSE Sensex index chart

Sensex_Jan1014

The daily bar chart pattern of Sensex is desperately trying to cling on to its 50 day EMA. So far, it hasn’t formed a bearish pattern of ‘lower tops and lower bottoms’. But the respite may be temporary.

Daily technical indicators are not only bearish, but also showing negative divergences by touching lower bottoms (marked by blue arrows). MACD has slipped into negative territory below its signal line. ROC is also negative, and below its 10 day MA. RSI has dropped to the edge of its oversold zone. Slow stochastic has entered its oversold zone.

The following comments were made in last week’s analysis: “A drop below 20569 (Dec ‘13 low) will confirm an intermediate down trend as the index will form a bearish ‘lower top-lower bottom’ pattern. There is a good support zone between 20200 and 20450.”

If 20200 gets breached on the down side, a test of the 200 day EMA may follow. More positive surprises from Q3 results will be required to change the negative sentiment.

NSE Nifty 50 index chart

Nifty_Jan1014

The longer term weekly bar chart pattern of Nifty is still in a long-term bull market, despite two weeks of correction. The long-term up trend line (in blue) and both weekly EMAs are rising with the index trading above them.

However, weekly technical indicators are showing bearish signs. MACD is positive, but about to cross below its signal line. ROC has already entered negative territory. RSI is falling towards its 50% level. Slow stochastic has dropped from its overbought zone.

A drop below the 20 week EMA seems inevitable. A further drop below the 50 week EMA may lead to a test of the long-term up trend line. Rising volumes on down weeks means bears are active.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are facing bull market corrections. Periodic corrections help to improve ‘technical health’ of both indices and provide opportunities to add fundamentally strong stocks. Enter with strict stop-losses - an intermediate down trend is about to start.

(Note: Forget about index fluctuations. It is a bull market. Corrections are buying opportunities. Learn how to choose fundamentally strong mid-cap and small-cap stocks by becoming a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions are being offered till Jan. 21, 2014. Enrolments have started. Contact me for details:mobugobu@yahoo.com.)

Wednesday, January 8, 2014

Nifty chart: a mid-week update (Jan 08, ‘14)

The New Year has begun on a listless note for the Nifty index. After touching a lifetime high in Dec ‘13, the index has been in a consolidation mode – probably awaiting cues from upcoming Q3 results to decide on its next direction.

The economy is not showing much signs of revival, though several experts have declared that growth should show signs of picking up soon. Exports continue to do well – thanks mainly to the depreciated Rupee. Curb on gold imports has improved the current account deficit number, but has led to increased smuggling.

Food prices have started to come down. That should keep inflation from rising. Increase in petrol, diesel and gas prices will have the opposite effect. Auto sales and commercial vehicle sales are gloomy. Tractor sales are much better. Increase in CV sales will be a sign of an improving economy.

Nifty_Jan0814

Nifty is trying to cling on to support from its 50 day EMA. Below the 50 day EMA is a support zone between 6100 and 5970 – the lower level coinciding with the rising 200 day EMA. A drop below 6100 will form a bearish pattern of ‘lower tops and lower bottoms’.

Daily technical indicators are looking bearish. MACD is falling below its signal line, and ready to enter negative territory. ROC has entered negative zone below its 10 day MA. RSI has dropped below its 50% level. Slow stochastic has fallen to the edge of its oversold zone.

Nifty may correct some more. But the long-term bull market is under no immediate threat. Mid-cap and small-cap stocks have started to move up, which shows that retail investors are returning to the market. Some large-cap stocks have undergone corrections. This may be a good time to add them to your portfolio.

(Note: Don’t worry about index fluctuations! Learn how to choose fundamentally strong mid-cap and small-cap stocks. Become a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions are being offered till Jan. 21, 2014. Enrolments have started. Contact me for details:mobugobu@yahoo.com.)

Tuesday, January 7, 2014

Gold and Silver charts: double-bottoms formed? Not so.

Gold Chart Pattern

Gold_Jan0614

The one year daily bar chart pattern of gold touched a low of 1200 at the end of 2013, and embarked on a rally past its 20 day EMA. However, the rally seems to have stalled after touching its falling 50 day EMA.

Note that gold’s price had touched a low of 1200 in end Jun ‘13, followed by a strong rally of more than 200 points. So, has gold formed a bullish double-bottom reversal pattern? Volume action suggests otherwise.

The rally from the Dec ‘13 bottom should have been supported by higher volumes. Instead, volumes were higher during formation of the Jun ‘13 low. Down day volumes have remained strong during the past 6 months.

Daily technical indicators are looking bullish. MACD is negative, but has crossed above its signal line. RSI has moved above its 50% level. Slow stochastic is rising quickly towards its overbought zone.

The rally may go on for a bit longer, but bears are likely to press sales once again.

Silver Chart Pattern

Silver_Jan0614

The one year daily bar chart pattern of silver touched a low of 18.50 at the end of 2013 – touching a slightly higher bottom than the one touched back in Jun ‘13.

The subsequent rally is facing strong resistance from the 50 day EMA. Lower volumes during the second bottom rules out the possibility of formation of a ‘double bottom’ reversal pattern.

Daily technical indicators are looking bullish. MACD is rising above its signal line towards positive territory. RSI has moved above its 50% level. Slow stochastic has reached the edge of its overbought zone.

Further attempts to move up are likely to attract renewed bear selling.

On longer term weekly charts (not shown), gold and silver are trading below their three weekly EMAs and are in long term bear markets.

Monday, January 6, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 03, ‘14

S&P 500 Index Chart

S&P 500_Jan0314

The daily bar chart pattern of S&P 500 ended 2013 with a bang – touching new life time intra-day and closing highs – just short of the 1850 mark. However, volumes were low – which is typical during the holiday season. The New Year started with profit booking on increased volumes.

Daily technical indicators are in bullish zones after correcting from overbought conditions. MACD is about to drop from its overbought zone, but remains above its signal line. RSI has dropped to its 60% level after a brief move inside overbought territory. Slow stochastic has formed a small ‘rounding top’ reversal pattern inside overbought zone and has started falling.

The index is still trading almost 150 points above its rising 200 day EMA. Some more correction or consolidation will help to propel the index even higher.

The economy keeps ticking along slowly but surely. Unemployment claims are trending down. Auto sales are improving. Corporate results for 2013 may provide the next boost to the index.

FTSE 100 Index Chart

FTSE_Jan0314

In the previous post, it was observed that the 6 months daily bar chart pattern of FTSE 100 had reversed the down trend that started after the index had touched a peak of 6820 on Oct 30 ‘13. A sharp uptick in volume accompanied the move above the 50 day EMA.

A few days later, the 20 day EMA crossed above the 50 day EMA as the index cleared the hurdle at 6700. A sideways consolidation has started after a convincing return to bull territory. After 2 months, the index is trading above all three EMAs and the 6700 level.

Daily technical indicators are bullish, but looking overbought. MACD is rising above its signal line towards its overbought zone. RSI is just below its overbought zone. Slow stochastic is moving sideways inside overbought territory.

Some more consolidation or correction will help the index to move above the 6800 level to touch a new 52 week high.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are in long-term bull markets, but undergoing corrective moves. Both indices should move up further to touch new highs. Corporate results may provide the boost. Hold on to existing positions, but maintain trailing stop-losses.

Saturday, January 4, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 03, 2014

It had looked like another trading week of sideways consolidation by both indices, as the New Year celebrations were expected to keep many FIIs and DIIs away from the market. But all hell seemed to break lose during the last hour of trading on Thursday, Jan 2.

Both indices crashed on a sudden burst of basket selling of index stocks – reportedly by an FII – that sent those who had held long positions towards the exit gate. While large-cap stocks took a beating, mid-cap and small-caps more than held their own. Interestingly, FIIs were net buyers for the day.

Order seemed to get restored on Friday, Jan 3 as both Sensex and Nifty received good support from their respective 50 day EMAs and recovered well from day’s lows. Is this the beginning of another intermediate down trend, or will the indices recover further and move higher?

Let us have a look at the charts of Sensex and Nifty below for answers.

BSE Sensex index chart

SENSEX_Jan0314

The daily bar chart pattern of Sensex shows that the long-term bull market is very much intact, as the 200 day EMA is rising and the index is trading above it. The fact that the index hasn’t fallen below its 50 day EMA (yet), and touched a higher bottom is positive in the near term.

Daily technical indicators have clearly lost their upward momentum, but remain in bullish zones. MACD is still positive, though it has crossed below its signal line. ROC bounced up from its ‘0’ line, and is touching its 10 day MA. RSI has moved above its 50% level. Slow stochastic has dropped towards its 50% level.

A drop below 20569 (Dec ‘13 low) will confirm an intermediate down trend as the index will form a bearish ‘lower top-lower bottom’ pattern. There is a good support zone between 20200 and 20450. The index may not make any major moves till Q3 results start hitting the market.

NSE Nifty 50 index chart

Nifty_Jan0314

Of late, the weekly bar chart pattern of Nifty has been correcting after every 2 or 3 weeks of up moves. This was mentioned in last week’s analysis. So, the correction should not have come as a surprise.

The long-term up trend line (in blue) and the two weekly EMAs are rising with the index trading above them. The long-term bull market is doing fine. However, strong volumes on a ‘down week’ is a bit of a concern for bulls because it could be a sign of distribution.

Weekly technical indicators are in bullish zones. MACD is above its signal line and just below the edge of its overbought zone, but is turning down. RSI is forming a ‘rounding bottom’ pattern above its 50% level. Slow stochastic is moving sideways along the edge of its overbought zone. But ROC is showing weakness by falling below its 10 week MA towards its ‘0’ line.

An intermediate down trend may start if Nifty falls below its 20 week EMA. Some caution is called for.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are in long-term bull markets, but facing corrective moves. Periodic corrections improve ‘technical health’ of both indices and provide opportunities to add fundamentally strong stocks. Enter with strict stop-losses - in case an intermediate down trend starts.

(Note: Are you worried about index fluctuations? It is a bull market! Learn how to choose fundamentally strong mid-cap and small-cap stocks. Become a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions are being offered till Jan. 21, 2014. Enrolments have started. Contact me for details:mobugobu@yahoo.com.)

Wednesday, January 1, 2014

Announcing re-opening of paid subscriptions to my Monthly Investment Newsletter

I am pleased to announce the re-opening of paid subscriptions to my monthly investment newsletter for a 3 weeks period from Jan 1-21, 2014. Only a limited number of subscriptions will be offered – on a first-come first-served basis – to enable me to provide personalised attention and guidance to each subscriber.

If you are interested in subscribing, please send an email to: mobugobu@yahoo.com at the earliest for details.

The newsletter has completed 48 issues, with its share of hits and misses. 2013 was a challenging and humbling experience for me. Challenging because for most of the year, selected stocks failed to perform well in a market that shunned small-cap and mid-cap stocks. Humbling because subscribers still kept faith in my stock picking abilities.

Those who have been following my blog posts regularly already know what kind of stocks I like, and what type of stocks I avoid. The guiding principle is to choose well-managed, financially prudent companies that generate cash from operations, have low debt, give steady (rather than spectacular) returns and have growth prospects.

Non-subscribers may be interested to know how recommended stocks have fared during the past year. Without revealing the names of the stocks (it won’t be fair to my subscribers to do so), here is a brief results table with recommended prices and dates, subsequent high and low prices, and gains as on Dec 31, ‘13:

Stock Date Price High Low Close Gain

A

Jan 29

581.00

591.90  

295.20

465.70

-19.8%

B

Feb 26

265.85

352.40

140.00

247.85

-6.8%

C

Mar 28

319.75

494.30

275.00

477.55

49.3%

D

Apr 26

342.05

438.00

293.05

423.05

23.7%

E

May 29

258.55

298.00

211.00

293.45

13.5%

F

Jun 27

115.75

174.50

113.00

160.75

38.9%

G

Jul 26

186.20

314.00

145.00

291.35

56.5%

H

Aug 27

216.55

273.20

206.00

259.60

19.9%

I

Sep 27

130.55

186.30

129.60

171.55

31.4%

J

Oct 29

98.75

109.00

80.15

91.10

-7.7%

K

Nov 27

39.00

54.10

37.40

50.70

30.0%

L

Dec 27

128.10

133.00

126.45

129.25

0.9%

All stocks are small-cap or mid-cap, picked for long-term investment of 2 to 3 years. The fact that some of them are showing excellent short-term gains – even after falling from their highs - is a testimony to their underlying strength. Note that three of the stocks are showing losses, but have made good recovery from their lows.

All 12 stocks touched higher levels after my recommendations. It helped that the Sensex has been in an uptrend during 2013. In a 2-3 years time frame, I expect the laggards to more than make up the slack.

What is important to understand is that none of these stocks were ‘cheap’ – fundamentally strong stocks rarely are - and some had already run up quite a lot when they were recommended.

Why wait if you wish to add fundamentally strong stocks with growth potential to your portfolio? Just subscribe to my Monthly Investment newsletter. Send me an email (at mobugobu@yahoo.com) soon – subscriptions will close on Jan 21, 2014.