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Friday, May 30, 2014

Comparing returns of BSE Sectoral indices – a guest post

Now that even die-hard bears are also coming around to the notion that the Indian stock market is in a bull phase – though it has been so since the low of Dec ‘11, it is as good a time as any to look at sectoral performances to assess where to invest.

In a guest post, Niteen analyses data to show the outperforming and underperforming sectors over various time frames. A contrarian approach would be to invest in the underperforming sectors – but not blindly. One still has to be stock specific.

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The market is moving fast and especially stocks from ‘beaten down’ sectors have performed really well. So I thought of doing a reality check to see how returns look like for stocks from beaten down sectors compared to what they were when the market had peaked about 5 years ago.

image

  • The sectors which were continuously outperforming include Banking, Healthcare, Consumer Durables, Auto and IT. FMCG also outperformed in all these years except the last one year
  • The sectors which underperformed during last 7 years consistently include Capital Goods, Metal, Oil, Power, Realty and PSU
  • Capital Goods started performing in last 2 years. But if someone bought a stock which was a part of the Capital Goods index 7 years ago then the person earned just 5% YoY return
  • These underperforming sectors were, in a way, just waiting for the right opportunity to give returns and that has happened. The contrarian approach worked well. I have delivered one presentation on Contrarian approach in stock market with a backdrop of Public Sector banks (see here)
  • These underperforming sectors might be showing good returns of last one year, but still they are either flat or have given negative returns over a longer period of 3-7 years. So there still is significant value left in these sectors/companies if we could go back to a GDP growth rate of 7% and above prevailing around 5 years ago. This may now look possible considering the systemic risk coming down in the market quickly
  • One may also notice that all sectors gave double digit growth over 10 and 15 years durations. It proves the point that longer the holding the better the likely returns

Criteria:

  • The returns are CAGR
  • Performance benchmark is kept at 10% which is between the Sensex return over 15 years and average inflation rate of 7%
  • If returns are lower than 10% then the stocks which were part of the index have underperformed
  • If returns are above 10% then the stocks which were part of the index have outperformed

Acknowledgement: Vinit Bolinjkar, founder Academic Toppers (click here), helped me in getting the data for this analysis.

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(Niteen is an MBA and cleared CFA Level 2, CFA Institute USA. He also conducts investor education sessions, writes blogs. A firm believer in long-term financial planning, and a 20 years veteran of the stock market, he likes to analyse the economy, and individual stocks.

Niteen blogs at Investment ideas.)

Wednesday, May 28, 2014

Modi effect on stock market – a guest post

After all the debate, discussion and anticipation, the Modi government has been sworn in and the council of ministers announced. The suspense of what will happen and who will get which ministry is over. Now it is time for getting down to business.

The first salvos have been fired by the PM – by first inviting heads of SAARC governments to the swearing-in ceremony and holding one-on-one discussions with them about bilateral issues and then, by setting up a SIT for unearthing black money in the economy. The first was an unexpected courtesy to our neighbours. The second is typical no-nonsense ‘walking the talk’.

What will Modi’s effect be on the stock market? In this month’s guest post, Nishit takes a look at the sectors that are likely to lead the next up moves in the stock indices if Modi continues to deliver on his poll promises.

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My previous month’s guest post began this way: “The market is going up as if there is no ceiling. Every day one sees their portfolios increase in value and everyone seems to be getting swept up by the Modi wave. Now, let us try and see what can derail this rally.”

Now, Modi has won the elections with a huge mandate. What next?

The first 6 months to 1 year are the honeymoon period for any Government. This is the period when they are given a degree of latitude. This is the time when the markets have hope in the new Government.

The new Government has promised jobs, growth and progress. How will they do this?

Firstly, they have to tackle the infrastructure mess by clearing road projects and making coal available to the power plants. Stocks of Infrastructure and power companies would start moving once these road blocks are cleared.

Next, finance has to be provided for these projects. Banking and infrastructure lenders will be the next to move up. As provider of materials for infrastructure to be built, steel and cement companies will be the next ones to rise.

In the midst of all this, IT and Pharma stocks, which are seen as defensives and export oriented, will lag behind. This is because the rupee has strengthened which may lead to their profits being curtailed.

PSU stocks should be another category which needs to be watched closely. Gujarat government stocks have done well under Modi.

Also, company stocks of a few industrialists perceived to be close to Modi, like the Adanis and the Ambanis, need to be closely watched.

These are interesting times we live in. For the first 6 months and especially during the time till the Union Budget in mid-July, the markets may rise on hope. After Diwali, emphasis will shift to the performance and results delivered by the new Government.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money Manthan.)

Tuesday, May 27, 2014

WTI and Brent Crude Oil charts: an update

WTI Crude chart

WTI Crude_May2314

The 6 months daily bar chart pattern of WTI Crude oil shows that bulls are clearly on top. All three EMAs are rising and oil’s price is trading above them. It closed above the 104 level after a month.

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

However, volumes have dropped as oil’s price approached the 105 level, from where it has retreated twice before. Bears may try to defend the 105 level again.

Supply concerns due to unrest in Libya, less than expected output from Iraq and continued crisis in Ukraine are the reasons being put forth for the recent rise in price. Improving manufacturing data from USA and China may have also encouraged speculators to hit ‘buy’ buttons on their trading terminals.

On longer term weekly chart (not shown), all three EMAs are rising and oil’s price is trading above them in a long term bull market.

Brent Crude chart

BrentCrude_May2314

After almost 5 months of gyrations, the 6 months daily bar chart pattern of Brent Crude oil has technically returned to a bull market. Why technically? Have a look at the 50 day EMA. The ‘death cross’ below the 200 day EMA in Jan ‘14 had signalled a bear market.

Since then, the 50 day EMA had failed to cross above the 200 day EMA despite oil’s price rising above its 200 day EMA on a couple of occasions. Last week, it managed the ‘golden cross’ as oil’s price rose above its Apr ‘14 top to touch the 111 level.

It may be a bit early for bulls to celebrate. All three technical indicators are looking bullish, but showing negative divergences by failing to touch higher tops. A correction may follow.

On longer term weekly chart (not shown), oil’s price is trading above its 200 week EMA and its entangled 20 week and 50 week EMAs. Weekly technical indicators have entered bullish zones.

Monday, May 26, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – May 23, ‘14

S&P 500 Index Chart

S&P 500_May2314

The 6 months daily bar chart pattern of S&P 500 crossed the 1900 level intra-day for the second time in its history and closed at a new lifetime high of 1900. That is the good news for bulls. The bad news is that the index failed to cross above its May 13 top. Unless it can do so convincingly and soon, the bears may pounce on the opportunity to sell.

Volumes are sliding, which is not conducive for sustenance of the up move. Also, the danger of a bearish ‘double-top’ formation is looming on the chart. The ‘double-top’ will get confirmed if the May 15 low of 1862 is breached – in which case the index may test its Apr ‘14 low.

Daily technical indicators are in bullish zones. MACD has crossed above its signal line in positive territory. RSI is rising above its 50% level. Slow stochastic has reached the edge of its overbought zone. However, all three indicators are showing negative divergences by failing to touch new highs.

All three EMAs are rising and the index is trading above them. The long-term bull market is under no threat. But be prepared for a meaningful correction that will restore the technical ‘health’ of the chart. Stay invested but maintain a stop-loss.

FTSE 100 Index Chart

FTSE_May2314

Overbought technical indicators and a ‘reversal day’ pattern formed on May 15 led to the following comment in last week’s analysis of the 6 months daily bar chart pattern of FTSE 100: “Some correction/consolidation can be expected after an index touches new highs.”

The index corrected below the 6800 level during the week, but found good support from its 20 day EMA. The index managed to close the week above the 6800 level and its three EMAs. However, bulls need to stay on guard.

Daily technical indicators are beginning to look bearish. MACD is positive, but has started falling below its signal line. RSI is about to drop below its 50% level. Slow stochastic is falling rapidly towards its 50% level. The correction may not be over yet.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 are in long-term bull markets. S&P 500 is hesitating near its lifetime high. FTSE 100 is correcting a bit after touching a new lifetime high. Some caution is warranted near new highs. Stay invested with suitable stop-losses.

Saturday, May 24, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – May 23, 2014

Extreme volatility on the day of election results announcement (on Fri. May 16) was followed by a week of more sedate index movements. FIIs were net sellers on Tue., Wed. and Thurs. but their net buying on Mon. and Fri. exceeded three days of net selling by Rs 1100 Crores.

It is no surprise that both Sensex and Nifty indices continued to move up and closed at new lifetime highs for the week. Technical analysts and experts have started falling over each other in predicting ever higher index levels. Morgan Stanley has come up with a 75000 Sensex target in 10 years. The RaRe bull has predicted a 15 years ‘mother of all bull markets’.

Small investors would do well to ignore the noise about index levels, and concentrate on building or managing their portfolios. Since mid-cap and small-cap stocks have also joined the bull party, it will become increasingly difficult to find reasonably valued stocks. The smart move at this stage will be to SIP into a good index fund or balanced fund instead of trying your luck with individual stocks.

BSE Sensex index chart

SENSEX_May2314

The significance of the upward ‘gap’ formed on the daily bar chart pattern of Sensex on Tue. May 13 was explained in last week’s post. It may be worthwhile re-reading it. Note that the ‘gap’ has remained unfilled so far. Even if it gets partly or fully filled, the up move should resume thereafter.

Daily technical indicators are bullish but looking overbought. MACD and RSI have touched new highs inside their respective overbought zones. ROC has moved down to touch its rising 10 day MA, but remains inside its overbought zone. Slow stochastic has corrected down from its overbought zone, but has started to move up again.

Remember that the index can remain overbought for long periods. There is one other overbought signal – the vertical distance between the 50 day and 200 day EMAs. This is currently at 1500 points. As per empirical observations, major corrections occur when the distance becomes 2000 points or more.

Any corrections that occur now will be adding opportunities.

NSE Nifty 50 index chart

Nifty_May2314

The weekly bar chart pattern of Nifty is soaring in blue-sky territory with no known resistances. The index closed the week at a new lifetime high of 7367 on massive volumes. It is probably just waiting for an excuse to move higher. NaMo’s cabinet formation on Mon. May 26 may provide the excuse.

All four weekly technical indicators are inside their respective overbought zones, with MACD and RSI touching new highs. The index can remain overbought for long periods. So, whatever you do, don’t try to short the index (unless of course you are an extremely skilled trader or suicidal by nature).

However, be prepared for a correction at any time. The trick to making money in the stock market is simple, but not easy: Stay long in a bull market; go short in a bear market.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have closed at new lifetime highs on daily and weekly basis. Expect the indices to continue to move even higher. Stay invested; book partial profits to reduce risk. If you want to enter now, start a SIP in a good index or balanced fund.

Friday, May 23, 2014

Stocks in the news this week (May 23, ‘14)

Election results are done and dusted. Cabinet formation will be announced on Mon. Apr 26. Then will come the budget and policy announcements. Those will be the next triggers for the next leg of the stock market’s move.

The brief lull in the political front is being utilised by market players to indulge in sector rotation and portfolio churning. FIIs are in a profit booking mood. Emphasis has shifted from the defensive sectors. Many mid-cap and small-cap stocks suddenly find themselves in the limelight.

Charts of four such stocks are given below. The first two of them have been in bull territory for the past few months. The last two have recently emerged from bear grips. Sudden sharp news-based price spikes do not sustain. So, do your homework if you decide to buy or sell.

Atul Ltd

Atul_May2314

Atul’s stock had entered bull territory back in Oct ‘13, but remained in a sideways consolidation mode till Apr ‘14. Good Q4 results led to a high volume price spike earlier this month, followed by a small sideways consolidation within a ‘flag’. The upward break out from the ‘flag’ was on news of a stake sale. Technical indicators are looking overbought. Some correction or consolidation is likely. The stock may head higher thereafter.

GATI

GATI_May2314

The stock of GATI was in a sideways consolidation in bear territory before returning to a bull market in Dec ‘13. Sharp up moves in Jan, Mar and Apr ‘14 were followed by sideways consolidations. The latest up move was on news of FII stake buy. Technical indicators are bullish but looking a bit overbought and showing negative divergences. Expect some consolidation before the next up move.

I.G. Petrochem

IGPetro_May2314

After a small ‘double-top’ formed at 44 back in Oct ‘12 (not shown in chart), the stock of IG Petro entered a long bear spell from which it finally emerged into bull territory last month. A bullish ‘rounding bottom’ pattern led to a high volume price spike. Today’s sharp jump with an upward ‘gap’ was on news of turnaround Q4 results. Technical indicators are looking quite overbought. The ‘gap’ may get partly or fully filled before the next up move starts. Time to take some profits.

Rane Brake

RaneBrake_May2314

Rane Brake’s stock had few takers as it meandered sideways on very low volumes. It drifted into bull territory in Feb ‘14 and continued its gradual up move till a high volume price spike took it past the 150 level. A correction followed but found support from the 50 day EMA. An upper circuit yesterday and a high volume gap-up move today was on news of good Q4 results. Technical indicators are looking quite overbought. The stock price has doubled in 4 months – making it a profit-booking candidate.

Thursday, May 22, 2014

Technical updates – Maharashtra Seamless and Ratnamani Metals

With the massive electoral mandate given to the NDA, expectations are running high about market friendly policies that will pave the way to capital expenditure and job growth. How much the new government will be able to achieve under difficult economic circumstances remains to be seen.

But hope seems eternal among market players. Sector rotation has started already. Money is being pulled out from defensive sectors like FMCG, IT, Pharma and being deployed in infrastructure, capital goods and cyclicals in a bid to make short-term profits.

Stocks of pipes and tubes companies had a rough time during the past few years as infrastructure spending came to a halt. Closing charts of two of them show that good times are ahead. Do your due diligence before jumping on to the bandwagon.

Maharashtra Seamless

Mah Seamless_May2214

The stock of Mah. Seamless suffered a long bear spell that ended with the formation of a ‘double-bottom’ reversal pattern at 155 (marked B1 and B2). The stock rose sharply above its 3 EMAs and then climbed above the long-term support/resistance level of 204 on strong volumes.

Previous support levels, when broken, often turn into resistances. Note how the 204 level provided support in Feb and Apr ‘13. When it got breached in Jun ‘13, it turned into a resistance level for future up moves. Now that the stock price has breached the resistance of 204 on strong volumes, it has turned into a support level again.

The next support/resistance level is at 324. The rally appears to be stalling near it. All four technical indicators are looking overbought; three of them – MACD, RSI, Slow stochastic – are showing negative divergences by failing to touch new highs. Some correction or consolidation here can give the stock sufficient ‘strength’ to cross above 324.

Ratnamani Metals

Ratnamani_May2214

The stock of Ratnamani Metals was in a long sideways bull market consolidation with a slight upward bias (indicated by the gently rising 200 day EMA). It formed a ‘cup-and-handle’ continuation pattern that took 9 months to complete.

The upward break out in Mar ‘14 was supported by strong volumes. After facing a bit of resistance at the 265 level, the stock soared past the 300 level and crossed its Jan ‘08 high of 308. The stock closed just shy of the 320 level – doubling in less than 3 months.

All four technical indicators are looking overbought and showing negative divergences by failing to touch new highs. Some correction or consolidation is likely.

Note an interesting pattern on the chart – marked by the light blue ovals. On four occasions, all three EMAs converged together. Sharp up moves followed. In bear markets, the sharp moves are downwards.

Wednesday, May 21, 2014

Nifty chart: a mid-week update (May 21 ‘14)

Nifty_May2114 

After the fireworks on election results day (Fri. May 16), Nifty is undergoing a bit of consolidation – which is good for the technical ‘health’ of the chart after a sharp rise from the support level of 6640.

Note that the upward ‘gap’ formed on May 13 has not been filled yet and should provide downside support to the index. Even if the ‘gap’ gets partly or fully filled, the up move should resume thereafter. Nifty upward target implications were explained in last week’s mid-week update.

Reportedly, retail investors have started becoming active again but they have been extra careful after bitter experiences at previous index tops in 2008 and 2010. They net sold worth nearly Rs 800 Crores on May 16. For the past 2 days, FIIs resorted to profit booking – their net sales touching Rs 370 Crores.

Daily technical indicators are still looking overbought. MACD, ROC and RSI are well inside their overbought zones. Slow stochastic has corrected overbought condition but remains in bullish zone.

Some more correction or consolidation is likely during the next 2-3 trading sessions. Announcement of names of NDA ministers may be the next trigger for the index. Expect a flood of FII inflows if the new government announces investment-friendly policies.

Tuesday, May 20, 2014

A Comparison of Global Stocks Shows Unusual Divergences

Sensex and Nifty indices continue to touch new highs – but where is the euphoria among small investors? In spite of a massive mandate for the NDA, there seems to be a lot of worry about the state of the economy and NaMo’s ability to kick-start GDP growth.

If you still need convincing about where FII money is likely to flow in the near term, have a look at the chart below:

S&P 500_vs_EEM_EAFE_May1614

The chart appeared in a recent article by John Murphy, a well-known technical analyst. Read the article here. Pay particular attention to the last line in the article.

Gold and Silver charts: an update

Gold Chart Pattern

Gold_May1914

An interesting tussle is going on between bulls and bears on the 6 months daily bar chart pattern of gold. The zone between 1260 and 1280 has continued to provide good support on the downside, but gold’s price is touching lower tops.

So, who is winning this particular battle? Bears seem to be gaining the edge. Note that all three EMAs are moving down while gold’s price is oscillating about its falling 20 day and 50 day EMAs. The past 10 trading sessions has seen just 2 up days.

Daily technical indicators are a bit bearish. MACD is touching its rising signal line in negative territory. RSI has slipped below its 50% level. Slow stochastic is seeking support from its 50% level. Bulls will try to defend the support zone between 1260-1280. But for how long?

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

Silver Chart Pattern

Silver_May1914 

The 6 months daily bar chart pattern of silver managed to rally past its falling 50 day EMA on intra-day basis after a month, but faced resistance at the 20 level and immediately encountered bear selling to drop below all three EMAs once again.

Daily technical indicators are looking bearish. MACD is above its rising signal line, but in negative territory. RSI managed to rise above its 50% level for the first time in 2 months, but could not sustain there for long. Slow stochastic is falling towards its 50% level.

All three indicators have formed bullish patterns of rising tops and rising bottoms, which may lead to another attempt at a rally past the falling 50 day EMA.

On longer term weekly chart (not shown), all three weekly EMAs are sliding down and silver’s price continues to trade below them in a bear market.

Monday, May 19, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – May 16, ‘14

S&P 500 Index Chart

S&P 500_May1614

The 6 months daily bar chart pattern of S&P 500 continued its up move by using its 50 day EMA as support. On Tue. May 13, the index reached new lifetime highs on intra-day (1902) and closing (1897) basis. The index closed at the same level as its previous Apr 4 top and 6 points higher than its previous highest (Apr 2) closing level. Not a convincing breach of its previous tops.

Volumes leading up to the new highs were sliding and the index failed to sustain near its new highs for long. Profit booking quickly dropped the index to its 50 day EMA. Though the index managed to bounce up on Fri. May 16, down-day volume on Thu. May 15 was the highest during the week.

Daily technical indicators are in bullish zones but looking weak. MACD has crossed below its signal line in positive territory. RSI bounced up weakly from its 50% level. Slow stochastic is hurtling down towards its 50% level. A drop below the 50 day EMA is a possibility. Maintain a stop-loss at 1850 and stay invested.

On longer term weekly chart (not shown), all three weekly EMAs are rising and the index is trading above them. Weekly technical indicators are in bullish zones but showing negative divergences by touching lower tops. Be prepared for some correction or consolidation.

FTSE 100 Index Chart

FTSE_May1614

Bulls appear to have regained control of the 6 months daily bar chart pattern of FTSE 100. The index closed at a lifetime high of 6878 on Wed. May 14. The very next day, the index touched a new lifetime intra-day high of 6895, but formed a ‘reversal day’ pattern (higher high, lower close) and dropped below the 6850 level.

By the end of the week, the index managed to close above the 6850 level backed by strongest volumes in a month. Daily technical indicators are looking overbought and two of them – MACD and RSI – are showing negative divergences by touching lower tops.

Some correction/consolidation can be expected after an index touches new highs. On longer term weekly chart (not shown), the index has formed a large ascending triangle pattern from which a convincing upward break out can take the index past the 7500 mark.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 are in long-term bull markets, and correcting a bit after touching new lifetime highs. The dips can be used to add to existing holdings. Alternatively, stay invested with suitable stop-losses.

Sunday, May 18, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – May 16, 2014

Dalal Street was in celebratory mood as the election results were a positive surprise and way beyond expectations of the market. Though exit-polls had correctly predicted a NDA victory, all of them, bar one, underestimated the extent of the Modi wave that turned into a ‘tsuNaMo’.

BJP itself got a majority – the first time a political party has managed that since 1984. Coalition politics with its push-and-pull nature has been dumped by the electorate. Additional responsibility will have to be borne by the ruling party as they will not have anyone to blame if they can’t deliver on their promises.

Both Sensex and Nifty touched and closed at all-time highs on daily and weekly basis. Volumes were the strongest in 4 years. Though some profit booking set in on Friday, there is no reason to think that it is anything other than a well-deserved pause after a sharp climb.

BSE Sensex index chart

SENSEX_May1614

The daily bar chart pattern of Sensex formed an upward ‘gap’ of about 156 points on Tuesday, May 13. Since this ‘gap’ has formed after a new up move of 3 months duration (from the low of 19963 touched on Feb 4 ‘14), it can be treated as a ‘runaway’ or ‘measuring’ gap.

‘Measuring’ gaps have target implications. The low of Feb ‘14 – from where the fresh up move started – was at 19963. The middle of the ‘measuring gap’ is at 23651 (= previous day’s intra-day top of 23573 + half of the ‘gap’ of 156 points). So, the ‘length’ of the up move till the ‘gap’ is 23651 – 19963 = 3688 points.

The upward target should be the same, i.e. 3688 points - to be added to the middle of the ‘gap’ at 23651 to arrive at 27339. This should be the next target for Sensex. Note that it is the ‘next’ and not the ‘final’ target.

Caveat: Technical analysis targets are based on empirical observations. The index doesn’t understand logic or arithmetic. So, consider the target as indicative and not sacrosanct.

What about the ‘shooting star’ pattern (in ‘candlestick’ parlance) that appears to have formed on Friday, May 16? Doesn’t it have bearish implications? Yes, but. The pattern needs to get confirmed by a strong corrective move on Monday, May 19. Otherwise, it may lead to a short pause before the next climb.

Remember the theory of ‘gap’s. An upward ‘gap’ formed in the middle of an up move tends to act as a support zone for future down moves. Even if the ‘gap’ gets filled (partly or fully), the up move is likely to resume thereafter. So, no need to panic and sell. But partial profit booking is always a good idea.

All four technical indicators are in their overbought zones. While MACD and ROC have touched new highs, RSI and Slow stochastic are showing negative divergences by failing to do likewise. Some correction or consolidation is possible. It will improve the technical ‘health’ of the chart, and enable bulls to charge higher. 

NSE Nifty 50 index chart

Nifty_May1614

The weekly bar chart pattern of Nifty is a good example of what a long-term bull market looks like. You don’t need to be an experienced technical analyst to note that the long-term up trend line (in blue) and the 2 weekly EMAs are all rising and the index is trading above them.

The up trend started back in Dec ‘11 and is already 29 months old. It doesn’t look like it is going to end anytime soon. Thanks to the massive electoral mandate for the NDA – which has won on the single plank of ‘development’ – the bull market has got a new impetus. However, one should not expect a one-way rise. There will be several corrections along the way.

The next upward target for Nifty – based on the ‘gap’ formed on the daily chart on May 13 – was calculated in this mid-week update, and is not being repeated here. It is the ‘next’ and not the ‘final’ target.

Weekly technical indicators are in their respective overbought zones – with two of them (ROC and Slow stochastic) showing negative divergences by failing to touch new highs with the index. Some correction or consolidation can be expected before Nifty starts to rise again.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have touched new lifetime highs. Expect the indices to continue to move even higher. Stay invested; book partial profits to reduce risk. It is a bit late to jump in feet first. The low-hanging fruits have been plucked. That doesn’t mean there will be no opportunities to enter. But stock-picking skills will be tested. (Don’t know how to pick good stocks? Read the ‘related posts’ below.)

Related Posts

How to pick Stocks for Investment - Part I
How to pick Stocks for Investment - Part II
How to pick Stocks for Investment - Part III

Friday, May 16, 2014

Sensex touches 25000 – ready for a drum roll?

In the olden days – before the advent of telephone, telegraph, radio or TV – the only way to get one’s message across was to employ a drummer. One walked into a village or a small town and let the drummer do his thing to gather people around. Then the message could be delivered.

Beating one’s own drum is considered impolite in society. The question is: If you have a drum, who else is going to beat it if not you?

Times have changed. The Internet has shrunk the world. Satellite communications has enabled messages to be transmitted in nanoseconds. Information travels almost at the speed of light and is disseminated equally fast.

Still, some messages that need communicating remain buried under a mound of information overload. One such message – communicated more than a year back - is being resurrected today.

A year ago, the economy was in a dismal state. Poor governance and scams had tarnished India’s image. Interest rates were high. So was inflation. Fiscal and current account deficits seemed out of control. Capital expenditure by companies had slowed to a trickle. Infrastructure projects were stuck due to environmental and financial issues. Murphy’s Law was at work – anything that could go wrong was going wrong.

No wonder, small investors were a scared lot. Savings were being poured into gold and fixed income instruments. Equities were shunned. Stock brokers were lamenting the dearth of business. In such a situation, a long-term technical view was presented explaining why the Sensex should touch 25000. No one even imagined then that NaMo would become PM with a thumping majority.

Part of the reason for writing that post was to dispel the overwhelming mood of negativity among many small investors, and to point out that inflation-beating returns can be realised through timely investment in the stock market.

Sensex was at 19735 back on May 2 ‘13. By touching 25375 today, the index gained more than 28% in a little more than a year – beating inflation handsomely. This also makes the case why small investors are better off putting money in an index fund instead of trying their luck with individual stocks.

Related Post 

Why Sensex should touch 25000 – a long-term view

Thursday, May 15, 2014

Stocks in the news this week (May 15, ‘14)

The great ‘event’ will finally happen tomorrow (May 16) – announcement of results after the protracted general elections. TV and print media had a field day in covering and analysing the elections and the likely results in an effort to grab ‘eyeballs’.

More important news have been ignored. The IIP number was –0.5% – another month of negative industrial production, but an improvement over the previous month. CPI inflation moved up – thanks to higher vegetable and fruit prices. WPI inflation eased a bit. The new government will have their work cut out.

Companies are in the midst of announcing quarterly and annual results. Their stocks are reacting accordingly – as the charts below will show. Make sure you understand what these companies do, and who they do it to, before deciding to buy or sell.

Ahmednagar Forgings

AhmednagarForg_May1514 

The stock of Ahmednagar Forgings had formed a ‘double-top’ reversal pattern during Mar-Apr ‘12 (not shown) and slipped into a bear market – dropping from a high of 197.50 to a low of 73.20 in Aug ‘13. It has been rallying since then and had already re-entered a bull market and doubled from its low when news of good quarterly results hit the market – causing a gap-up move on a volume spurt. Technical indicators are looking overbought. The stock may undergo a bit of correction or consolidation.

BHEL

BHEL_May1514

Infrastructure company stocks in general, and BHEL in particular, have been suffering terribly in long bear markets. BHEL’s stock finally bottomed out at 100 in Aug ‘13. It has managed to return to a bull market and doubled in value from its low. The recent price spurt was on rumours of a stake sale. Technical indicators are looking overbought. Expect some correction or consolidation.

Dr Reddy’s

DrReddys_May1514

The stock of Dr Reddy’s has been in a long bull market and touched a high of 2940 in Feb ‘14. It went into a corrective mode for 2 months before recovering to touch a lower top of 2783 on Apr 30 ‘14. After consolidating sideways for a few days, the stock price crashed on huge volumes after announcement of disappointing Q4 results. Technical indicators are looking bearish and a bit oversold. (Question for SEBI: Was there insider selling before result announcement?)

LG Balkrishnan

LGBalkrishnan_May1514

After touching a high of 338.50 in Apr ‘12 (not shown), the stock of LG Balkrishnan dropped into a bear market that bottomed out at a low of 152 in Aug ‘13. The stock rallied spectacularly since then – first returning to a bull market in Nov ‘13 and then moving up to triple in value from its low. Today’s price spurt on strong volumes was due to announcement of good results and a liberal 1:1 bonus issue. Technical indicators are looking overbought and showing negative divergences by failing to touch new highs. The stock is likely to move higher after a bit of consolidation.

Wednesday, May 14, 2014

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

Nifty_May1414

Nifty has formed several interesting patterns that have upside and downside implications. Some of these have been discussed in earlier posts, but are being repeated here.

1) The 5 months long sideways consolidation within a ‘rectangle’ pattern followed by an upward break out – validated by a volume surge. Rectangles have measurement implications that gave an upside target of 6750. This target has been met already.

2) Immediately after the break out from the ‘rectangle’, the index entered another short sideways consolidation within a ‘flag’ pattern that also has measuring implications. The upward target from the ‘flag’ break out – validated by an uptick in volumes – was 7170.

By touching an intra-day high of 7172 on Tue. May 13 ‘14, Nifty has almost met the target. Why almost? Because targets are met only if an index (or stock) closes the day on or above the target. That hasn’t happened yet. For explanations about how the above two targets were arrived at, please read the blog post of Apr. 2 ‘14.

3) Next comes the level of 6640 (just above the ‘flag’) that provided good support to Nifty from the end of Mar ‘14 to the first week of May ‘14. The possible technical significance of why 6640 turned out to be a support level was explained in last week’s mid-week update.

4) Now, the latest pattern that can provide an insight into Nifty’s next target – an upward ‘gap’ of about 47 points formed on Tue. May 13 ‘14. In a post written way back in Sep ‘09, four different types of gaps and their significances were explained.

Since the ‘gap’ has formed in the middle of a fresh up move, it can be considered a ‘runaway’ or ‘measuring’ gap. The upward target is calculated as follows:

The low of Feb ‘14 – from where the fresh up move started – was at 5933. The middle of the ‘measuring gap’ is at 7044 (= previous day’s intra-day top of 7020 + half of the ‘gap’ of 47 points). So, the ‘length’ of the up move is 7044 – 5933 = 1111 points.

The upward target should be the same, i.e. 1111 points - to be added to the middle of the ‘gap’ at 7044 to arrive at 8155. This should be the next target for Nifty.

Please note that bull market targets are often exceeded. Also, remember that the market doesn’t understand logic or arithmetic. So, technical targets are to be taken with a pinch of salt. When will this target be achieved? Good question!

If the NDA gets a simple majority – which appears to be priced in already – then the target achievement may take about 3 months. But if NDA gets upwards of 300 seats – as some experts are suggesting – then the target may get achieved within the next two weeks.

By now, every one must have forgotten that there are some downside implications as well! In case NDA fails to get a majority and needs the help of potential allies, then Nifty can correct sharply. First support should be at 6640. If that gets breached, then the top of the ‘rectangle’ – at about 6350 should provide stronger support.

All four technical indicators are inside their respective overbought zones, but are showing negative divergences by failing to touch new highs with the index. Some consolidation or correction is likely. Even if the ‘gap’ gets filled, the up move should resume thereafter.

Tuesday, May 13, 2014

WTI and Brent Crude Oil charts: struggling to keep the bears away

WTI Crude chart

WTI Crude_May1214

The previous update to the daily bar chart pattern of WTI Crude oil contained the following remarks: “… the 200 day EMA is still rising and oil’s price is trading above it. Bulls may use the support of the long-term moving average to mount another rally.”

Note that oil’s price briefly dropped below its 200 day EMA, but recovered quickly to move back into bull territory. However, the combined resistance from its 20 day and 50 day EMAs has stalled the up move.

Daily technical indicators are looking a bit bearish. MACD is moving sideways below its falling signal line in negative territory. RSI is facing resistance from its 50% level. Slow stochastic has risen from its oversold zone, but remains below its 50% level.

Oil’s price may test and breach its 200 day EMA again. A drop below 97.50 will open up the possibility of a bearish ‘double top’ reversal pattern.

On longer term weekly chart (not shown), oil’s price bounced up after receiving good support from its 50 week EMA and is trading above all three EMAs in a bull market.

Brent Crude chart

BrentCrude_May1214

The 6 months daily bar chart pattern of Brent Crude oil spent a few days in bear territory, receiving good support from the 107 level. It has rallied back into bull territory, but without adequate volume support oil’s price may start to drift down once again.

Daily technical indicators are looking neutral to bearish. MACD is below its signal line and trying not to drop inside negative territory. RSI is straddling its 50% level. Slow stochastic has bounced up weakly from the edge of its oversold zone, and remains well below its 50% level.

Oil’s price is likely to continue its oscillation about its long-term moving average a while longer.

On longer term weekly chart (not shown), oil’s price is trading above its 200 week EMA in a bull market, but facing resistance from its entangled 20 week and 50 week EMAs.

Monday, May 12, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – May 09, ‘14

S&P 500 Index Chart

S&P 500_May0914

The 6 months daily bar chart pattern of S&P 500 has resumed its up move after a sharp bull market correction from the Apr 4 peak of 1897. The index is receiving good support from its rising 50 day EMA. At the time of writing this post, the index has moved up within handshaking distance of its lifetime high touched on Apr 4.

Daily technical indicators are looking bullish. MACD has crossed above its signal line in positive territory. RSI is rising above its 50% level. Slow stochastic is moving up towards its overbought zone. The index appears to have taken the latest round of QE3 tapering in stride.

The previous top of 1897 needs to be crossed convincingly for bulls to regain complete control. Caution is advised as the index approaches its previous top – just in case it forms a ‘double-top’ reversal pattern. Stay invested with a stop-loss at 1850.

On longer term weekly chart (not shown), all three weekly EMAs are rising and the index is trading above them. That is the sign of a bull market. However, weekly technical indicators are showing some weakness by touching lower tops.

FTSE 100 Index Chart

FTSE_May0914

The 6 months daily bar chart pattern of FTSE 100 is back in bull territory after a corrective spell that lasted about 2 months. The index is consolidating between 6800 and 6850. A convincing move above the Feb ‘14 top of 6866 is required for bulls to assume total control of the chart.

Daily technical indicators are looking overbought. MACD is above its signal line and has reached the edge of its overbought zone. RSI and Slow stochastic are both inside their respective overbought zones.

Some more consolidation will help the index to move higher. On longer term weekly chart (not shown), the index may be forming a large ascending triangle pattern from which the likely upward break out can take the index past the 7500 mark.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 are in long-term bull markets, and poised to touch new highs. Caution is advised as both indices are near previous tops. Stay invested, with suitable stop-losses.

Technical updates – Colgate and HUL

FMCG company stocks should find a place in every investor’s portfolio for several reasons – steady performance through bull and bear cycles, negligible debt, tons of cash, consistent dividend payments and predictability of earnings.

There is a downside also. Valuations tend to be high. That makes timing of entry an important factor in overall returns. Those who are not comfortable about timing entry or exit can start a SIP – but the plan needs to be continued over the long term to reap benefits.

Two of the best stocks in the FMCG sector are Colgate and Hind Lever. The charts show that both are currently quoting well below their all-time highs. Both companies continue to perform well – but as often happens with FMCG stocks, they have their own bull/bear cycles that do not coincide with market cycles.

Colgate

Colgate_May0914

Colgate’s stock touched a peak of 1580 on Jan 1, ‘13 but formed a ‘reversal day’ pattern (higher high, lower close) and started correcting. It subsequently touched two lower tops and dropped to 1190 on Aug 28 ‘13 – a correction of 25% from its peak that pushed it into a short bear market.

The stock has since been in an up trend, and after returning to bull territory rose quickly to touch a high of 1489 on Apr 25 ‘14. But strong resistance from the down trend line (in blue) has dropped the stock to its 50 day EMA.

Technical indicators are looking bearish. MACD is positive, but falling below its signal line. (MACD has formed a ‘cup and handle’ pattern that has bullish implications.) ROC has crossed below its 10 day MA into negative territory. Slow stochastic is dropping swiftly towards its oversold zone. Only RSI is showing bullish signs by bouncing up from its 50% level.

A test and possible breach of the down trend line is likely.

HUL

HUL_May0914 

The chart of HUL is dominated by a huge upward ‘gap’ of about 47 points that occurred on Apr 30 ‘13 when news about a buy-back at 600 hit the market. After consolidating sideways below the 600 level for a couple of months, the stock price spiked up on strong volumes to touch a lifetime high of 725 on Jul 24 ‘13. But it formed a ‘reversal day’ pattern and started correcting.

Note how the ‘gap’ zone has provided strong support to the stock during the past 5 months. Even if the ‘gap’ gets filled – which looks unlikely at this stage – the stock price is likely to resume its up move thereafter.

Technical indicators are looking quite oversold. All three EMAs have converged together. A sharp move is likely to follow. Which direction? No prizes for guessing correctly!

Saturday, May 10, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – May 09, 2014

After Sensex and Nifty touched all-time highs on Apr 25 ‘14, both indices went into corrective modes over the next 9 trading sessions. It turned out to be well-laid bear traps that were sprung on Friday, May 9 – and how!

Nifty gained almost 200 points and Sensex soared by 650 points. Both indices touched and closed at new lifetime highs. Has the market started celebrating a NaMo victory in advance?

The last round of elections will be held on Monday, May 12 and the first exit polls should start hitting the market the following day. Caution is advised since exit polls have a tendency of being incorrect.

As can be seen from the Sensex and Nifty charts (below), a great time to enter the market was back in Aug ‘13. Hindsight is 20-20, you say? Well, this is what was recommended in a post on Aug 31, ‘13:

“Ignore the gloom and doom mongers: neither is the economy as dismal as in 1991, nor are there any global headwinds like in 2008. Use the weak sentiment to accumulate fundamentally strong stocks with a 2-3 years timeframe.”

BSE Sensex index chart

Sensex_May0914

The daily bar chart pattern of Sensex had slipped below its 20 day EMA during the past few trading sessions but found good support from the 22300 level – which had provided support during the past 5 weeks.

Strong FII buying on Friday, May 9 that exceeded the combined buying on the previous 5 sessions completely overwhelmed the bears and sent them scurrying to cover their shorts.

Daily technical indicators are turning bullish. MACD is below its falling signal line in positive territory but is turning up. ROC has crossed above its falling 10 day MA into positive zone. RSI has moved up sharply towards its overbought zone. Slow stochastic bounced up from the edge of its oversold zone, but is below its 50% level.

Expect volatility to increase during next week. Stay calm and ignore sudden index gyrations.

NSE Nifty 50 index chart

Nifty_May0914

In a mid-week technical update on the Nifty chart, the significance of 6640 as a support level was explained and the following comments were made: “… 6640 level has seen multiple bottoms over the past 5 weeks. A bounce up from here will not be a surprise.”

Though Nifty did bounce up sharply to touch new intra-week and closing highs (closing above 6800 for the first time), volumes remain a concern. Note that volumes were the same as in the previous two trading weeks – which had one less trading session each.

All four weekly technical indicators are in their respective overbought zones. Indicators can remain overbought for long periods, but some consolidation or correction can’t be ruled out.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have touched new lifetime highs. A majority NDA-led government can propel the indices even higher. However, a fractured mandate can cause a sharp correction. Stay invested with suitable stop-losses, and refrain from making large bets. There will be plenty of opportunities once the dust from the election results settles.

Thursday, May 8, 2014

Stocks in the news this week (May 08, ‘14)

As the much discussed and debated general election is drawing to a close, anxiousness and trepidation seems to have overwhelmed decision making abilities (or inclinations) of investors. Only FIIs have kept their faith on the Indian market.

Trading volumes have shrunk, much to the distress of the broking community. Index movements have become range-bound. Interest has shifted to specific stocks that are either announcing good results or good news.

During results season, good news and bad news should be read between the lines. Some good results are due to low base effect or one-off gains. Likewise, bad results can be due to one-time write-offs or provisions necessitated by tax planning.

Please do your due diligence before investing. The stock market philosophy is ‘caveat emptor’ (‘let the buyer beware’).

City Union Bank

CityUnion_May0714

This bank stock had been struggling in a bear grip for a year before finally breaking out into bull territory in Apr ‘14. Announcement of RBI hiking the FII stake limit in the company caused the recent price spurt. MACD, RSI, Slow stochastic are looking overbought. ROC has corrected overbought conditions. Expect some correction or consolidation before the next up move.

Deepak Nitrite

DeepakNit_May0714

The stock of Deepak Nitrite tested investor patience by being in a bull market for more than 18 months out of which 14 months were spent in a sideways consolidation. After breaking out upwards in Feb ‘14, the stock price has been moving up gradually. The recent high volume activity and price spurt followed announcement of a simultaneous bonus issue and stock split. All four technical indicators are looking overbought. The stock price has tripled in the past 8 months. Time for some correction or consolidation.

Kajaria Ceramics

KajariaCer_May0714

The stock of Kajaria Ceramics has been one of the best performers in the market, giving 5-bagger gains during the past 3 years. The recent high volume price spurt was after announcement of very good Q4 results. All four technical indicators are looking overbought. That doesn’t mean the stock can’t move higher. Some correction will improve the technical ‘health’ of the chart.

Shasun Pharma

ShasunPharma_May0714

Shasun Pharma’s stock had formed a ‘double-top’ reversal pattern in end-2012 (not shown in chart) and dropped 75% from its peak of 185 to its Jun ‘13 low of 45. After a long struggle to extricate itself from a strong bear grip, the stock broke out into bull territory last month. The recent price spurt resulted from news of the company buying global rights of two drugs and stake buy by FIIs. Technical indicators are overbought. The stock price has more than doubled from its Mar 25 ‘14 low of 68.

Wednesday, May 7, 2014

Nifty chart: a mid-week update (May 07 ‘14)

Nifty_May0714

Nifty had broken out of its 5 months long sideways consolidation within a ‘rectangle’ 2 months ago. The index continued its up move past the 6750 level – which was the upward target after the break out from the ‘rectangle’.

Nifty hit an all-time intra-day high of 6870 on Apr 25 ‘14, but formed a ‘reversal day’ pattern and started a correction that is ongoing. The index has dropped below its 20 day EMA and is seeking support from the 6640 level.

Any particular significance of the 6640 level? Sort of. The rise from the top of the ‘rectangle’ to the all-time high was about 520 points. The fall from the top has been 230 points; i.e. a 44% retracement, which is close to the 50% Fibonacci retracement level.

Also, the 6640 level has seen multiple bottoms over the past 5 weeks. A bounce up from here will not be a surprise. The rising 50 day EMA is another likely support in case the Nifty slips some more.

Daily technical indicators have turned bearish, but looking a bit oversold. MACD is still positive, but falling rapidly towards the ‘0’ line. ROC is sliding deeper into negative territory below its 10 day MA. RSI is just above its oversold zone and falling. Slow stochastic is at the edge of its oversold zone.

Overbought conditions that existed through Mar and Apr ‘14 have been corrected. FIIs have been net buyers during the first 4 trading sessions in May, but their activity have been a little low-key. DIIs (i.e. MFs) continue to be sellers – as retail investors have been leaving the market in droves.

Nifty is nicely poised for its next move. Will it be down or up? What do you think?

Tuesday, May 6, 2014

Gold and Silver charts: bulls attempt another rally

Gold Chart Pattern

Gold_May0514

The following comments were made in the previous post on the daily bar chart pattern of gold: “The zone between 1260-1280 acted as a support/resistance zone during the past 6 months. Some buying interest may emerge there. But bears are likely to use any rally to sell.”

Note the spike in buying volume when gold’s price dropped into the zone between 1260-1280. Fundamental analysts may say that buying interest was a result of political unrest in Ukraine and growth slowdown in China. Whatever. In the near term, the support zone is likely to hold.

Gold’s price has closed above its 20 day and 50 day EMAs after two weeks, and may try to move up to test the resistance of its falling 200 day EMA. No prizes for guessing what bears are likely to do.

Daily technical indicators are beginning to look mildly bullish. MACD is negative, but has crossed above its signal line. RSI has crossed above its 50% level into bullish zone. Slow stochastic is trying to follow suite.

On longer term weekly chart (not shown), gold’s price is trading above its 20 week EMA but below its 50 week and 200 week EMAs. Weekly technical indicators are in neutral zones.

Silver Chart Pattern

Silver_May0514

In the previous update to the daily bar chart pattern of silver, investors were forewarned as follows: “Silver’s price is trying to form a bottom at 19.25, but is likely to slip further down to breach its previous low of 18.75.”

Silver’s price slipped below the 18.75 level intra-day on May 1, but bounced up sharply and continued to move up to close at the level of its 20 day EMA. That has not changed the bearishness on the chart.

MACD is still moving sideways in negative territory, crisscrossing its signal line. RSI has moved up to its highest level in more than a month, but remains below its 50% level. Slow stochastic has managed to creep above its 50% level.

On longer term weekly chart (not shown), silver’s price continues to trade below all three weekly EMAs in a bear market.

Monday, May 5, 2014

Understanding Earnings – a dummies’ guide

In the middle of results season, several companies are announcing their quarterly and annual results every day. Financial terms like operating income, EBITDA, EPS, cash flow are being used to explain company performance.

Such terms may be familiar to CAs and commerce graduates but may sound like gobbledygook to those who have a background in science or humanities. In a recent article at morningstar.com, financial terms related to earnings announcements by companies have been explained.

Here is an excerpt:

Revenue: Quite simply, this is the amount of money the company has brought in for goods and services provided over the given time period. Revenue growth, in particular, is a statistic to watch because it may indicate whether the company's business is growing or declining.

Gross profit: The amount of company revenues left over after subtracting the cost of producing the goods and/or services it has sold. These include costs such as raw materials, salaries of the workers who make the products or deliver the services, and other production-related expenses.”

Read the rest of the article here.

Sunday, May 4, 2014

Sunday musings: about ‘maya’ and reality of making money in the stock market

In Hindu philosophy, the idea of ‘maya’ is a key to understand the concept of ‘Brahman’ (Cosmic Spirit or Energy). ‘Brahman’ is to be realised and can’t really be explained. But sages have tried their best by using the duality of ‘illusion’ and ‘reality’ to provide answers to questions like who we are, where we come from, and where do we go when we leave this world.

In the scriptures, ‘maya’ had an earlier association with wisdom and power. Later it came to mean ‘illusion’ or rather, ‘delusion’. Some scholars and experts refer to ‘maya’ as the power or energy of a Supreme Being that it projects on to the universe. That is what creates life, existence and death of all mortal beings in an eternal play (or ‘Leela’) for the pleasure of the Supreme Being.

Others refer to ‘maya’ as ignorance or delusion that confuses the individual soul (or ‘Atman’) from attaining divinity (or ‘Moksha’). The ‘Atman’ identifies itself with a body and mind and gets stuck in the pitfalls of the physical world and its transient feelings of being happy or sad, well or unwell, rich or poor.

In Hindu scriptures, the anecdote of mistaking a harmless piece of rope for a poisonous snake in indistinct light is used as a metaphor about the incorrect identification of the imperishable ‘Atman’ with a perishable body. The ‘snake’ is the impermanent and perishable body; the ‘rope’ is the reality (or ‘Atman’) and the ‘indistinct light’ is the delusion of ‘maya’ that causes the confusion.

The stock market is but a subset of the physical world. The illusion or ‘maya’ is the belief of anyone with a demat account that incredible wealth can be attained by simply buying a stock of a company. It is ‘maya’ that prevents even apparently intelligent individuals who are successful in their professional lives from accepting and understanding the reality (by learning the ‘rope’s) of the stock market.

Danger is lurking at every corner. Experienced investors with deep pockets are just waiting to take away the hard-earned money of small investors who are under the illusion that making money is as easy as sending an SMS.

Give yourself a chance. Learn the reality – not only of how the stock market works, but the steps and plans that are required to build and keep wealth for the long term.

Saturday, May 3, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – May 02, 2014

In another truncated trading week due to a holiday on Thursday (May Day/Maharashtra Day), trading activity remained muted. FIIs remained net buyers during April ‘14; DII selling matched FII buying – unlike in March ‘14 when FII buying during the month was nearly double of DII selling. The effect can be clearly seen on Sensex and Nifty charts below. Monthly close of April ‘14 and March ‘14 were almost identical.

An unusually hot summer so far and the likelihood of El Nino has already caused food prices to move higher. Inflation is likely to start rising again. RBI will be forced to either hold interest rates or even raise them. Rate-sensitive stocks are already bearing the brunt of high interest rates. Auto sales in April were down. Commercial vehicle sales have not picked up. Economic growth will be a challenge for the new government.

Investors should concentrate on companies announcing their annual results, and look for those that are producing consistent and sustained performances rather than those that are declaring spectacular profits in the most recent quarter. Often the spectacular profits are due to one-offs or base-effect (i.e. poor profits in the year-ago quarter).

BSE Sensex index chart

SENSEX_May0214

The daily bar chart pattern of Sensex closed lower on all four days of the trading week, but found support from its 20 day EMA. The following comments were made in last week’s analysis: “Friday’s bar has formed a ‘reversal day’ pattern, which may lead to some correction or consolidation.”

Can the index correct some more? Daily technical indicators are suggesting so. MACD is positive but falling below its signal line. Note the bearish ‘rounding top’ pattern formed by the signal line. ROC has dropped into negative territory, but trying to move up. RSI is seeking support from its 50% level. Slow stochastic has dropped below its 50% level.

Investors appear a bit jittery about the election outcome even though every one is expecting NDA to form the next government. Remember that pollsters got it wrong in 2004 and 2009. So, it is better to err on the side of caution. In other words, continue with existing investment plans but refrain from making heavy bets – particularly on unknown stocks.

There will be plenty of investment opportunities in the market after May 16. Regardless of who forms the next government.

NSE Nifty 50 index chart

Nifty_May0214

The weekly bar chart pattern of Nifty continued to struggle in its efforts to cross the 6800 level convincingly. Despite intra-week breaches, Nifty failed to close above 6800 on a weekly basis. The two weekly EMAs and the long-term up trend line (in blue) are rising and Nifty is trading above them. The long-term bull market remains intact.

Weekly technical indicators have begun to correct from overbought conditions. MACD is inside its overbought zone, but starting to turn down. ROC is about to drop from its overbought zone and cross below its 10 week MA. RSI has slipped down from its overbought zone. Slow stochastic is inside its overbought zone, but started to slide down.

Some more correction or consolidation is likely. Expect market volatility to increase as the election results date approaches. Ignore it. If any of your portfolio stocks suddenly shoot up, book part profits.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are undergoing mild bull market corrections. Despite an expected NDA victory, there is little euphoria in the market. That means a NDA majority can propel the indices much higher. Those who are in the market should stay invested with appropriate stop-losses in case there is a hung parliament. Don’t postpone your current investment plans.

Friday, May 2, 2014

Stocks in the news this week (May 02, ‘14)

The last two phases of the extended general elections will take place over the next 10 days. Despite several polls predicting an NDA victory, stock market activity has slowed down as investors are not too sure of the election outcome. That hasn’t prevented a few stocks from going through the roof during the week. 

Quarterly results are being announced thick and fast. Most company announcements so far have been either along expected lines or below expectations. Their stocks have faced bear pressure. A few companies have provided positive surprises. Their stocks have received immediate buying attention.

Remember that news-based buying or selling doesn’t last long – unless the news is great or really bad. So, don’t get sucked into a bull or bear trap unwittingly. Do your due diligence.

Fulford

Fulford_May0214

This small-cap pharma subsidiary of a MNC made a loss last year and was trading in miniscule volumes when news of delisting through the book building method hit the market. Four straight days of upper circuit on massive volumes followed. All four technical indicators are looking extremely overbought. The stock has nearly doubled from its Mar ‘14 low of 619.95.

Tata Sponge

TataSponge_May0214

The stock of Tata Sponge entered three sets of rectangular consolidations, and broke out upwards from them on strong volumes. But this time it’s different. Though the latest break out coincided with announcement of good Q4 results, all four technical indicators are showing negative divergences by failing to touch new highs. The stock price has doubled from its Jan ‘14 low of 290.35.

TVS Motor

TVSMot_May0214

The stock price of TVS Motors had touched a 52 week high of 101.35 on Mar 24 ‘14, but formed a ‘reversal day’ pattern (higher high, lower close) and corrected down to a low of 84 a month later. The high-volume spike to a new 52 week high of 102.50 today was due to announcement of very good Q4 results. All four technical indicators are showing negative divergences by failing to touch new highs. The stock price has gained 265% from its Jul ‘13 low.

UPL

UPL_May0214 rev

The stock of UPL had formed a bullish cup-and-handle continuation pattern. The expected upward break out was accompanied by a huge volume surge as the company announced very good Q4 results. All four technical indicators are looking overbought. The stock price has more than doubled from its Aug ‘13 low of 121.