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Tuesday, September 30, 2014

Gold and Silver charts: an update

Gold Chart Pattern

Gold_Sep3014

In a post two weeks ago, the bar chart pattern of gold had dropped below the support level of 1240. Though technical indicators were in their respective oversold zones, bears were expected to sell on rallies. Gold’s price was in danger of testing and breaching its longer-term support level of 1180.

A pullback towards 1240 met with more bear selling. Gold’s price has been in a sideways consolidation with a downward bias, and dropped briefly below the 1210 level. Oversold conditions have been corrected somewhat.

Daily technical indicators are bearish. MACD has formed a small ‘rounding bottom’ pattern to touch its falling signal line, but remains inside its oversold zone. RSI has emerged from its oversold zone, but may fall back in again. Slow stochastic has also emerged from its oversold zone, but its upward momentum looks weak.

On longer term weekly chart (not shown), gold’s price is trading well below its three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones – a test and possible breach of 1180 is likely.

Silver Chart Pattern

Silver_Sep3014

Two weeks back, the 6 months daily bar chart pattern of silver was trading within a downward channel, and had breached the support level of 18.65. The Jun ‘13 low of 18 was under threat of being tested and breached.

A brief intra-day move above the 18.75 level met with bear selling, and three days later, silver’s price dropped below 18 on a huge volume surge that breached the lower edge of the downward channel. An intra-day low of 17.25 was touched, followed by a brief recovery.

Daily technical indicators are well inside their respective oversold zones. A pullback can occur at any time. But bears have a stranglehold on the chart. There seems to be little hope of any bullish revival.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMAs in a long-term bear market. Technical indicators are bearish, and looking a bit oversold. Next downside target is 16.

Monday, September 29, 2014

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

S&P 500 Index Chart

SPX_Sep2614

Last week, the 6 months daily bar chart pattern of S&P 500 had touched a new high of 2019 on Fri. Sep 19 ‘14, but formed a ‘reversal day’ pattern with a strong surge in volumes. Another bearish sign was negative divergences visible on all three technical indicators.

The following warning note was sounded: “If the index drops below its recent low of 1980, a bearish ‘broadening top’ pattern will get formed – in which case, a possible test of the Aug ‘14 low of 1905 will be on the cards.”

The index dropped below the bearish ‘broadening top’ and its 50 day EMA on Thu. Sep 25 ‘14, but bounced up above the 50 day EMA by the end of the week. At the time of writing this post, the index has again dropped below its 50 day EMA. A test of the Aug ‘14 low of 1905 is now a possibility.

Daily technical indicators are looking bearish. MACD is falling below its signal line, and is about to enter negative territory. RSI has dropped below its 50% level. Slow stochastic has dropped inside its oversold zone.

On longer term weekly chart (not shown), the index is seeking support from its 20 week EMA, but is trading above all three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but showing downward momentum. Some more correction is likely.

FTSE 100 Index Chart

FTSE_Sep2614

Last week, the 6 months daily bar chart pattern of FTSE 100 looked technically poised to move higher. Instead, the index dropped sharply below its three EMAs and the 6700 level into bear territory.

After a brief pullback to its 200 day EMA, which brought bears to the fore, the index dropped and closed below the 6650 level for the week. The good news for bulls is that the index touched a higher bottom than the one touched in Aug ‘14.

The bad news is that all three technical indicators are bearish, and two of them – RSI, Slow stochastic – are showing negative divergences by touching lower bottoms. That means, the correction may not be over yet.

On longer term weekly chart (not shown), the index dropped sharply below its 20 week and 50 week EMAs, but is trading well above its 200 week EMA in a long-term bull market. Weekly technical indicators are turning bearish.

Sunday, September 28, 2014

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

The role reversal in the Indian market continued for the second week in a row. DIIs have turned bulls. Their net buying in equity during the week was almost Rs 2500 Crores. But net FII selling of Rs 4150 Crores tilted the scales in favour of bears. Supreme Court’s cancellation of coal blocks allocated over the past 2 decades affected sentiments.

Both Sensex and Nifty have corrected about 4% from their respective peaks touched on Sep 8 ‘14 – which are considered mild corrections in bull markets. The bad news for bulls is that both indices have formed bearish patterns of lower tops and lower bottoms since Sep 8.

The good news for bulls is that both indices are in long-term bull markets with plenty of supports on the downside from trend lines, moving averages and gaps (formed on daily charts back in May ‘14). The corrections will improve the technical ‘health’ of both indices – enabling them to move higher.

BSE Sensex index chart

Sensex_Sep2614_ST

On Fri. Sep 26 ‘14, the daily bar chart pattern of Sensex dropped below its 50 day EMA intra-day, but managed to recover and close well above it.

Support from the blue up trend line (marked UL3) was not tested – but that can happen next week. Will the support hold, or will it get breached? As per trend line theory, the more a trend line gets tested the stronger it gets. UL3 has already been tested twice. So, odds of a breach are low.

What if the trend line does get breached? Technical analysis is not a science, but based on empirical observation of many thousands of charts. ‘Rules’ don’t always hold. The next likely support is in the zone between 25375 (top touched in May ‘14) and 25725 (top touched in Jun ‘14).

Daily technical indicators are looking bearish. MACD is falling below its signal line in positive zone. ROC is below its falling 10 day MA in negative zone. RSI and Slow stochastic have dropped towards the edge of their respective oversold zones. A bit more correction is possible, but buying support should emerge soon.

Many good mid-cap and small-cap stocks have corrected sharply during the past 3 weeks. This may be a good time to add them, or even enter afresh if you had booked profits earlier.

NSE Nifty 50 index chart

Nifty_Sep2614_LT

The weekly bar chart pattern of Nifty came within 50 points of testing support from the blue up trend line (marked UL3), before bouncing up. It was the first lower weekly close after 6 weeks. Is the correction over?

Weekly technical indicators are suggesting otherwise. MACD has merged with its signal line inside its overbought zone. ROC has crossed below its falling 10 week EMA in positive zone. RSI is sliding down after failing to re-enter its overbought zone. Slow stochastic is moving down towards the edge of its overbought zone.

In case the index falls below UL3, it should receive support from the zone between 7560 (top touched in May ‘14) and 7700 (top touched in Jun ‘14). Note that the 20 week EMA is in the middle of the support zone – strengthening it further.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are undergoing mild bull market corrections - turning charts of both indices technically ‘healthy’. Add to existing holdings, or just stay invested. Don’t panic if the indices fall some more. Learn to rely on your asset allocation plan.

Wednesday, September 24, 2014

Why periodic profit booking in a bull market is a good idea – a guest post

Most new retail investors join the party late – after a bull market has already been in progress for some time. New highs are hit on a regular basis by market indices and individual stocks. Investors feel excited that the shares they have bought at already high prices are moving even higher.

But stock markets don’t move in only one direction. Corrections in bull markets are common and happen often. Some times these corrections are small – between 3-5% – but once in a while, a 15-20% correction from the top causes panic when some stocks lose more than 30-40% from their tops.

In this month’s guest post, Nishit argues in favour of partial profit booking on a regular basis to turn notional profits into real cash that can be redeployed on corrections or enjoyed as spending money.

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Often the main questions of small investors are when to buy shares and when to book profits. The stock markets are driven by 2 factors - Fear and Greed. Fear grips when markets are falling and that is what prevents investors from buying shares at mouth watering prices. Those who bought shares in August 2013 have seen share prices of very good companies double or treble.

The second emotion which drives investors is Greed. If Aug’13 was driven by Fear we have September’14 driven by greed. When does one book profits? The markets may go up further. We may miss profits if we sell now. Then, one day a crash may come and wash away the entire amount.

So what does the retail investor do in all this?

For every investment, there has to be a price fixed where profit has to be booked. Without booking profits, they remain notional profits. At the same time, there are several investors I know who have been holding a ITC shares since the 1970s and they have become worth crores after splits and bonuses.

Suppose I have bought 200 shares of a company X giving a dividend of Rs 1 at Rs 100. I book partial profits after the shares reach a price of Rs 150 where I get rid of say 30% of my shares.

My original investment was Rs 20000. I have booked profits worth Rs 9000. My cost price for remaining 140 shares becomes Rs 11000 - which is about Rs 78.50 per share. Re 1 dividend on Rs 78.50 gives me a dividend yield of about 1.3%. Over a period of time the company is expected to do well and the dividend amount will increase. At some point, I will get a tax free dividend yield of 5-6% - which means my residual shares have become almost like a bank FD.

Also, if I follow the markets closely I can do a bit of trading in the shares of the same company.

From the freed-up capital, I am able to make fresh purchases, or enjoy the fruits of my investments (if we do not enjoy the fruits then why invest?)

There a few riders to this strategy. The company has to be a very good company like an Axis Bank or Yes Bank or a Voltas.

Business scenarios change and the company’s products or services may become obsolete - so one must be ruthless about dumping the company if it is no longer doing well.

Hence, please book profits regularly, and enjoy the fruits of your hard work.

It is a good time between now and Diwali to take some money off the table if the market continues to rise.

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

Nishit blogs at Money Manthan. You can reach him at nish.stockid@gmail.com)

Tuesday, September 23, 2014

WTI and Brent Crude Oil charts: sliding deeper into bear territory

WTI Crude chart

WTI Crude_Sep2214 

In a previous post on the 6 months daily bar chart pattern of WTI Crude oil, bears were expected to maintain their control, but the zone between 90-92 was expected to provide some support.

All three EMAs are falling, and oil’s price is trading below them in a bear market. Note that a couple of attempts at rallies touched lower tops of 96 and 95, but oil’s price received good support from the 90-92 zone. Will the support hold?

All three technical indicators are in bearish zones, but are showing positive divergences by forming bullish patterns of higher tops and higher bottoms during the past 4 weeks, while oil’s price has been trading in a bearish pattern of lower tops and lower bottoms.

Another attempt at a rally is possible from the current level, but downward momentum appears to be building up again. That means a likely breach of the 90 level should follow shortly.

On longer term weekly chart (not shown), oil’s price has closed below its 200 week EMA for three straight weeks. Weekly technical indicators are looking oversold. The 20 week EMA has crossed below the 50 week EMA, and is falling rapidly towards the 200 week EMA. A fall below 90 can push oil’s price down to 85.

Brent Crude chart

BrentCrude_Sep2214

The 6 months daily bar chart pattern of Brent Crude oil continues to slide deeper into bear territory, with the falling 20 day EMA thwarting all attempts at rallies by bulls. Excess supply in the market, following restarting of production at Libya’s largest oil field after a rebel rocket attack, added to the woes of bulls.

All three technical indicators are in bearish zones and looking a bit oversold, and also showing positive divergences by touching higher bottoms while oil’s price touched a lower bottom. Some sideways consolidation or a weak attempt at a rally will probably face more selling from bears.

On longer term weekly chart (not shown), oil’s price has closed below its 200 week EMA for six weeks in a row. The 20 week EMA is about to cross below the 200 week EMA. Weekly technical indicators are looking bearish, and oversold. The long-term bull market is under serious threat. A test of the Jun ‘12 low of 88 is a possibility.

Monday, September 22, 2014

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

S&P 500 Index Chart

S&P 500_Sep1914

The following comments appeared in last week’s analysis of the 6 months daily bar chart pattern of S&P 500: “It is possible that the index may soon resume its rally. However, the ‘rounding top’ pattern formed on the index (also clearly visible on the MACD signal line) is hinting at a continuation of the correction in the near term.”

Bearish technical signals at or near market tops should be respected, particularly when a bull market has been progressing for a long time. Note that the index received support from the 1980 level, and bounced up to touch a new lifetime high of 2019 on Fri. Sep 19 ‘14. But it again formed a ‘reversal day’ pattern (higher high, lower close) backed by a sharp increase in volumes.

All three technical indicators are in bullish zones but touched lower tops while the index touched a new high – the combined negative divergences have led to another correction that has received support from the 20 day EMA at the time of writing this post.

If the index drops below its recent low of 1980, a bearish ‘broadening top’ pattern will get formed – in which case, a possible test of the Aug ‘14 low of 1905 will be on the cards.

On longer term weekly chart (not shown), the index is trading above all three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but are showing negative divergences by failing to touch new highs with the index.

FTSE 100 Index Chart

FTSE_Sep1914

Downward momentum visible on the technical indicators in last week’s analysis of the 6 months daily bar chart pattern of FTSE 100 index had led to an expectation of some more correction or consolidation.

The index dropped sharply below its 50 day EMA on Tue. Sep 16 ‘14, but received good support from the 6750 level. By the end of the week, the index spurted above 6850 on a huge volume increase but closed at 6834 with a modest 30 points gain for the week.

The index is trading above all three EMAs in a long-term bull market and looks poised to touch new highs. Daily technical indicators are beginning to look bullish after correcting overbought conditions. MACD is rising towards its falling signal line in positive zone. RSI has moved above its 50% level. Slow stochastic is climbing up towards its 50% level.

On longer term weekly chart (not shown), the index again received support from its 20 week EMA, and is trading above all three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones.

Sunday, September 21, 2014

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

FIIs turned bears during the week. DIIs took up the slack and turned bulls. Money is pouring into equity mutual funds – over Rs 5000 Crores were added during Aug ‘14 – in a typical sign of late entry by retail investors.

The much-hyped visit of the Chinese President, including the announcement of an investment of $20 Billion over 5 years and development of mutual trust to resolve lingering border issues, sent the stock market soaring on Thu. Sep 18 ‘14.

Japan’s promise of investing $35 Billion means Modi’s ‘look East’ policy is beginning to bear fruit. Both countries can help improve and expand our manufacturing capabilities. We can provide them our expertise in IT services – a win-win situation that will boost business and cooperation in the APAC region.

BSE Sensex index chart

Sensex_Sep1914

The daily bar chart pattern of Sensex failed to move above its Sep 8 top, but closed marginally higher for the week at 27090 – a new high on a weekly closing basis. The index is back above its three EMAs and the post-election up trend line (marked UL3) in bull territory.

Note that the index received support from the 26500 level, which had acted as a resistance during Aug ‘14 – proving once again that exact price levels (such as trend lines and support/resistance levels) are more reliable than calculated levels (such as EMA and Fibonacci retracement).

Daily technical indicators are showing signs of bullishness after correcting overbought conditions. MACD has started to move up towards its falling signal line in positive zone. ROC has crept back into positive territory but remains below its falling 10 day MA. RSI bounced up from its 50% level, but is slipping down. Slow stochastic has climbed above its 50% level.

Expect the index to conquer new highs soon.

NSE Nifty 50 index chart

Nifty_Sep1914

The weekly bar chart pattern of Nifty touched a new weekly closing high – its 6th straight higher weekly close. The post-election up trend line (marked UL3) was not even tested during the correction from the previous week’s top.

Volumes have started rising during the past 6 weeks, which will help to sustain the bull rally. Nifty is trading above its two weekly EMAs and both the longer and shorter time trend lines in a long-term bull market.

Weekly technical indicators continue to look overbought. Negative divergences visible on all four indicators – which failed to touch new highs with the index in the previous week week – led to a small 3% correction.

The index is ready to climb to higher levels.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices touched new lifetime weekly closing highs last week. Small intermittent corrections have kept charts of both indices technically ‘healthy’. Stay invested. Avoid the urge to ‘do something’. Patiently holding existing portfolios of good stocks can provide large gains in this bull market.

Friday, September 19, 2014

How to value Companies with Negative Earnings

Negative earnings means losses. Most small investors should stay far away from companies with negative earnings. However, there are instances of even well-managed companies running into problems and making losses. If the problems are temporary in nature, then a turnaround may be just a few quarters away, and the stocks of such companies can give phenomenal returns.

But how does one know whether negative earnings have been caused by temporary problems, or whether the problems are more deep-rooted? Traditional valuation metrics, like P/E (or E/P) or RoE won’t work because the ratios will be negative. In a recent article at investopedia.com, three methods of valuing companies with negative earnings have been discussed.

Here is an excerpt:

“Investing in unprofitable companies is generally a high-risk, high-reward proposition, but one that many investors seem willing to make. For them, the possibility of stumbling upon a small biotech with a potential blockbuster drug, or a junior miner that makes a major mineral discovery, makes the risk well worth taking.

While hundreds of publicly traded companies report losses quarter after quarter, a handful of them may go on to attain great success and become household names. The trick, of course, is identifying which of these firms will succeed in making the leap to profitability and blue-chip status.”

You can read the full article at the link below:

http://www.investopedia.com/articles/investing/121013/how-value-companies-negative-earnings.asp?

Thursday, September 18, 2014

7 investing mistakes to avoid in this rampaging bull market

There has been a sea-change in market sentiments ever since the Modi-led BJP received a majority in the general elections. The chaos, confusion and scams of coalition governments of the past many years have come to an end.

Modi is expected to usher in a new dawn of corruption-free, growth-oriented and economically inclusive administration that will restore India to the top echelons of world leadership. In anticipation, a new bull market has started – and as per consensus estimate of experts, it will be a multi-year bull market.

Even after 100 days – during which not much has changed on the ground (it may be too short a time to expect major changes) – the feeling of hope and expectation of ‘acche din’ persists. The setback for the BJP in the recent by-elections may be a temporary aberration. Today’s strong rally in the market has confirmed bullish sentiments.

For small investors who have not been able to participate in the bull rally so far, or the few smart ones who managed to get in early but are experiencing their first ‘real’ bull market, this is as good a time as any to be aware of some easily avoidable investing mistakes in a bull market. Here are 7 of them, not in any particular order:

Mistake 1: Taking expert opinion at face value

It is the job of market experts to voice their opinions – even if they contradict each other. Many have vested interest in the stock market, in spite of their disclaimers. Do not consider any such opinion as gospel truth. Use your intellect and common sense. Particularly regarding buy/sell recommendations, one should do their own due diligence and act only if convinced.

Mistake 2: Believing that a ‘new’ bull market has started

In a post three months ago, it was explained why this bull market may be 5.5 years old from a long-term perspective, and at least 1 year old from a short-term perspective. In other words, it can’t be considered ‘new’. That means, most of the low-hanging fruit have been plucked. One needs to be extra careful in selecting individual stocks for investment now.

Mistake 3: Thinking that a rising tide lifts all boats

In a bull market, small companies with low equity and questionable management start flying through the roof. The rise in stock price is often the result of circular trading among a few entities working in cahoots. These are leaky boats. They may rise when the tide comes in, but will sink soon – leaving small investors with a useless entry on their demat statements.

Mistake 4: Buying individual stocks on a limited budget

If you are a small investor getting your feet wet in the market, you probably don’t have much savings to spare. You may want to buy 10 shares of Tata Motors or 100 shares of Ashok Leyland. Don’t do it. If the stock price rises 10%, you will be tempted to book profits – missing out on a bigger payday. If the stock falls 10%, you may get into a panic and sell, instead of buying more. Better to start a SIP in a good equity fund. Build up your capital for 4-5 years, then think of buying individual stocks.

Mistake 5: Taking a personal loan to invest in stocks 

Don’t have enough savings? Still itching to enter the market? Forget about taking a personal loan. The interest cost will be prohibitive, and will need to be paid regardless of your portfolio’s performance. Buying an iPad or a fancy cellphone on EMI is bad enough – but you will at least have a useful asset. But once a stock starts falling like a stone, you may not have the will power or discipline to sell at a loss.

Mistake 6: Waiting for a correction to enter

Timing the market is difficult, if not impossible. It requires several years of investing experience to understand which correction to invest in and which correction to sit out. Investing at or near a market top may not give good returns in the near term, but investing your savings regularly and having a long-term (3-5 years) outlook is likely to provide inflation-beating returns.

Mistake 7: Investing without a plan

When you think about going on a vacation, you tend to plan well in advance to avail of cheaper air-tickets and better hotel deals. But when it comes to investing, you probably don’t even think about how deep the water is or whether there are sharks lurking before diving in. It is imperative that you make a financial plan and an asset allocation plan before buying a single stock or fund. The plans should reflect your financial commitments, aspirations and risk tolerance. Buying stocks or funds according to your plans will provide better returns and enable you to reach your financial goals.

Related Post

How to reallocate your assets

Wednesday, September 17, 2014

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

WPI inflation in Aug ‘14 dropped for the third straight month to a 5 yr low of 3.74% – significantly lower than 5.19% in Jul ‘14 – thanks to lower oil price and higher base effect. The RBI Governor however ruled out an interest rate cut because CPI inflation still remains high.

Exports grew only 2.35% in Aug ‘14 – the lowest growth in 5 months – while imports grew 2.08%, but the trade deficit was down to $10.7 Billion from $12.2 Billion in Jul ‘14 due to lower oil import cost. Export growth may remain low due to slow economic growth in the Euro zone.

Bearish technical signals (mentioned in last week’s post) led to a continuation of the correction from the Sep 8 ‘14 intra-day top of 8180. The index dropped below its 20 day EMA to an intra-day low of 7925 on Sep 16 before pulling back to the 20 day EMA today.

Nifty_Sep1714

Is the correction over, or can Nifty correct some more? Note that the last leg of the rally from the intra-day low of 7540 (touched on Aug 8 ‘14) to the intra-day top of 8180 (touched on Sep 8 ‘14) covered 640 points.

By touching an intra-day low of 7925 on Sep 16, the index retraced about 40% of the rally – greater than the 38.2% Fibonacci retracement level, but less than the 50% Fibonacci retracement level of 7860 (which is just above the current level of the 50 day EMA).

Higher volumes on down days indicate that bears are active – so the correction may continue a bit longer. Daily technical indicators are looking bearish. MACD has crossed below its signal line in positive zone. ROC has dropped inside its negative zone. RSI is seeking support from its 50% level. Slow stochastic is falling sharply towards its oversold zone.

Nifty is in a long-term bull market. Overbought conditions have been corrected, improving the technical ‘health’ of the chart. FIIs were net buyers today after being in profit booking mode during the first two days of the week.

Setbacks for the BJP in the recent by-elections may have affected market sentiments a little. Expect the up move to resume shortly.

Tuesday, September 16, 2014

Gold and Silver charts: going down the trail of broken supports

Gold Chart Pattern

GOLD_Sep1514

In a post 4 weeks ago, the bar chart pattern of gold had touched a lower top of 1325 in bull territory. But bears used the opportunity to sell, and gold’s price had slipped down below all three EMAs. Some consolidation was expected before the down move was expected to resume.

What occurred instead was a feeble attempt at a rally towards the end of Aug ‘14 within a small ‘rising wedge’ pattern. The falling 50 day and 20 day EMAs provided stiff resistance. Gold’s price dropped sharply below the ‘wedge’ on Sep 1 on a volume surge, and continued to fall till it dropped below the support level of 1240 (marked by blue horizontal line).

Note that the support level of 1240 acted as a resistance when gold’s price attempted a pullback yesterday (Sep 15). All three daily technical indicators are in their respective oversold zones. Any attempt at a rally will probably face more bear selling. Looks like the long-term support level of 1180 – touched in Jun and Dec ‘13 – will finally get tested, and may be even broken.

On longer term weekly chart (not shown), gold’s price is trading below all three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones – hinting at a continuation of the down move.

Silver Chart Pattern

SILVER_Sep1514

The 6 months daily bar chart pattern of silver has been in a free fall within a downward-sloping channel for the past 2 months - except for a sharp intra-day break out above the channel (and the falling 20 day EMA) on Aug 28.

Silver’s price breached the support level of 18.65 (marked by thick blue horizontal line) last week, and pulled back to close just above the support level yesterday (Sep 15). Even if the pullback continues, silver’s price is likely to remain within the downward channel.

All three daily indicators are inside their respective oversold zones – but in a bear market, indicators can remain in oversold zones for long periods. Note that Slow stochastic has remained oversold for more than a month. Any rallies are likely to attract bear selling.

On longer term weekly chart (not shown), silver’s price is trading below all three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones. The Jun ‘13 low of 18 is under threat of being tested and breached.

Monday, September 15, 2014

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

S&P 500 Index Chart

S&P 500_Sep1214

In a post 3 weeks ago, the 6 months daily bar chart pattern of S&P 500 had touched new lifetime intra-day (1995) and closing (1992) highs, but several bearish technical signals had led to the following concluding remark: “Booking part profits may be a good idea.”

The index continued to rally, and rose to touch a new lifetime intra-day high of 2011 on Sep 4 ‘14, but formed a ‘reversal day’ pattern that marked an intermediate top. The subsequent correction has dropped the index below its 20 day EMA to 1985 – marginally lower than the level of 1988 (closing on Aug 22) at which part-profit booking was suggested.

This is an example of why it is difficult to catch exact market tops or bottoms, but technical signals often provide advance warning of an impending change of trend. It is possible that the index may soon resume its rally. However, the ‘rounding top’ pattern formed on the index (also clearly visible on the MACD signal line) is hinting at a continuation of the correction in the near term.

Daily technical indicators have turned bearish. MACD has crossed below its signal line in positive zone, and its downward momentum is increasing. RSI is about to drop below its 50% level. Slow stochastic has already fallen below its 50% level. All three indicators showed negative divergences by failing to touch new highs with the index.

On longer term weekly chart (not shown), the index is trading above all three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but showed negative divergences by failing to touch new highs with the index. Sliding volumes and higher volumes on down weeks are concerns for bulls.

FTSE 100 Index Chart

FTSE_Sep1214

The following comments were made 3 weeks ago in a post about the 6 months daily bar chart pattern of FTSE 100: “The index appears to be forming a bullish ‘flag’ pattern. A likely upward break out from the ‘flag’ may take the index to a new high.”

As if on cue, the index broke out upwards and after another brief sideways consolidation rose to touch a new high of 6905 on Sep 4 ‘14 – crossing above the May 15 ‘14 high of 6895 and finally breaking out of the bearish pattern of lower tops and lower bottoms.

As often happens after a new high is touched, profit booking started and pushed the index below the 6800 level – where it received good support from its 50 day EMA. The index is trading above its three EMAs in a long-term bull market.

Daily technical indicators are in bullish zones but showing downward momentum. MACD has crossed below its signal line in positive territory. RSI is just above its 50% level. Slow stochastic is resting on its 50% level. Some more correction or consolidation is likely.

On longer term weekly chart (not shown), the index received support from its 20 week EMA, and is trading above all three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing negative divergences by failing to touch new highs with the index.

Sunday, September 14, 2014

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

There was good news and bad news on the economic front last week. First, the good. Consumer Price inflation during August eased slightly to 7.8% – but still remains high enough to preclude any interest rate cut by RBI.

Now, the bad. The IIP number during July was a paltry 0.5% – much lower than the previous month’s 3.9% – thanks mainly to a 21% contraction in consumer durables output. FIIs invested a net Rs 2250 Crores in equities, which was counteracted by DIIs net selling of Rs 2510 Crores.

The net effect was a small mid-week correction in both Sensex and Nifty. However, retail buying ensured that both indices closed marginally higher for the week – the fifth straight week of gains.

BSE Sensex index chart

SENSEX_Sep1214

In a post 4 months back, the 156 points ‘gap’ formed on the daily bar chart pattern of Sensex on May 13 ‘14 was identified as a ‘measuring gap’ with an upward target of 27339. By touching an intra-day high of 27355 on Sep 8 ‘14, the Sensex has almost met the target.

Why almost? Because targets are met only on a closing basis. Sensex has not managed to close above 27355 yet. But that should happen in the very near future. What is likely to be the next move for the index?

Daily technical indicators have corrected overbought conditions, and their downward momentum appears to be slowing down. That could lead to a bit of consolidation before the up move resumes.

How much higher can the index go? Remember that Sensex is in ‘blue sky’ territory with no known resistances. Trying to predict index levels is a futile exercise. Periodic corrections have ensured that Sensex valuations are still reasonable, but no longer cheap. Q2 results will indicate if earnings are beginning to catch up with sentiments.

Stay invested, and stick to your financial plan. Your asset allocation plan should tell you whether you need to book profits. Still don’t have a financial plan? That is like boarding a train without knowing where it is going and how long the journey will take! (May be a fun thing to do if you are young and carefree – but disastrous if you have family and financial responsibilities.)

NSE Nifty 50 index chart

Nifty_Sep1214

The weekly bar chart pattern of Nifty touched new intra-week and closing highs. It was the fifth straight week of higher closes. Trading volumes are on the rise, which is good for sustainability of the current up trend (marked by new up trend line UL3).

In a mid-week technical update, some bearish signs had pointed to a likely correction. The correction last just 3 days. Some profit booking that failed to have any significant effect on market sentiments.

Weekly technical indicators are in bullish zones. MACD and Slow stochastic are inside their respective overbought zones. ROC and RSI are showing some downward momentum and negative divergences by failing to touch new highs with the index. Some consolidation or a bit of correction can be expected.

Nifty is trading above its two weekly EMAs and two up trend lines in a long-term bull market. Whatever you do, don’t think about shorting the index. If you are not the patient type, spend your energies on researching BSE 500 stocks. Some of them are still available at reasonable valuations.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices touched new lifetime highs once more. FIIs and DIIs continue to play bulls and bears respectively. The long-term trend is up. That means corrections are opportunities to add to existing positions.

Saturday, September 13, 2014

Technical updates – Bharti Airtel and OnMobile Global

A bearish opinion about the telecom sector was posted almost 5 years ago, giving clear reasons why investors would benefit by switching out of telecom stocks. Though a few readers agreed with my opinion, there was a mini storm of protest in a couple of online investor groups.

A look at the 2 year charts of two telecom sector stocks – one a leader among mobile services providers and the other a leading value-added software player – will show that the bearish opinion wasn’t very far off-target.

With BJP gaining a surprise majority in the general elections, stock market sentiments have received a bullish boost. While that has helped the fortunes of the Bharti Airtel stock to a certain extent, helping it to break out above a prolonged rectangular consolidation, the stock of OnMobile Global continues to languish in bear territory.

Bharti Airtel

Bharti_Sep1214 

The stock price of Bharti Airtel had been consolidating sideways in a rectangular band between 280 and 359 for almost 2 years. Note that the 280 level acted as a support/resistance level. A ‘surprising coincidence’ about the 359 level is that Bharti was quoting at that level when my post appeared in Oct ‘09. Such surprising coincidences make technical analysis an interesting pursuit.

An upward break out from a rectangle has measuring implications. The height of the rectangular band is 79 points (= 359 – 280). That gives a minimum upward target of (359 + 79 =) 438. Remember that in a bull market, upward targets are often exceeded.

All four technical indicators are looking overbought, with three of them – ROC, RSI, Slow stochastic - showing negative divergences. The stock price may correct or consolidate before resuming its up move. Will any correction be an opportunity to enter? It is your call. Telecom is not my favourite sector.

OnMobile Global

OnMobile_Sep1214

The stock of OnMobile Global was trading at 234 five years back. It has been all downhill since then for a company that was an offshoot of Infosys. One of the co-founders got involved in financial shenanigans and had to leave. The other co-founder – a former Infosys member – took over the reigns for a while, but he is a tech guy and his heart was not in administration.

The company’s domestic business is not growing much. Overseas business is supposedly doing well but requires a lot of capital expenditure that keeps margins under pressure. The stock failed to cross above the long-term support/resistance level of 39, despite strong volume support, and has slipped down into bear territory.

One good news for the bulls is that the stock has formed a bullish pattern of higher tops and higher bottoms since closing below the 20 level in Jul ‘13. A fall below its May ‘14 low of 27 will negate the bullish pattern.

Technical indicators are showing some bullish signs, with MACD crossing above its signal line in negative zone, and ROC and Slow stochastic climbing into bullish zones. However, RSI has failed to move above its 50% level despite a few attempts. Enter only if the stock price convincingly moves above 39.

Wednesday, September 10, 2014

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

In a post 4 months back – even before the general election results were announced – the 47 points ‘gap’ formed on the Nifty chart on May 13 ‘14 was identified and analysed as a ‘measuring gap’ that gave a Nifty target of 8155.

By closing at a new lifetime high of 8173.90 on Mon. Sep 8 ‘14, the intermediate Nifty target was achieved. Why intermediate? Because bull market targets are often exceeded. So, is the index ready to move much higher?

The answer is: Yes. But there are some bearish signs visible on the daily bar chart pattern of Nifty (below) that may temporarily press the pause button on the bull rally.

Nifty_Sep1014

These bearish signs are:

1. Higher volumes on down days during the past few trading sessions. Today, both FIIs and DIIs were net sellers in equities.

2. All four technical indicators failed to touch higher tops when Nifty touched new lifetime intra-day and closing highs on Mon. Sep 8. The combined negative divergences can cause some more correction.

3. Daily technical indicators are in bullish zones but beginning to show downward momentum. MACD is positive, but sliding down towards its rising signal line. ROC is also positive, but has slipped below its 10 day MA. RSI is about to drop down from its overbought zone after nearly 2 weeks. Slow stochastic is inside its overbought zone, but gradually sliding down.

4. The index is trading more than 1000 points above its 200 day EMA. Some more correction will improve the technical ‘health’ of the Nifty chart.

Note that the index is trading above all its three EMAs in a long-term bull market. So, no need to panic. Any correction will be an opportunity to add. Or, if you have invested at much lower levels, just hold on to your portfolio for the next leg of the up move.

Saturday, September 6, 2014

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

FIIs continued their buying spree, putting in a net Rs 4500 Crores in equities during the week. DIIs were net sellers of Rs 2100 Crores. Both Sensex and Nifty touched new lifetime highs, crossing psychological levels of 27000 and 8000 respectively.

PM had a successful tour of Japan, receiving pledges for huge investments. The nuclear deal signed with Australia was another feather in his cap. Business sentiment is definitely improving - though it has not led to credit growth or M&A activity yet. However, several proposals from overseas investors to pick up equity stakes in Indian companies are awaiting approval.

Q2 (Sep '14) results and upcoming elections in a few states may provide the next sentiment boost to the market - as if the market needs any additional boost! A deficient monsoon with floods in certain pockets is likely to keep food costs high. That may prevent RBI from lowering interest rates.


BSE Sensex index chart





The daily bar chart pattern of Sensex crossed and closed above the 27000 level for the first time ever. The moderate correction during the last 2 days of the week helped to correct overbought conditions. All three EMAs are rising in tandem and Sensex is trading above them in a long-term bull market.

Daily technical indicators have started correcting from their respective overbought zones, after showing negative divergences by failing to touch new highs with the index. MACD is above its signal line but has stopped rising. ROC is just below its 10 day MA in positive zone. RSI has started falling inside its overbought zone. Slow stochastic is also falling inside its overbought zone. A bit more correction or consolidation is possible.


This is not the time to feel excited or nervous. Keep calm and be patient. Hold on to your good stocks. Book part profits in small-cap or mid-cap stocks that have run up a lot. Redeploy by adding to your existing holdings.  


NSE Nifty 50 index chart





The weekly bar chart pattern of Nifty crossed and closed above the 8000 level. It was the fourth straight week of gains. The last time the index managed 4 continuous weeks of gains was a year back.

Weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index. Some correction or consolidation is likely; that will enable the index to rise higher.


More than 325 stocks touched their 52 week highs on Fri. Sep 5 - showing increasing bullishness, but not yet showing signs of euphoria. That doesn't mean one should not be a little circumspect near life-time highs. Always remember that capital protection should get a higher priority than profit maximisation.


Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices again touched new lifetime highs last week. FIIs and DIIs are playing bulls and bears respectively, with FIIs having an advantage. Corrections can and will occur - no need to worry about them. As long as the overall trend is up, and it clearly is, use corrections to add to existing positions. The way to make money in bull markets is to get rid of dud shares and let profits ride in good shares. 


Wednesday, September 3, 2014

Nifty chart: a mid-week update (Sep 03 ‘14)

The surprisingly high GDP number - though on a higher base - seems to have added fuel to the already raging fire started by bulls. New lifetime highs on the Nifty chart are being touched and surpassed on a daily basis.

When an index is in blue-sky territory with no known resistances, there is a tendency of resistances to occur at nice round levels. Strangely, 7900 proved to be a stronger resistance than 8000. So, how far is this rally going to stretch?

Some look at Fibonacci levels to gauge the next higher target. However, Fibonacci levels tend to work better as retracement levels. At times like these, it is better to hold on to existing portfolios and enjoy the ride, instead of looking for new stock ideas to pile on to.


FIIs have continued with their buying mode, and have already pumped in a net Rs 2500 Crores into the equity market during the first 3 days of this month. DIIs are unsuccessfully trying to keep the index from running away by turning net sellers.

Volumes have picked up a bit, but not enough to sustain this rally for long. MACD, RSI and Slow stochastic are in their respective overbought zones, but failed to touch new highs with the index. The combined negative divergences can lead to some consolidation or correction at any time. ROC is looking a bit bearish by slipping below its 10 day MA.

If you are new to the market and anxious to jump on to the bull bandwagon, think about starting a SIP in a good equity fund instead of trying your luck with individual stocks. There will be less chance of losing money.

Ignore the predictions of '10000 by Diwali' and '12000 by Dec'. Concentrate on your own portfolios. Resist the temptation of booking 10-15% profits in good stocks. If you are sitting on large profits in mid-cap or small-cap stocks, take out part profits and reinvest in large-cap stocks already in your portfolios.