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Monday, August 31, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 28, 2015

S&P 500 Index Chart

SPX_Aug2815

The daily bar chart pattern of S&P 500 plunged to a low of 1867 on a huge volume surge on Mon Aug 24 – which indicates a ‘panic bottom’ well below the downward target of 1945 (mentioned in last week’s post).

Since ‘panic bottoms’ seldom hold, the probability of the index dropping even lower – perhaps to test the Oct ‘14 low – is quite high.

The index formed a small ‘double bottom’ pattern by testing the low of 1867 on Tue. Aug 25, and then bounced up sharply to close with a weekly gain of about 1%.

However, the upward bounce was accompanied by sliding volumes, which raises questions about the sustainability of the recovery.

Note that the 50 day EMA is about to cross below the 200 day EMA – the impending ‘death cross’ will technically confirm the start of a bear phase.

Two of the daily technical indicators – RSI, Slow stochastic - have corrected oversold conditions, but remain in bearish zones. MACD is deep inside its oversold zone, but showing signs of recovery.

Any further pullback towards the ‘rectangle’ is likely to attract bear selling.

On longer term weekly chart (not shown), the index dropped well below its 20 week and 50 week EMAs but formed a ‘reversal week’ pattern (lower low, higher close) and closed above its rising 200 week EMA in a long-term bull market. The 20 week and 50 week EMAs have started moving down. Weekly technical indicators are in bearish zones.

FTSE 100 Index Chart

FTSE_Aug2815

The daily bar chart pattern of FTSE 100 crashed to a 52 week low of 5768 on Mon. Aug 24 – accompanied by a strong volume surge (not shown on chart), indicating the formation of a ‘panic bottom’.

‘Panic bottoms’ seldom hold. The possibility of FTSE falling even lower can’t be ruled out.

The index bounced up sharply to close the week with a gain of almost 1%, but is well below its three falling EMAs in bear territory.

Two of the daily technical indicators – RSI, Slow stochastic - have corrected oversold conditions, but remain in bearish zones. MACD is deep inside its oversold zone, but showing signs of turning around.

Any attempt at a pullback towards the ‘symmetrical triangle’ will encourage bears to sell.

On longer term weekly chart (not shown), the index dropped well below its three weekly EMAs but formed a ‘reversal week’ pattern (lower low, higher close) that may encourage bulls. The index has probably entered a long-term bear market. Weekly technical indicators are looking bearish and oversold.

Sunday, August 30, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 28, 2015

Devaluation of the Chinese Yuan created panic selling across global markets that got exacerbated by unwinding of long positions. Despite signs of improvement in India’s macroeconomic data, our stock market could not avoid the global contagion of fear.

FIIs rushed towards the exit door, their net selling in equities for the week touching a whopping Rs 13000 Crores, as per provisional figures. DIIs were net buyers of equity worth Rs 11400 Crores. Sensex and Nifty closed 3.5% lower on a weekly closing basis.

Both indices formed downward ‘gaps’  on Mon. Aug 24. The gaps remained unfilled during the week. Even if the ‘gaps’ do get filled – either fully or partly – the possibilities of lower levels on both indices can’t be ruled out.

BSE Sensex index chart

Sensex_Aug2815

From the 3rd week of Jun ’15, the daily bar chart pattern of Sensex started to form a ‘rounding top’ reversal pattern that concluded with a ‘gap’ down fall below the 200 day EMA on Fri. Aug 21. Though the index pulled back to close just inside the ‘support-resistance zone’, a fall with a ‘gap’ below an important support level has greater bearish significance.

On Mon Aug 24, the index opened with a bigger 400 points downward ‘gap’ and dropped to a low of 25625. On Tue Aug 25, it formed a ‘reversal day’ pattern (lower low of 25298, but higher close), and has since pulled back to the ‘gap’. The ‘gap’ is likely to act as a resistance zone to near-term up moves.

The first, smaller ‘gap’ on Aug 21 is a ‘breakaway gap’. The second, larger ‘gap’ on Aug 24 is a ‘measuring gap’ (which typically occurs in the middle of an up or down move).

From the peak of the ‘rounding top’ pattern – from where the current leg of the down move started – to the middle of the ‘measuring gap’ is a fall of about 1645 points. The downward target for Sensex is, therefore, 1645 points below the middle of the ‘gap’ – i.e. at 25285.

Since Sensex touched a low of 25298 (only 13 points above 25285), the downward target may have already been met. That doesn’t mean the index can’t fall lower and slip into a bear market.

Daily technical indicators are in bearish zones even after partly correcting oversold conditions. MACD and ROC are still inside their respective oversold zones. RSI and Slow stochastic have managed to climb out of their respective oversold zones.

The index may try to fill the larger ‘gap’ next week, but a reversal of the down trend that started from the Mar ‘15 top may take a while longer.

On longer-term weekly chart (not shown), Sensex is trading well above its rising 200 week EMA in a long-term bull market. So, dips are providing opportunities to add/enter.

NSE Nifty 50 index chart

Nifty_Aug2815_LT

The weekly bar chart pattern of Nifty formed a 9 weeks long ‘rounding top’ reversal pattern that faced strong resistance from the upper edge (8630) of the ‘support-resistance zone’.

The index dropped below its two weekly EMAs and the ‘support-resistance zone’ with a rare weekly ‘downward gap’. A fall with a ‘gap’ below an important support level is technically more significant than a fall without a ‘gap’.

Even if the ‘gap’ gets filled – partly or fully – the down move is likely to resume. Expect the ‘gap’ to act as a resistance zone to near-term up moves.

Should bulls wind up their positions and go on a vacation? It may not be a bad idea - to allow the fear to dissipate and let the index form a bottom.

To every bearish dark cloud there is often a bullish silver lining. In candlestick parlance, Nifty has formed a weekly ‘hammer’ pattern with huge volumes. That may be indicating a ‘selling climax’ and a possible trend reversal.

Weekly technical indicators have turned bearish. MACD has crossed below its signal line and entered negative zone. ROC has crossed below its 10 week MA and is falling towards its oversold zone. RSI has crossed below its 50% level. Slow stochastic is about to cross below its 50% level.

Nifty needs to fill the ‘gap’ and cross convincingly above the 8630 level to resume its bull rally. That may not happen in a hurry.

Bottomline? The bar chart patterns of Sensex and Nifty have fallen below important supports with ‘gaps’. The implications are quite bearish in the near-term. Long-term bull markets remain intact. Slowly accumulate ‘good’ stocks but maintain appropriate stop-losses. New entrants to the market should choose a good balanced fund.

Wednesday, August 26, 2015

About the economic slowdown in China and its effect on the Indian stock market – a guest post

The recent FII sell-off in global stock markets left investors and analysts scratching their heads and predicting another worldwide recession. Why? Apparently because China’s growth slowdown will seriously affect the global economy and hence, their stock markets.

The fear is overdone. Contrary to popular belief, there is no correlation between GDP growth and stock market returns. If anything, the correlation is negative. When Chinese economic growth was in double digits, its stock market was performing badly. Contrast with the Indian market, which rose to a new high even though economic growth was sliding.

In this month’s guest post, Nishit explains why the explosive economic growth in China – which was financed by ever-increasing debt – has boomeranged. The slow but steady growth in India appears more sustainable, and is receiving increased attention from overseas analysts and investors.

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Over the last few days, both on television and on the Web, I have increasingly noticed that the global investing community is highlighting India as a bright spot in a world mired in economic slowdown.

Why is that so?

The main reason is the global poster boy for economic progress, China, is slowing down. China had invested in huge capacity expansion leading to idle steel factories and other Infrastructure supporting industries.

What China did was mindlessly tried to urbanise. As long as they were building new cites and roads, the capacity was getting utilised. But urbanisation can only be done up to a point. Now, China is left with ghost cities, a property market for which there are no takers and a stock market which is just collapsing. China tried to accelerate economic growth of 50 years in a period of 10-15 years.

Now, the slow progress of India is being seen as a more sustainable way of growth.

An upside of this global attention on India is that there will be a lot of foreign funds flowing in. This will take the stock market much higher than the current levels.

Also, with global attention being focused on India, the infrastructure sector will get a boost. One can already see good infrastructure building companies showing strong performances.

Martin Armstrong, the renowned analyst, visited India in August. Visits by high profile analysts will lead to more overseas investors discovering India and attracting more funds to India.

On Bloomberg, out of 10 emerging markets, India was shown as the best placed emerging market. Of course, all this has a flip side to it. If the Government doesn’t show progress on reforms, then the overseas interest will wane quickly.

Lower commodity prices will also be a boon for India. The stock market in the next year should move up at least 20% from the current levels, based on a combination of renewed interest from foreign investors and low commodity prices.

Interesting times ahead for investors in the Indian equity market for sure.

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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, August 25, 2015

WTI and Brent Crude Oil charts: an update

WTI Crude chart

WTI Crude_Aug2415

The daily bar chart pattern of WTI Crude continued its descent - to a level not seen since Sep 2003. Huge volumes on down days indicate no respite from bear selling. The following comments from the previous post on WTI Crude oil may be worth repeating:

“Can we expect even lower prices? Daily technical indicators are suggesting as much… The prospect of oil supplies from Iran entering an already over-supplied market and lower Chinese off-take should keep prices depressed for some time.”

Note that all three daily technical indicators have remained well inside their oversold zones during Aug ‘15. Just goes to show that prices can remain in oversold zones for long periods during bear markets.

At some point, bargain hunters may get tempted to step-in, but it is better not to attempt catching a ‘falling knife’.

On longer term weekly chart (not shown), oil’s price has been falling sharply after forming a downward ‘gap’ in Jul ‘15, and is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are bearish and oversold. MACD and RSI are showing positive divergences by not falling to new lows. Any technical bounce is likely to attract more bear selling.

Brent Crude chart

BrentCrude_Aug2415

The daily bar chart pattern of Brent Crude oil consolidated sideways in a range between 48 and 51 for a few days. A downward breakout on increasing volumes easily breached the Jan ‘15 low of 46 to touch a new low of 42.

Daily technical indicators are sliding deeper inside their oversold zones. Any consolidation or rally is likely to attract bear selling – so bottom-fishing is not recommended.

All three EMAs are falling and oil’s price is trading well below them in a long-term bear market that is showing no signs of ending any time soon.

On longer term weekly chart (not shown), oil’s price has fallen off a cliff after forming a rare weekly downward ‘gap’ and is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are bearish and oversold. MACD and RSI are showing positive divergences by not falling to new lows. A technical bounce is possible – but it should not be used as a buying opportunity.

Monday, August 24, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 21, 2015

S&P 500 Index Chart

S&P 500_Aug2115

The following comments were made in last week’s post on the daily bar chart pattern of S&P 500: “Strong volumes on recent down-days is a sign of ‘distribution’. That increases the probability of a downward break out below the ‘rectangle’.” 

So, it should not have come as a surprise to readers of this blog when the downward breakout below the 2040 level (lower edge of the ‘rectangle’ drawn on last week’s chart) occurred on Thu. Aug 20. That was followed by a steep fall to a 10 months low of 1971 on Fri. Aug 21.

The index has closed well below its three EMAs in bear territory, and corrected 7.5% from its Jul ‘15 top of 2133. Can it correct some more? The short answer is: Yes. However, the sharp volume spike on Friday may be the sign of a ‘selling climax’.

All three daily technical indicators are looking oversold. Also, Slow stochastic is showing positive divergence by not touching a new low with the index. That raises the possibility of a technical bounce from current levels.

Will the likely bounce be a buying opportunity? Not really. The downward index target for the breakout below the ‘rectangle’ is 1945 (height of the ‘rectangle’ deducted from the breakdown level of 2040). So, any technical bounce may induce more bear selling.

On longer term weekly chart (not shown), the index dropped well below its 20 week and 50 week EMAs but closed above its rising 200 week EMA in a long-term bull market. The 20 week and 50 week EMAs have started moving down. Weekly technical indicators are in bearish zones and showing downward momentum.

FTSE 100 Index Chart

FTSE_Aug2115 

The daily bar chart pattern of FTSE 100, had dropped to the lower edge of the ‘symmetrical triangle’ pattern within which it was consolidating for the past 2 months. That led to the following remarks in last week’s post:

“The index closed exactly on the lower edge of the triangle – temporarily preventing a downward break out. Why ‘temporarily’? Because strong downward momentum visible on the three technical indicators is suggesting a downward break out and a test of the Jan ‘15 low of 6300.”

The index dropped to close at 6188 – its lowest level in more than 8 months. All three EMAs are falling and the index has closed well below them in a bear market. More downside is likely.

Daily technical indicators are in their oversold zones. However, MACD is showing positive divergence by not touching a new low with the index. A technical bounce is a possibility – but bears are likely to use it for selling.

On longer term weekly chart (not shown), the index closed well below its three weekly EMAs and has probably entered a long-term bear market. Weekly technical indicators are looking oversold and showing downward momentum.

Saturday, August 22, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 21, 2015

Economic slowdown in China leading to a sharp fall in commodity prices, recession in countries like Brazil and Chile, renewed turmoil in Greece were several reasons cited for massive selling by FIIs across global markets including India.

As per provisional figures, FIIs were net sellers of equity worth Rs 3900 Crores during the week - bulk of the selling occurring on the last 2 days. DIIs tried to stop the rot. Their net buying in equities totalled Rs 2800 Crores.

Despite the gloomy predictions of much lower levels in the Indian market by some analysts, bulls managed to stage a recovery – triggered by the possibility of restoring status quo on restrospective MAT for FIIs. Both Sensex and Nifty managed to hold on to important supports.

BSE Sensex index chart

Sensex_Aug2115

The daily bar chart pattern of Sensex dropped below the ‘triangle’ pattern (within which it was consolidating for the past month) and its 200 day EMA with a downward ‘gap’ on Fri. Aug 21. A fall below an important support with a ‘gap’ is considered to be more significant than a fall without a ‘gap’.

However, the index managed to recover most of its losses on the last day of the week and closed just inside the ‘support-resistance zone’ between 27350 and 28800. In the process, it formed a ‘hammer’ pattern (in candlestick parlance), which may trigger a reversal of last week’s down trend.

Due to F&O expiry, a sharp recovery by bulls is unlikely next week. Daily technical indicators are in bearish zones, and starting to look oversold. Some more correction or consolidation is possible, but don’t be surprised if the index bounces up.

Sensex lost about 2.5% on a weekly closing basis. But many fundamentally strong large-cap stocks have fallen much more – either due to brokerage guidance or due to the general panic triggered by margin calls. This may be a good time to start accumulating them slowly.

NSE Nifty 50 index chart

Nifty_Aug2115

The weekly bar chart pattern of Nifty dropped below its 20 week EMA, but received good support from its 50 week EMA and closed inside the ‘support-resistance zone’ between 8180 and 8630.

Though the index lost 2.5% on a weekly closing basis, it is trading in a long-term bull market. Weekly technical indicators are in bullish zones but showing downward momentum.

MACD is touching its signal line just above the ‘0’ line. ROC faced resistance from the edge of its overbought zone and has slipped down. RSI is resting on its 50% level. Slow stochastic has moved down from its overbought zone.

Some more correction or consolidation can’t be ruled out. Note that the possibility of forming a “cup and handle” or “rounding bottom” pattern (mentioned in last week’s post) will be negated if the index falls below its Jun ‘15 low of 7940.

Bottomline? The bar chart patterns of Sensex and Nifty managed to hold on to important supports despite strong bear attacks. Bull markets are far from over. Accumulate ‘good’ stocks and maintain appropriate stop-losses. If you are planning to enter the market for the first time, choose a good balanced fund.

Wednesday, August 19, 2015

Nifty chart: a mid-week update (Aug 19 ‘15)

Turmoil in the Chinese stock market has kept global markets in check. India’s market has been no exception – despite macroeconomic indicators pointing to an improving economy.

India Inc. appears to be waiting for the government to kick-start the investment cycle. Those companies that had gone ahead with their expansion plans and are sitting on excess production capacities are likely to benefit the most once the economy hits top gear.

During the week so far, FIIs have been net sellers of equity worth about Rs 550 Crores. DIIs have been net buyers worth Rs 700 Crores, as per provisional figures. Nifty has been in a sideways consolidation since the beginning of Jul ‘15.

Nifty_Aug1915

The daily bar chart pattern of Nifty has been consolidating sideways within a ‘symmetrical triangle’ pattern since Jul 1 ‘15. The entire pattern has formed inside the ‘support-resistance zone’ between 8180 and 8630.

Triangles are usually continuation patterns. Since the index entered the triangle from below, the likely breakout from the triangle should be upwards.

The triangle has formed above the rising 200 day EMA. That indicates a bull market consolidation, and is another reason why the breakout from the triangle should be upwards.

However, triangles tend to be unreliable patterns with three possible outcomes: i) an upward breakout; ii) a downward breakout; and iii) a continuation of the consolidation through the apex of the triangle.

So, it is best to wait for one of the three outcomes to play out before jumping in to buy or sell.

Remember that an upward breakout from the triangle (or any consolidation zone) should be accompanied by a significant increase in volumes. Otherwise the breakout may turn out to be a ‘false’ one. A downward breakout does not require volume support for technical validity.

Daily technical indicators are giving mixed signals, which is typical during periods of consolidation. MACD is moving sideways – barely in positive zone and below its falling signal line. ROC is also moving sideways – just inside negative zone and below its 10 day MA.

RSI is above its 50% level, but drifting down. Slow stochastic bounced up from the edge of its oversold zone, but has failed to convincingly cross above its 50% level.

Breakouts from triangles often occur within 6-8 weeks – though longer periods of consolidation do occur. Since 6 weeks have elapsed already, a breakout can happen anytime within the next 2 weeks.

Tuesday, August 18, 2015

Gold and Silver charts: an update

Gold chart pattern

GOLD_Aug1715

The daily bar chart pattern of gold broke out upwards from a ‘falling wedge’ pattern. Strong volume support technically validated the upward break out. After crossing above its 20 day EMA, the rally stalled near the 1125 level.

On Thu. Aug 13 ‘15, gold’s price formed a ‘reversal day’ pattern (higher high, lower close) and dropped below the 1120 level. The 50 day and 200 day EMAs are falling, and gold’s price is trading below them in a bear market.

What caused the sudden price spurt? Unexpected devaluation of the Chinese Yuan sent global stock markets on a tail-spin. At such times, investors tend to seek refuge in precious metals. Technically, oversold conditions and the ‘falling wedge’ gave early indications of an upward break out.

Daily technical indicators recovered strongly from oversold conditions, but their upward momentum has weakened. MACD is rising above its signal line, but remains negative. RSI is at its 50% level in neutral zone. Slow stochastic has dropped down from its overbought zone.

Expect bears to start selling again.

On longer term weekly chart (not shown), all three weekly EMAs are falling and gold’s price is trading well below them in a long-term bear market. Weekly technical indicators have corrected oversold conditions, but remain in bearish zones.

Silver chart pattern

SILVER_Aug1715

The daily bar chart pattern of silver formed a small ‘double bottom’ reversal pattern at 14.30 and bounced up sharply with good volume support. After easily crossing above its 20 day and 50 day EMAs, the rally stalled near the 15.60 level.

Silver’s price has slipped down below its 50 day EMA and is trading well below its falling 200 day EMA in a bear market. Every rally has presented opportunities to sell for bears.

Two of the daily technical indicators – RSI, Slow stochastic - are in bullish zones, but their upward momentum is waning. MACD is rising above its signal line, and reached its ‘0’ line. RSI is above its 50% level. Slow stochastic has dropped down from its overbought zone.

On longer term weekly chart (not shown), silver’s price faced resistance from its falling 20 week EMA, and is trading below its three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones.

Monday, August 17, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 14, 2015

S&P 500 Index Chart

SPX_Aug1415

The daily bar chart pattern of S&P 500 has been consolidating sideways within a ‘rectangle’ pattern since Feb ‘15. Rectangles are usually continuation patterns, but can also act as reversal patterns at market tops (or bottoms).

Strong volumes on recent down-days is a sign of ‘distribution’. That increases the probability of a downward break out below the ‘rectangle’.

The index closed above all three EMAs on Mon. Aug 10. On Wed. Aug 12, the index dropped below its 200 day EMA to touch an intra-day low of 2052 but bounced back quickly with good volume support. The index gained 14 points on a weekly closing basis, but failed to close above its 20 day and 50 day EMAs.

Daily technical indicators are in neutral zones, which means the consolidation within the ‘rectangle’ may last a while longer. MACD is just inside its negative zone. RSI is marginally below its 50% level. Slow stochastic is slightly above its 50% level.

Technically, the index is in a bull market because it has closed above its rising 200 day EMA. As long as the index consolidates within the ‘rectangle’, it keeps providing good trading opportunities. Investors should wait for an eventual break out from the ‘rectangle’ to initiate any buy/sell decision.

On longer term weekly chart (not shown), the index bounced up after receiving good support from its 50 week EMA and closed above all three weekly EMAs in a long-term bull market. The 20 week EMA seems to be forming a bearish ‘rounding top’ pattern – which could lead to a deep correction if not a change of trend. Weekly technical indicators are in bullish zones but not showing any upward momentum.

FTSE 100 Index Chart

FTSE_Aug1415

The daily bar chart pattern of FTSE 100, which has been consolidating sideways within a ‘symmetrical triangle’ pattern for the past 2 months, dropped to test support from the lower edge of the triangle. On a weekly closing basis, the index lost 2.5%.

The following comments were made in last week’s post: “A ‘symmetrical triangle’ is usually a continuation pattern. So, a downward break out from the ‘triangle’ is likely.” The index closed exactly on the lower edge of the triangle – temporarily preventing a downward break out.

Why ‘temporarily’? Because strong downward momentum visible on the three technical indicators is suggesting a downward break out and a test of the Jan ‘15 low of 6300. The index has closed below all three EMAs in bear territory.

On longer term weekly chart (not shown), the index closed well below its falling 20 week and 50 week EMAs but closed above its 200 week EMA, and technically remains in a long-term bull market. Weekly technical indicators are in bearish zones and showing downward momentum.

Sunday, August 16, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 14, 2015

WPI inflation was –4.05% in Jul ‘15 against –2.4% in Jun ‘15. It was the 9th straight month of contraction – thanks to lower prices of food and manufactured items. The possibility of an interest rate cut by RBI due to low CPI and WPI cheered market participants.

All is not well on the balance of payments front. Merchandise exports contracted for the 8th month in a row, falling 10.3% on a YoY basis in Jul ‘15. Imports were also lower by 10.3% on a YoY basis. Trade deficit increased to $12.8 Billion in Jul ‘15 from $10.8 Billion in Jun ‘15.

FIIs were net sellers of equity worth Rs 2800 Crores last week, as per provisional figures. DIIs were net buyers of equity worth Rs 2000 Crores. However, both FIIs and DIIs were net buyers on the last day of the week – triggering a pullback. Sensex and Nifty closed lower on a weekly basis.

BSE Sensex index chart

Sensex_Aug1415

The daily bar chart pattern of Sensex dropped below its 20 day and 50 day EMAs as well as the second blue up trend line, but bounced up strongly after receiving good support from its 200 day EMA. The index closed the week above all three EMAs in bull territory.

Bears are still in the picture. Since both the blue up trend lines have been breached on the down side, the possibility of another down move can’t be ruled out. The index has closed above its 200 day EMA on every trading day since Jun 19 ‘15 – showing that bulls have the advantage.

As mentioned last week, the index seems to be forming a bullish ‘rounding bottom’ or ‘cup and handle’ pattern. Either pattern – if they play out – should end with upward break outs to new highs.

Daily technical indicators are giving mixed signals. MACD and ROC are at their respective ‘0’ lines. Slow stochastic has bounced up weakly from the edge of its oversold zone. Only RSI is looking bullish by rising above its 50% level.

Sensex needs to move convincingly above the 28800 level (which is the upper boundary of the ‘support-resistance zone’) for bulls to regain control. Bears will try to ensure that doesn’t happen any time soon. Stay invested.

NSE Nifty 50 index chart

Nifty_Aug1415

The weekly bar chart pattern of Nifty dropped below its 20 week EMA and the blue up trend line intra-week, but bounced up to close above its two weekly EMAs and the trend line in bull territory. Resistance from the 8630 level (upper edge of the ‘support-resistance zone’) is proving to be strong.

Weekly technical indicators are looking bullish. MACD is gradually rising above its signal line in positive zone. ROC is about to enter its overbought zone. RSI is moving sideways above its 50% level. Slow stochastic is inside its overbought zone, but moving sideways.

The index may consolidate a bit before making another attempt to cross above the resistance zone between 8630 and 8670.

Bottomline? The bar chart patterns of Sensex and Nifty seem to be forming bullish continuation patterns. It may take another 4-6 weeks to complete the patterns. This isn’t the time to jump in feet first. Pick ‘good’ stocks and maintain appropriate stop-losses. First-timers should avoid individual stocks and regularly invest in units of a good balanced fund.

Saturday, August 15, 2015

Off topic: Leadership lessons from Indian Armed Forces

Raghu Raman, former CEO of the Indian National Intelligence Grid, delivers a riveting talk at IIT BHU, on how the Indian Armed Forces actually worked during the 26-11 terrorist attack at Mumbai:

http://www.storypick.com/leadership-lessons-indian-armed-forces/

Jai Hind!

Technical updates – Jagran Prakashan and Navneet Education

The printing and publishing industry rarely gets a second look from most small investors. The reason is simple. Newspapers and children’s school books and stationery do not fall under the preferred ‘exciting’ or ‘high tech’ categories.

Savvy investors know how to cut through the glitter and marketing hoopla that surround popular stocks, and look for steady, boring businesses that generate cash from operations, pay dividends and have manageable debt.

Jagran Prakashan and Navneet have steady growth, net margins exceeding 10%, RoE more than 20%, Debt/Equity ratio less than 0.5 and pay regular dividends. There aren’t many companies which can boast of such numbers.

Jagran Prakashan

JagranPrakasan_Aug1415

The stock price of Jagran spent 6 months consolidating sideways in bear territory before breaking out upwards in Mar ‘14. The stock closed at a high of 135 in Jul ‘14, but negative divergences on all four technical indicators, which failed to touch new highs, led to a correction down to the support-resistance level of 108 in Aug ‘14.

The next leg of the rally took the stock to a small ‘double top’ at 145 in Dec ‘14. The subsequent correction dropped the stock below its three EMAs into bear territory and ended with another test of support from the 108 level in May ‘15.

The stock managed to cross above its three EMAs into bull territory after three failed attempts and closed at a slightly lower top of 142 on Aug 10 ‘15. It is undergoing a bit of correction, and should resume its up move soon.

Valuation looks a little stretched. Dips can be used to add.

Navneet Education

Navneet_Aug1415

The stock was in a sideways consolidation in bear territory for 7 months before breaking out above its three EMAs in Apr ‘14. The bull rally received good support from the rising 50 day EMA.

The stock closed at a high of 117 in Jan ‘15, corrected down to its 50 day EMA and then rose to a slightly lower top of 116 in Feb ‘15. The ‘double top’ reversal pattern led to a correction below all three EMAs into bear territory.

The stock bounced up after receiving support from the 90 level in May ‘15, and rose to a lower top of 109 in Jul ‘15. It again entered a corrective phase – triggered by negative divergences in three of the four technical indicators.

The stock is looking oversold, and may resume its up move soon. Can be accumulated slowly.

Friday, August 14, 2015

Add some stability to your stock portfolio with bonds/debentures

For the past few months, the stock market has been all over the place – rising 300 points one day and falling an equal amount a couple of days later. The end result of such gyrations have left Sensex and Nifty with negligible gains since Jan ‘15.

An investment portfolio that is overweight in stocks may have given zero or even negative returns. Though a stock market seldom moves in one direction – even during rampant bull or bear markets – periods of uncertainty and volatility often come as a jolt to small investors.

To ensure a less volatile and more stable investment returns, it is imperative that investors appreciate and understand the need for a proper asset allocation plan. That means, balancing your stock portfolio with fixed income instruments like bonds/debentures.

As per my interactions with many small investors, very few of them fully understand the benefit of bonds/debentures. To most small investors, fixed income instruments mean bank fixed deposit, or Post Office MIS, or NSC.

Debt oriented mutual funds and tax free bonds often provide better post-tax returns, and have the added advantage of being liquid. That means they are more easily tradable.

If you want to learn the ABCs of investing in bonds and how interest rates affect returns, check out a set of links to articles published in investopedia.com:

1) http://www.investopedia.com/articles/bonds/08/bond-market-basics.asp

2) http://www.investopedia.com/articles/bonds/08/credit-invest.asp

3) http://www.investopedia.com/articles/bonds/07/price_yield.asp

4) http://www.investopedia.com/articles/bonds/08/bond-risks.asp

Related Post

How to reallocate your assets

Wednesday, August 12, 2015

Nifty chart: a mid-week update (Aug 12 ‘15)

An unexpected devaluation of the Chinese Yuan spooked FIIs, who went on a selling spree in global markets. As per provisional figures, they were net sellers of equity worth Rs 2600 Crores this week. DIIs turned net buyers of equity worth Rs 1300 Crores – not enough to prevent a sharp correction in Nifty.

For Q1 (Jun ‘15), Tata Steel announced lower top line but a higher bottom line – thanks mainly to other income. SBI also announced decent bottom line growth. Hindalco suffered due to a loss announced by its Novelis subsidiary. Vedanta looked up after resuming its Goa mining operations. But the Yuan devaluation has cast a shadow over all metal (and tyre) stocks.

There was very good news on the economic front. CPI inflation dropped to 3.78% in Jul ‘15 against 5.4% in Jun ‘15 – raising the prospect of a cut in interest rates by RBI. The Index of Industrial Production (IIP) grew to 3.8% in Jun ‘15 – led by manufacturing growth – against 2.7% in May ‘15. Market should celebrate the twin good news.

Nifty_Aug1215

The daily bar chart pattern of Nifty faced resistance from the 8630 level (which is the upper edge of the ‘support-resistance zone’) and dropped down below its 50 day EMA and the blue up trend line. Bears were expected to put up a fight to defend the 8630 level, and they did.

The 200 day EMA is still rising and the index closed above it – so Nifty is technically in a bull market. An upward bounce from the 200 day EMA or the 8180 level (lower edge of the ‘support-resistance zone’) should restore bullish sentiments.

Daily technical indicators are looking bearish and showing downward momentum. MACD has formed a ‘head and shoulder’ like pattern and crossed below its signal line in positive territory. ROC has dropped to touch its 10 day MA at the ‘0’ line. RSI and Slow stochastic have moved below their respective 50% levels.

Some more correction is likely. There is no need to worry about a big crash yet. However, a global currency war triggered by the Yuan devaluation may cause a drop below the Jun ‘15 low of 7940. That will be bearish, and lead to a deeper correction.

As a dear departed friend was fond of saying: “Hope for the best, but be prepared for the worst.”

Tuesday, August 11, 2015

WTI and Brent Crude Oil charts: bear domination continues

WTI Crude chart

WTI Crude_Aug1015

The following remark was made in the previous post on the daily bar chart pattern of WTI Crude oil: “There is a possibility of an upward bounce – which bears are likely to use to sell again.”

Note that oil’s price did bounce up for a couple of days (Jul 28 & 29) but failed to cross above the 50 level or test resistance from its rapidly falling 20 day EMA. Bears resumed their selling. Oil’s price dropped below 44, but bounced up a bit to close just below the 45 level.

Can we expect even lower prices? Daily technical indicators are suggesting as much. All three are in oversold zones – but there is no sign of any reversal patterns yet. There may be brief bounces due to short-covering.

The prospect of oil supplies from Iran entering an already over-supplied market and lower Chinese off-take should keep prices depressed for some time.

On longer term weekly chart (not shown), oil’s price has been falling sharply after forming a downward ‘gap’ in Jul ‘15, and is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are bearish and looking oversold.

Brent Crude chart

BrentCrude_Aug1015

The following comment appeared in the previous post on the daily bar chart pattern of Brent Crude oil: “A drop below 50 can’t be ruled out.” Oil’s price dropped to a low of 48 before bouncing up to close just above 50.

Strong volumes on down-days is a sign of bear domination. The briefest of rallies – due to short covering – are being followed by heavy selling.

Daily technical indicators are in oversold zones, but can remain oversold for long periods during a bear market. The Jan ‘15 low of 46 may be tested and breached.

On longer term weekly chart (not shown), oil’s price has fallen off a cliff after forming a rare weekly downward ‘gap’ and is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones and looking oversold.

Monday, August 10, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 07, 2015

S&P 500 Index Chart

SPX_Aug0715

For the past 6 months, the daily bar chart pattern of S&P 500 has been oscillating about its 20 day and 50 day EMAs within a 95 points rectangular range between 2040 and 2135 (marked by blue horizontal lines).

Barring a couple of trading days in Mar ‘15, red volume bars (down days) have been taller than green volume bars (up days) since Jan ‘15. That is usually a sign of ‘distribution’ from stronger to weaker hands.

This raises the possibility of an eventual downward break out from the rectangular pattern – though a break out from a ‘rectangle’ can occur in either direction. Remember that an upward break out from a range requires significant increase in volume support to technically validate the break out.

Otherwise, the upward break out may turn out to be a ‘false’ one. A downward break out does not require an increase in volumes for technical validation.

Daily technical indicators are looking bearish. MACD has crossed below its signal line and entered negative territory. RSI and Slow stochastic have dropped below their respective 50% levels.

The index is trading above its 200 day EMA in a bull market. However, the 200 day EMA is no longer rising. There is a good chance of the index dropping below its long-term moving average and testing support from the 2040 level (like it did last month).

On longer term weekly chart (not shown), the index closed below its 20 week EMA but above its 50 week and 200 week EMAs in a long-term bull market. The 20 week EMA appears to be forming a bearish ‘rounding top’ pattern – hinting at a strong correction if not a change of trend. Weekly technical indicators are turning bearish and showing downward momentum.

FTSE 100 Index Chart

FTSE_Aug0715

The daily bar chart pattern of FTSE 100 has been consolidating sideways within a ‘symmetrical triangle’ pattern for the past 2 months. The index faced strong resistance from its sliding 200 day EMA and the upper edge of the triangle last week, but eked out a 22 points weekly gain.

A ‘symmetrical triangle’ is usually a continuation pattern. So, a downward break out from the ‘triangle’ is likely. But triangles are unreliable patterns. An upward break out can’t be ruled out either. A buy/sell action should be initiated only after the eventual break out.

Daily technical indicators are in bullish zones. MACD and Slow stochastic are rising, but RSI is looking a bit bearish by turning down.

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

Sunday, August 9, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 07, 2015

Q1 (Jun ‘15) results declared so far have been less than encouraging, with top line and bottom line pressure visible across sectors. PSU banks continue to disappoint. Auto biggies like Tata Motors and M&M declared weak numbers.

Modi’s “Make in India” campaign got a boost with Taiwan’s Foxconn – world’s largest contract electronics manufacturer that supplies to Apple, Amazon, Blackberry, Xiaomi – signing a 5 years, $5 Billion investment deal with the Maharashtra government.

As per provisional figures, FIIs were net buyers of equity worth Rs 930 Crores last week. DIIs were net sellers of equity worth Rs 410 Crores. Both Sensex and Nifty closed marginally higher on a weekly basis, but failed to cross above resistance levels.

BSE Sensex index chart

Sensex_Aug0715

The daily bar chart pattern of Sensex traded with a slight upward bias between the two up trend lines (drawn on the Sensex chart last week). The index is trading above its three EMAs in a bull market, and may be forming a bullish ‘rounding bottom’ or ‘cup and handle’ pattern.

That is good news for bulls. Three of the four daily technical indicators have turned bullish. MACD has just crossed above its signal line in positive zone. ROC has moved above its 10 day MA and entered positive territory. Slow stochastic has risen above its 50% level.

RSI has failed to enter bullish zone, and is moving sideways below its 50% level. Sensex is still inside the ‘support-resistance zone’ and needs to cross above 28800 with good volume support for bulls to regain full control.

Expect bears to put up a fight to defend the 28800 level. Stay invested.

NSE Nifty 50 index chart

Nifty_Aug0715

The weekly bar chart pattern of Nifty received good support from its 20 week EMA intra-week, and bounced up with good volume support to close about 30 points higher on a weekly basis.

The index is trading above its two weekly EMAs and the blue up trend line in a bull market, but failed to cross above the ‘support-resistance zone’ between 8180 and 8630.

Nifty may be in the process of forming a ‘rounding bottom’ or a ‘cup and handle’ pattern. If either pattern plays out, the index can break out above its lifetime high of 9119 (touched in Mar ‘15). Note the bullish ‘saucer’ pattern being formed by the 20 week EMA.

Weekly technical indicators have turned bullish. MACD has crossed above its signal line in positive zone. ROC is moving above its rising 10 week MA in positive zone. RSI is rising above its 50% level. Slow stochastic has entered its overbought zone after 5 months.

Bears may try to defend the resistance zone between 8630 and 8670 (the technical significance of the two levels were mentioned last week). But it is looking like a lost cause.

Bottomline? The bar chart patterns of Sensex and Nifty appear to be forming bullish continuation patterns. Long-term trends are bullish. If you wish to enter now, do so gradually. Pick ‘good’ stocks and maintain appropriate stop-losses. First-timers will be better off by regularly investing in units of a good balanced fund.

Saturday, August 8, 2015

Should you look at stocks from the Consumer Durables sector?

The short answer to the question is: Yes. The business models of most consumer durables sector companies are reasonably easy to understand.

With economic growth, disposable income in the hands of consumers is increasing. That leads to buying of higher-priced products and more frequent replacement purchases.

However, not all companies in the sector are doing equally well. So, stock picking and chart reading skills will separate the men from the boys. Given below are the 2 years closing charts of 8 stocks from the sector.

Bajaj Electricals

BajajElec_Aug15

The stock closed at a 2 years high of 377 in May ‘14 but formed a ‘double top’ reversal pattern by closing at a lower top of 372 in Jul ‘14. A 5 months long correction dropped the stock below all three EMAs into bear territory.

The stock successfully tested support from the 200 level in Nov ‘14 and has been in a gradual up move since then. The resistance level of 300 needs to be crossed convincingly for the bull market to resume. Daily technical indicators are turning bullish.

Blue Star

BlueStar_Aug15

The stock has been in a bull market since Mar ‘14. After a sharp rally to a closing high of 369 in Sep ‘14, the stock has been consolidating sideways within a ‘rectangle’ pattern. It recently tried to break out above the ‘rectangle’ with decent volume support and closed at a 2 years high of 378, but the break out hasn’t been a convincing one yet.

Daily technical indicators are bullish but looking overbought and showing some negative divergence. Expect the stock to consolidate some more before resuming its up move.

Hawkins Cookers

Hawkins_Aug15 

All good things eventually come to an end. The stock price of Hawkins is no exception. After a stellar bull rally to a closing high of 4598 in Jan ‘15, the stock plummeted by more than 50% to a low of 2106 in Jun ‘15. Daily technical indicators are bearish and looking oversold.

The stock may test and even break the 2100 level. Any upward bounce from the 2100 level – if supported by strong volumes – will form a ‘double bottom’ reversal pattern. Sharp volume spikes on down days indicate bears are unlikely to give up control.

Symphony

Symphony_Aug15 

This stock was also in a relentless one-way bull run till it reached a 2 years high of 3151 in Apr ‘15. All four technical indicators were in overbought zones and three of them – ROC, RSI, Slow stochastic – showed negative divergences by failing to touch a new high.

That provided bears with the right incentive to attack. The stock appears to have formed a ‘double bottom’ reversal pattern at 1720 (after correcting 45% from the top). A feeble attempt was made to cross above the blue down trend line. More downside is possible.

Titan Industries

Titan_Aug15

Titan was a darling of the stock market because of RaRe bull’s presence. After closing at 442 in Jan ‘15 and correcting down to its 20 day EMA, the stock rose to a lower top of 435 a month later – forming a ‘double top’ reversal pattern.

That was the trigger for a correction, which is still in progress. The stock has dropped below all three EMAs into a bear market. Daily technical indicators have corrected oversold conditions. Some more correction is likely.

Videocon

Videocon_Aug15 

The stock has been in a bear market for the past 2 years. Several attempts to escape from bear territory have been inevitably followed by heavy selling.

Daily technical indicators are looking bearish and oversold. This stock is best avoided.

VIP Industries

VIP_Aug15

The stock has tested the patience of long-term investors. After closing at a 2 years high of 126 in Jan ‘15, the stock price dropped to 90 in Mar ‘15. It has been moving sideways below its 200 day EMA in a small range since then, and is technically in a bear market.

Three of the technical indicators are in neutral zones. Slow stochastic is inside its oversold zone. Check Q1 (Jun ‘15) results before initiating any action.

Whirlpool

Whirlpool_Aug15 

The stock has been in a bull market since Feb ‘14, but its upward momentum has slowed down considerably since Jan ‘15. However, it continues to touch higher tops and higher bottoms – which is a sign that bulls are in control.

Stay invested with a trailing stop-loss.

Thursday, August 6, 2015

The Number One Reason Why Most Traders Fail

The stock market has come out of a 3 months long correction and heading upwards again. Mid-cap and small-cap stocks are flying high. The temptation must be strong for first-timers to enter the market and become rich quickly.

Whenever anything looks tempting and really good there is a psychological urge to indulge. Doesn’t matter if it is a lunch buffet at a popular restaurant or an electronics sale from an online e-tailer or a fast-rising stock market.

The sensible thing to do would be to take a deep breath and step back. An irrepressible urge to do something is often followed by deep regret – specially when the only thing in your possession is an entry in your demat account that is sharply losing its value.

An oft-quoted statistic is that 90% of traders fail to make money in the stock market. The same statistic probably applies to most first-time investors as well.

The reason is simple. A recent article in investopedia.com not only explains the reason, but charts out the steps required for success in the stock market.

Wednesday, August 5, 2015

Nifty chart: a mid-week update (Aug 05 ‘15)

RBI Governor kept interest rates unchanged during Tuesday’s policy meeting. A sell-off ensued as some market players were hoping against hope for a 25 bps rate cut.

The overall monsoon rainfall during Jun & Jul ‘15 have been deficient by about 5%. If rains during Aug ‘15 is also deficient, expect food prices to rise and stoke inflation.

As per provisional figures, FIIs have been net buyers of equity worth Rs 920 Crores during the first three trading days of Aug ‘15. DIIs have been net sellers of equity worth Rs 330 Crores.

Q1 (Jun ‘15) results continue to show bottom line pressure, though there have been a few exceptions. Manufacturing growth has just begun to pick up.

Nifty_Aug0515

The daily bar chart pattern of Nifty dropped down below its 20 day EMA intra-day on Tue. Aug 4 but bounced up on strong volume support to close higher today.

The index is approaching the resistance zone between 8630 and 8670 (mentioned in a previous post). Expect bears to put up a fight. Once 8670 is crossed convincingly, the index may run away to touch a new high.

Daily technical indicators are painting a mixed picture. MACD has moved up to touch its falling signal line in positive zone – which is mildly bullish. ROC faced resistance from its sliding 10 day MA and failed to enter positive zone – which is slightly bearish.

RSI is also looking a bit bearish by slipping below its 50% level. Slow stochastic has climbed above its 50% level, which is a bullish sign, but its upward momentum is decelerating.

All three EMAs are rising and Nifty is trading above them in a bull market. The index appears to be forming a ‘rounding bottom’ or a ‘cup and handle’ pattern.

If either pattern plays out, Nifty can touch 10000 in the near future. Any fall below the Jun ‘15 low of 7940 can lead to a drop to 7500 – however remote the possibility may seem now.

In other words, be very cautious about betting the ranch on ‘sure shot’ or ‘can’t fail’ type of stocks.

Tuesday, August 4, 2015

Gold and Silver charts: bears trying to stop the rot

Gold chart pattern

Gold_Aug0315

The daily bar chart pattern of gold had touched a high-volume ‘panic bottom’ of 1080, which led to the following comment in the previous post: “A ‘panic bottom’ seldom holds. That means the Jul 20 ‘15 low of 1080 is likely to be breached.”

A ‘dead cat bounce’ to 1110 on the next day was followed by an intra-day drop to a 3 years low of 1072 and then a high-volume bounce to 1100 on Jul 24.

Gold seems stuck in a sideways consolidation within a small ‘symmetrical triangle’. Since triangles are usually continuation patterns, a downward break out is likely.

All three EMAs are falling, and gold’s price is trading below them in a bear market. Daily technical indicators have corrected oversold conditions but remain bearish. Any rally will provide a selling opportunity.

On longer term weekly chart (not shown), all three weekly EMAs are falling and gold’s price is trading well below them in a long-term bear market. Weekly technical indicators are in bearish zones. MACD is falling below its signal line. RSI and Slow stochastic are moving sideways.

Silver chart pattern

Silver_Aug0315

The daily bar chart pattern of silver touched an intra-day low of 14.30 on Jul 24 and then bounced up to touch an intra-day high of 15 a week later.

Resistance from the falling 20 day EMA proved too strong for the brief rally. Silver’s price closed below 14.50 deep inside bear territory – a 3 years low on a closing basis.

Daily technical indicators have corrected oversold conditions but remain in bearish zones.

Bears are desperately trying to stop the rot. Still there is no sign of bottom formation.

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 in bearish zones and showing downward momentum.

Monday, August 3, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jul 31, 2015

S&P 500 Index Chart

S&P 500_Jul3115

The daily bar chart pattern of S&P 500 dropped to test support from the rising 200 day EMA on Mon. Jul 27, and then bounced up sharply above its 20 day and 50 day EMAs with good volume support.

The index closed just above the 2100 level – gaining 1% on a weekly closing basis. The 200 day EMA continues to rise, which is a sign of a bull market.

But the index has been stuck in a 100 points range (between 2040 and 2140) for the past 6 months. Reminded me of Dylan’s song “You ain’t going nowhere.”

Daily technical indicators are in bullish zones, but their upward momentum is waning.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market. However, the 20 week EMA may be forming a bearish ‘rounding top’ pattern. Weekly technical indicators are in bullish zones and showing some upward momentum.

Stay invested, with a stop-loss at 2040.

FTSE 100 Index Chart

FTSE_Jul3115

The daily bar chart pattern of FTSE 100 touched a higher bottom of 6496 on Mon. Jul 27 and bounced up smartly with good volume support (not shown on chart) to close above its 20 day EMA – gaining about 1.8% on a weekly closing basis.

However, the index remains below its sliding 50 day and 200 day EMAs in bear territory. A convincing move above the Jul 20 intra-day high of 6813 will reverse the bearish pattern of ‘lower tops and lower bottoms’.

Daily technical indicators are showing bullish signs. MACD has crossed above its signal line in negative zone. RSI and Slow stochastic have just managed to move above their respective 50% levels.

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

Sunday, August 2, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Jul 31, 2015

Auto sales of several manufacturers showed healthy double-digit growth during Jul ‘15, with M&M being an exception. That was the good news. Now, some bad news.

India’s fiscal deficit during Q1 (Jun ‘15) touched almost $45 Billion, more than 50% of the target set for the whole year. 16% surplus monsoon rains in Jun ‘15 was followed by 17% deficit across the country in Jul ‘15.

However, rainfall was fairly widespread (except in South India) with several states receiving heavy rainfall.

After 2 months of net selling, FIIs were net buyers of equity worth Rs 2300 Crores during Jul ‘15 (as per provisional figures). DIIs became marginal net buyers of equity worth Rs 72 Crores – thanks to heavy buying on the last day of the month.

BSE Sensex index chart

Sensex_Jul3115

A steep up trend line drawn on the daily bar chart pattern of Sensex last week (marked 1) got breached by heavy selling during the first 2 days of the week.

Steep up trend lines tend to get breached easily (the possibility was mentioned in an earlier post) so it should not have come as a surprise.

The index found strong support from the lower edge of the ‘support-resistance zone’ and the 200 day EMA, and bounced up sharply above its 20 day and 50 day EMAs into bull territory.

A second (less steep) up trend line has been drawn, which is expected to support the index during the next leg of the up move.

What if Sensex is undergoing a pullback to up trend line 1? Wouldn’t that become a selling opportunity? Technically, no. Why? Because Sensex is clearly undergoing a bull market correction/consolidation.

How can one be sure? By looking at the 50 day and 200 day EMAs. The 50 day EMA moved down towards the 200 day EMA, but has started moving up again – preventing a ‘death cross’.

The rising 200 day EMA flattened out during May and Jun ‘15, but has started to rise again. Also, the index appears to be forming a ‘rounding bottom’ or a ‘cup-and-handle’ pattern.

Either pattern – if it plays out – will lead to upward break outs. The strategy should be to ‘buy on dips’ and not to ‘sell on rises’ (which is a bear market strategy).

Daily technical indicators are turning bullish, though ROC and Slow stochastic are still in bearish zones. Stay invested.

NSE Nifty 50 index chart

Nifty_Jul3115

The weekly bar chart pattern of Nifty dropped below its 20 week EMA intra-week, but bounced up strongly with good volume support to make marginal weekly gains.

Likely resistance from the zone between 8630 (top edge of the ‘support-resistance zone’) and 8670 (the 61.8% Fibonacci retracement level of the entire fall from the Mar ‘15 top of 9119 to the Jun ‘15 bottom of 7940) will be the next hurdle for bulls.

Three of the four weekly technical indicators are looking bullish. MACD is rising above its signal line in positive zone. RSI has crossed above its 50% level. Slow stochastic has climbed to the edge of its overbought zone. Only ROC is looking bearish by falling towards the ‘0’ line.

Nifty is trading above its two weekly EMAs in a bull market. Bulls are regaining their control over the chart.

Bottomline? The bar chart patterns of Sensex and Nifty may be in the process of forming bullish continuation patterns. Long-term trends remain bullish, so dips can be used as adding opportunities. Choose ‘good’ stocks and maintain suitable stop-losses. Stick to MFs if stock picking is not your cup of tea.

Saturday, August 1, 2015

Focus back on Banking Sector stocks?

Ask any analyst covering the banking sector and you will hear a common refrain: “Buy private sector banks – avoid public sector banks.” I endorse this view.

PSU banks are often forced by the government to extend services to sectors that private banks scrupulously avoid. They run up huge NPAs in the process.

A recent decision by the government to inject Rs 70,000 Crores over the next 4 years into PSU banks have switched the focus back on the banking sector.

Does that make PSU banks better buys? Have a look at the charts of 10 banking sector stocks below and make up your mind.

Punjab National Bank

PNB_Jul3115

PNB’s stock started a bull phase in Mar ‘14 that culminated with a closing high of 225.95 in Dec ‘14 (adjusted for 5:1 stock split marked by light blue bell).

As often happens after a stock split, sellers dominated and the stock has dropped into a bear market. The funds infusion news has seen buyers coming to the fore.

Technical indicators are looking bullish, so the stock can rally some more. A convincing move above the sliding 200 day EMA may shake off bears.

Bank of Maharashtra

BkMaha_Jul3115

The stock touched a 2 years closing high of 54.20 in Jun ‘14, but formed a ‘double-top’ reversal pattern and started a 9 months long down trend.

The stock has been consolidating sideways for the past 4 months, but is trading below its 200 day EMA in a bear market.

Daily technical indicators are looking bearish. A convincing move above 42 may change the trend to bullish.

Central Bank

CentralBk_Jul3115

This is the chart of a PSU bank that resembles that of private banks. It is clearly in a bull market.

After closing at a 2 years high of 114.60 in Feb ‘15, the stock price has been consolidating sideways with a slight downward bias.

Technical indicators are showing signs of turning bullish. This can be a good entry point.

Corporation Bank

CorpBk_Jul3115

The stock price closed at a 2 years high of 82.40 in Jun ‘14, but formed a ‘double top’ reversal pattern and started to correct. News of a 5:1 stock split took the stock to a lower top of 77.60 in Jan ‘15.

Bears reasserted themselves, and the stock has been sliding deeper into bear territory. Technical indicators are showing some upward momentum. Any rally should be used to sell.

Indian Overseas Bank

IndOvBk_Jul3115

The chart structure of IOB stock is similar to that of Corp. Bank – minus the price spurt in Jan ‘15. After closing at a 2 years high of 88.80, the stock has been on a downhill ride with a break of 4 months (during Oct ‘14 to Jan ‘15) for a sideways consolidation.

Technical indicators are showing signs of upward momentum, but the stock should be avoided.

HDFC Bank

HDFCBk_Jul3115

One look at the chart should convince any investor why HDFC Bank’s stock is a favourite of FIIs. After a brief bear phase during Aug-Sep ‘13, the stock price rallied strongly to close at 1094 in Jan ‘15.

A 3 months corrective phase followed. The stock dropped to seek support from its rising 200 day EMA, and then bounced up to touch a 2 years closing high of 1115.60 in Jul ‘15.

Daily technical indicators have corrected from overbought conditions. The stock looks set to resume its up move.

ICICI Bank

ICICIBk_Jul3115

After closing at a 2 years low of 156.80 in Sep ‘13, the stock price rose almost one-way to a 2 years closing high of 383.85 (adjusted for the 5:1 stock split in Dec ‘14 marked by light blue bell).

The stock has been in a correction since then, but appears to have formed a ‘double bottom’ reversal pattern. Technical indicators are in the process of correcting oversold conditions.

The bear phase may have come to an end.

Axis Bank

AxisBk_Jul3115

From a 2 years closing low of 164.70 (touched in Sep ‘13), the stock rose to a 2 years closing high of 649.50 (in Mar ‘15 – adjusted for 5:1 stock split in Jul ‘14) – gaining almost 300% in 18 months.

The stock has been consolidating sideways within a ‘pennant’ pattern for the past 5 months, and is trading above its rising 200 day EMA in a bull market.

Technical indicators are in bearish zones, but trying to turn around. An upward break out from the ‘pennant’ is likely

IndusInd Bank

IndusBk_Jul3115

The stock has given very good returns to investors – rising from a 2 years closing low of 338 (in Aug ‘13) to a 2 years closing high of 977.60 (in Jul ‘15) and gaining almost 190% in 2 years.

In between, a 3 months corrective phase (during Apr-Jun ‘15) ended with a ‘double bottom’ reversal pattern that successfully tested support from the 200 day EMA.

Technical indicators are looking overbought and showing negative divergences. A correction may be around the corner.

Yes Bank

YesBk_Jul3115

The stock of Yes Bank provided excellent returns to shareholders – gaining 290% from a 2 years closing low of 225.90 (in Aug ‘13) to a 2 years closing high of 883.35 (in Jan ‘15).

Squabbles within the promoter family has prevented the stock from going anywhere since then. The stock has consolidated within a ‘rectangle’ with a 100 points range for the past 6 months.

Technical indicators are showing some upward momentum. A likely upward break out from the ‘rectangle’ can help the stock price touch 4 figures.