Saturday, April 30, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 29, 2016

Trading activity was comparatively low during F&O expiry week. FIIs were net buyers of equity worth Rs 1060 Crores, but they were net sellers on the last trading day of the month. DIIs were net sellers of equity worth Rs 1410 Crores during the week, as per provisional figures.

Sensex and Nifty failed to close above their respective down trend lines for the second week in a row and corrected, but received good support from their long-term moving averages.

Q4 (Mar '16) results are coming in thick and fast, with more hits than misses so far. PSU banks - and even ICICI Bank - have disappointed. If the initial trends are maintained, Q4 results may turn out to be better than Q3 results. 

BSE Sensex chart pattern


The daily bar chart pattern of Sensex faced strong resistance from the blue down trend line and slipped below the 200 day EMA on Fri. Apr 29, but received support from the 20 day EMA and bounced up to close just above the 200 day EMA.

The following comments were made in last week's post: "Sensex had formed an upward 'gap' between 25180 and 25358 on Wed. Apr 13. The current level of the rising 20 day EMA is within the 'gap' zone, and is likely to provide support if the index corrects some more."

Bears were expected to put up a fight to defend the down trend line - like they did in Jul, Aug & Oct '15. Just above the trend line is the 26300 level, which is a long-term 'support-resistance' level. So, bulls have their work cut out.

Daily technical indicators are in the process of correcting overbought conditions. MACD is about to cross below its signal line and drop from its overbought zone. ROC has dropped from its overbought zone. RSI is trading sideways just below its overbought zone. Slow stochastic is poised to fall from its overbought zone.

Some more correction looks likely. The rally from the Feb 29 low was quite sharp. The correction will improve the technical 'health' of the chart and provide a buying opportunity.

Expect support from the 'gap' zone (between 25180 and 25358) and the rising 50 day EMA. 

There is also a possibility of the index bouncing up and crossing above the down trend line next week. But the bounce may not be strong enough to cross 26300.

On longer term weekly chart (not shown), Sensex has formed a 'reversal' bar (higher high, lower close) and closed below its 20 week EMA, but is trading more than 1900 points above its rising 200 week EMA in a long-term bull market. 

NSE Nifty chart pattern


The weekly bar chart pattern of Nifty crossed above the blue down trend line and the resistance level of 7950 for the second week in a row, but failed to close above them.

The index dropped to seek support from its 50 week EMA and closed above it. In the process, the index formed a 'reversal week' bar (Higher high, lower close) that can lead to a correction.

Weekly technical indicators are giving mixed signals. MACD is rising above its signal line, but has not entered positive zone yet. ROC has dropped down from its overbought zone. RSI is moving sideways above its 50% level. Slow stochastic is rising inside its overbought zone.

NSE TRIN (not shown) is near the upper edge of its overbought zone after bouncing up from the lower edge - hinting at some more correction.

Bottomline? Chart patterns of Sensex and Nifty failed to overcome strong resistances from their respective blue down trend lines for the second week in a row. Some more correction or consolidation is possible. Be stock specific, and check Q4 (Mar '16) results before buying.

Wednesday, April 27, 2016

Are sugar sector stocks turning sweeter? - a guest post

Most small investors will be wise to stay away from sugar sector stocks for several reasons. Like most commodities, sugar's price moves in cycles. That makes long-term investing a challenge. One needs to carefully time entry and exit to make money from sugar stocks.

The other major reason is government interference and price control. Sugar manufacturers are not always at liberty to decide whether they will sell in the domestic or export markets and at what prices. Government also dictates what prices producers have to pay farmers for their sugarcane produce. As an agricultural produce, weather plays an important role in sugar production.

However, experienced investors who are not risk-averse and are adept at timing their entry or exit can take a look at sugar stocks now. In this month's guest post, Nishit explains why the current water scarcity and drought-like conditions in several states may benefit stock prices of sugar companies. 

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Summer is a time of drought and water scarcity in many regions of India. While the main reason for this is deficient rainfall, the impact has been higher - especially in Maharashtra - because a lot of water has been diverted to water-guzzling sugarcane crops.

The most drought-affected areas are the sugarcane belt and Maharashtra Government has declared a moratorium on new sugarcane factories for the next 5 years. Sugarcane output may fall to 50% of what it was 2 years back in Maharashtra, which is supposed to be one of the highest producers of sugar within the country.

Sugar stocks are in the limelight and they should be. Lower production leads to higher prices. That means bigger profits for sugar companies.

In Maharashtra, the drought cycle will continue till the farmers switch to cash crops which require less water. Sugarcane farming will lead to more droughts. Often it takes a crisis for us Indians to act. We have a crisis staring at us right now in terms of drought.

The sugar cycle is a long cycle and the prices have still not gone up very much. Global sugar prices had peaked at around US $35 in 2011 and are currently at US $15 after touching a low of US $10.

With increasing population and lower production, sugar sector is looking up. One of the issues which need to be considered is the debt of Sugar Mills. During the last price rise in 2011-2012, this debt factor prevented many sugar stocks from gaining ground.

Sugar producing companies in the southern part of the country need to be looked at also. With water scarcity unfolding and production of sugarcane dropping, sugar sector stocks cannot be ignored.

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

Tuesday, April 26, 2016

WTI and Brent Crude Oil charts: an update

WTI Crude Oil chart


The following remark was made in the previous post on the daily bar chart pattern of WTI Crude oil: "Even if oil's price crosses above its 200 day EMA, the strong resistance zone between 42-44 will be more difficult to overcome."

Oil's price did cross above its 200 day EMA on Apr 12, but wasn't supported by strong volumes. The next day it attempted to test resistance from the 44 level but fell short, and formed a 'reversal day' bar (higher high, lower close).

After plunging below its 200 day and 20 day EMAs, oil's price bounced up sharply and once again crossed above its 200 day EMA - this time backed by strong volumes that provided technical validity to the move into bull territory above its three EMAs.

Note that oil's price breached the 44 level intra-day, but has not managed to close above 44 so far. After forming another 'reversal day' bar on Apr 21, oil's price has pulled back towards its 200 day EMA.

Is the pullback a buying opportunity? The answer would be 'Yes' if oil was trading in a bull market. But technically, a bear market is still in force, and will remain so till the 'golden cross' of the 50 day EMA above the 200 day EMA.

All three technical indicators are in bullish zones, but showing negative divergences by failing to touch new highs with oil's price. Also, RSI and Slow stochastic are forming bearish 'double top' patterns. So, the odds of bears reasserting themselves are getting better by the day.

"Kuwait’s crude production is recovering after its recent workers’ strike and output from Iraq has been climbing," as per marketwatch.com. That may put downward pressure on oil's price. Morgan Stanley and Barclays also expressed bearish views.

On longer term weekly chart (not shown), oil’s price is facing strong resistance from its falling 50 week and is trading well below its 200 week EMA in a long-term bear market. The upward momentum of weekly technical indicators is weakening.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude oil shows a failed attempt at crossing the 200 day EMA, followed by a drop below the rising 20 day EMA.

A sharp increase in volumes propelled oil's price above its 200 day EMA on Apr 20 for the first time since the bear market began in Jul '14. The next day, oil's price touched 46 intra-day, but formed a 'reversal day' bar.

Combined negative divergences visible on all three technical indicators - which failed to touch new highs with oil's price - resulted in oil's price pulling back to the 200 day EMA.

'Double top' reversal patterns formed by RSI and Slow stochastic near their overbought zones hint at further correction in oil's price.

On longer term weekly chart (not shown), oil's price stopped short of testing resistance from its falling 50 week and is trading well below its 200 week EMA in a long-term bear market. Weekly technical indicators are looking bullish but showing signs of weakening upward momentum.

Monday, April 25, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Apr 22, 2016

S&P 500 index chart


The daily bar chart pattern of S&P 500 shows a continuation of the rally from the Feb '16 low. The index rose above its Dec '15 top but stopped just short of its Nov '15 top before correcting a bit.

The periodic small corrections that received good support from the rising 20 day EMA have kept the chart technically 'healthy'. The 'golden cross' of the 50 day EMA above the 200 day EMA signalled a return to a bull market.

Daily technical indicators are in bullish zones but showing downward momentum. MACD, RSI and ROC (not shown) failed to touch new highs with the index. The combined negative divergences probably triggered the correction from the Apr 20 top of 2111. 

On longer term weekly chart (not shown), the index closed above its three weekly EMAs for the 7th week in a row. The index is trading more than 250 points above its rising 200 week EMA in a long-term bull market. The 20 week EMA has just crossed above the 50 week EMA. Weekly technical indicators are in bullish zones, but Slow stochastic is overbought.

FTSE 100 index chart


The following comments appeared in last week's post on the daily bar chart pattern of FTSE 100: "Bulls will need to overcome strong resistance from the zone between 6400-6500 if they wish to regain control of the chart." 

Note that the index entered the resistance zone and touched an intra-day high of 6427 on Apr 21 '16 - stopping short of its Dec '15 top by 20 points. After forming a 'reversal day' pattern (higher high, lower close), the index dropped to seek support from its 20 day EMA.

FTSE spent the entire week above its three EMAs in bull territory. The 20 day EMA has crossed above the 200 day EMA - after falling below it more than 9 months ago. The 'golden cross' of the 50 day EMA above the 200 day EMA is still awaited.

Daily technical indicators are in the process of correcting overbought conditions, but remain in bullish zones. Some more correction or consolidation is possible before the rally resumes. 

On longer term weekly chart (not shown), the index formed a 'reversal bar' (higher high, lower close) and slipped below its 200 week EMA. However, it closed above its 20 week and 50 week EMAs. Weekly technical indicators are looking bullish. 

Saturday, April 23, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 22, 2016

FIIs were in buying mode in another holiday-shortened trading week. Their net buying in equities was worth almost Rs 1900 Crores. DIIs turned net sellers of equity worth more than Rs 700 Crores.

Both Sensex and Nifty crossed above their long-term moving averages into bull territory after more than 5 months, but faced strong resistances from their respective blue downtrend lines.

Q4 (Mar '16) results from IT companies, Reliance and private banks declared so far have been quite satisfactory. Some large companies will be declaring their results next week, which is also F&O expiry week. 

Expect some consolidation or correction before bulls make another attempt to overcome resistances from the downtrend lines.   

BSE Sensex chart pattern



The daily bar chart pattern of Sensex spent the entire trading week above its three EMAs in bull territory, but failed to overcome resistance from the blue downtrend line.

The 20 day EMA has crossed above the 50 day EMA, and both EMAs are rising. The 200 day EMA has stopped falling and has flattened out. These are bullish signs in the near term.

All four daily technical indicators are in bullish zones, but their upward momentum is weakening. 

MACD has crossed above its signal line in positive zone. ROC has crossed above its 10 day MA and reached the edge of its overbought zone. RSI has turned down after facing resistance from the edge of its overbought zone. Slow stochastic is reversing direction inside its overbought zone.

Sensex had formed an upward 'gap' between 25180 and 25358 on Wed. Apr 13. The current level of the rising 20 day EMA is within the 'gap' zone, and is likely to provide support if the index corrects some more. Even if the 'gap' gets filled - partly or fully - the up move should resume thereafter.

NSE Nifty chart pattern



The following comments appeared in the previous post on the weekly bar chart pattern of Nifty

"The index is still 100 points below the down trend line and the next 'support-resistance' level of 7950. Those two hurdles will need to be convincingly crossed with good volume support for bulls to regain control of the chart. Bears may put up a strong fight to prevent that from happening." 

Note that the index touched an intra-week high of 7978 after crossing above the downtrend line and the 7950 level with good volume support. But bears fought back to ensure that the index closed below 7950 and the downtrend line.

In the process, the index has formed a weekly 'doji' candlestick pattern, which indicates indecision among bulls and bears that is often a harbinger of a short-term trend change. 

Is there any particular significance of Nifty's rally stalling after touching 7978? It so happens that the 50% Fibonacci retracement level of the entire fall from 9119.20 (lifetime high touched on the week ending on Mar 6 '15) to 6825.80 (intermediate bottom touched on the week ending on Mar 4 '16) is 7972.50.

So what? Well, the 50% Fibonacci retracement level is kind of a 'Lakshman rekha' acknowledged by bulls and bears. A convincing cross above (or below) it is a technical confirmation of a change of trend. 

The market breadth indicator, NSE TRIN (not shown) has dropped sharply to enter its overbought zone. Weekly ROC is looking extremely overbought. Slow stochastic has also entered its overbought zone. MACD and RSI are not in overbought zones yet, but a correction or consolidation next week seems likely.

Bottomline? Chart patterns of Sensex and Nifty failed to overcome strong resistances from their respective blue down trend lines. Some correction or consolidation can be expected before the indices resume their up moves. Check Q4 (Mar '16) results before jumping in to add on the likely dips.

Friday, April 22, 2016

A 7-Step Guide to Value Investing

If you enjoy the thrill of making some quick profit from the stock market by booking trading profits of Rs 2 or Rs 3 per stock then you will save time and effort by reading no further.

But if you are interested in building wealth over the long-term - which requires a well-planned but patient and boring strategy - then going through the 7-Step guide to Value Investing may be beneficial.

So without further ado, here are the 7 steps (according to Andrew Beattie): 

1. Buy Businesses

When you buy a stock, you are not buying a piece of paper or an entry in a demat account. You are actually buying a 'share' in a company. That means, you should spend some time in researching the company's business and assess whether the 'share' you are buying is at a fair price.

2. Love the Businesses you Buy

If you really want to build wealth, you need to hold 'shares' of good businesses over a long period of time. To be able to do that, you have to build a fundamental 'relationship' with the company by regularly analysing its performance. If performance is improving, buy more. If performance is not up to the mark, book part profits. 

3. Simple is Best

You need to understand how a business generates profits and maintains market share. The simpler the business (like Colgate's toothpaste or Marico's edible oil) the easier it is to understand. The more complex the business (like Biocon's medicines or Persistent System's software) the harder it is to fathom how the business is faring.

4. Look for Owners, not Managers

A good manager can successfully run a not-so-good business. A not-so-good manager can run a good business to the ground. Manager integrity and transparency is paramount. Look for managers who act like owners by having a long-term growth focus and delivering on promises. 

5. When you find a good thing, Buy a Lot

A value investor does not need to buy or sell regularly. He waits patiently for the stock of a good business to be available at a fair price. When an opportunity arrives, he buys the stock by the truckload. While this means 'timing the market' - not recommended for novice investors - concentrated portfolios of fewer stocks in large quantities tend to generate better returns.

6. Measure against your Best Investment

Jumping in at every opportunity is not the trait of a value investor. Quality of business is more important than quantity. That means buying a stock only if the company is better - or at least as good - as the ones you already own. It is your money. Why not buy the best companies?

7. Ignore the Market 99% of the time

Markets fluctuate. They neither go up or down in a straight line. Ignore the daily gyrations. When a market is rising, you don't need to buy. Neither should you sell if the market is falling. Rely on your asset allocation plan instead.

Read Beattie's full article here.

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Wednesday, April 20, 2016

Nifty chart: a midweek update (Apr 20 '16)

WPI inflation in Mar '16 was -0.85% against -0.91% in Feb '16. It was the 17th straight month of deflation, thanks to lower fuel prices. Exports were down 5.5% in Mar '16 - falling for the 16th month in a row.

Q4 (Mar '16) results have started hitting the market. TCS, Infosys, Wipro and LIC Housing Finance have declared decent sets of numbers. Already experts are talking about increase in earnings of India Inc. from Q4 onwards.

In the two trading days this week, FIIs were net buyers of equity worth nearly Rs 900 Crores. DIIs were net sellers of equity worth more than Rs 600 Crores. Nifty has risen 1100 points from its Feb 29 low. 


The 1 year closing chart pattern of Nifty shows the important role played by the 'support-resistance' level of 7550. 

After facing resistance from its 200 day EMA, the index dropped below its rising 20 day EMA but received good support from 7550 and the rising 50 day EMA.

The subsequent sharp rally - on the back of strong FII buying - propelled the index with an upward 'gap' (not shown) above its 200 day EMA into bull territory after 6 months.

An upward breakout with a 'gap' is considered to be technically 'stronger' than an ordinary breakout without a 'gap'. The 200 day EMA is likely to turn into a strong support level.

The next 'support-resistance' level of 7950 has now come into play. The index opened today's trading exactly at 7950, but slipped down to close flat.

Daily technical indicators are in bullish zones, but looking overbought. Upward momentum of RSI has stalled. MACD and ROC (not shown) are showing negative divergences by failing to move higher with the index.

A pullback towards the 200 day EMA is a possibility if FIIs remain in profit-booking mode - as they were today.

Any dip towards 7800 will be an opportunity to add.

Track Q4 (Mar '16) results closely to identify companies that are performing consistently.

Tuesday, April 19, 2016

Gold and Silver charts: an update

Gold chart pattern


After touching an intra-day high of 1288 on Mar 11 '16 and gaining almost 250 points from its Dec '15 low, the daily bar chart pattern of Gold has been consolidating sideways within a 'symmetrical triangle' pattern.

The rising 50 day EMA has been providing good support. Gold is trading well above its 200 day EMA in bull territory.

Triangles are unreliable patterns. That means a breakout can occur in either direction. On daily closing chart (not shown), a 'descending triangle' pattern appears to be forming - from which the likely breakout is downwards.

Daily technical indicators are giving mixed signals, which is often the case during sideways consolidations. MACD is barely in positive zone, and moving down. RSI is clinging on to its 50% level. Slow stochastic has dropped below its 50% level. 

On longer term weekly closing chart (not shown), gold’s price is forming a bearish 'head and shoulders' reversal pattern below its 200 week EMA, but is trading above its rising 20 week and 50 week EMAs. Weekly technical indicators are moving sideways in bullish zones.

Silver chart pattern


The daily bar chart pattern of Silver shows a spirited fightback by bulls. A high volume spurt propelled silver's price above its three EMAs into bull territory.

The 'golden cross' of the 50 day EMA above the 200 day EMA has technically confirmed a return to a bull market.

However, bulls are facing some technical challenges. Silver's price rally stalled near its previous (Oct '15) top of 16.30. Volumes have dropped off as silver's price inched higher.

Daily technical indicators are in bullish zones, but MACD and RSI are showing negative divergences by failing to touch new highs. Slow stochastic is well inside its overbought zone and starting to correct.

Expect some correction or consolidation before silver's price can move higher.

On longer term weekly chart (not shown), silver’s price is trading above its 20 week and 50 week EMAs but well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are in bullish zones. 

Monday, April 18, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Apr 15, 2016

S&P 500 index chart


The daily bar chart pattern of S&P 500 shows that bulls were able to overcome another attempt by bears to stall the sharp rally from the Feb '16 low.

After a short pause in a sideways consolidation between 2040 and 2060 - during which the 20 day EMA provided good support - the index broke out upwards.

At the time of writing this post, the index has almost reached 2090 and is trading above its three EMAs in bull territory. The 'golden cross' of the 50 day EMA above the 200 day EMA has technically confirmed a return to a bull market.

There are a couple of worrying signs for bulls. Both MACD and RSI are showing negative divergences by touching lower tops. Slow stochastic is well inside its overbought zone.

Another spell of correction or consolidation may be on the cards. Bulls are likely to use the opportunity to buy.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs for the 6th week in a row. The index is trading 250 points above its rising 200 week EMA in a long-term bull market. The 20 week EMA is about to cross above the 50 week EMA for the first time this year. Weekly technical indicators are in bullish zones, but Slow stochastic is looking overbought.

FTSE 100 index chart


The following comments were made in last week's post on the daily bar chart pattern of FTSE 100: "...the index has slipped down after testing resistance from its 200 day EMA. Note that each test of a resistance level makes it weaker and more susceptible to a breach. In other words, the index may break out above its 200 day EMA soon."

The index shows a textbook break out above the 200 day EMA on Wed. Apr 13 '16, accompanied by a sharp increase in volumes (not shown) that technically validated the break out.

The upward breakout was preceded by 6 weeks of sideways consolidation that received good support from the rising 50 day EMA - forming a bullish 'ascending triangle' pattern.

At the time of writing this post, the index has bounced up after a pullback to the 200 day EMA - giving a buying opportunity to those who may have missed buying on the breakout.

Daily technical indicators are in bullish zones, but showing a bit of downward momentum due to the index pulling back. Bulls will need to overcome strong resistance from the zone between 6400-6500 if they wish to regain control of the chart.  

On longer term weekly chart (not shown), the index closed above its three weekly EMAs for the first time after almost 11 months. Weekly technical indicators are looking bullish. The year long down trend may be finally coming to an end.

Sunday, April 17, 2016

Sensex is recovering after a year-long bear phase; which sectors will lead the next rally?

After touching a lifetime high in Mar '15, Sensex entered a down trend which has not yet been reversed after 13 months. However, the index has formed a small 'double bottom' reversal pattern in Feb '16 and been in a recovery mode since then.

Almost all sectoral indices have been affected by the prolonged down trend to a greater or lesser extent. As always, there are exceptions. One sectoral index has been in an up trend for the past 2 years. Another has been in a sideways consolidation for the past 13 months. Risk averse investors can buy the better stocks from these two sectors.

Those with a penchant for risk can play contrarian by picking stocks from the sectors that are on the road to recovery. Prudence demands that sectors still in doldrums should be avoided. 

BSE Auto Index


BSE Auto touched a 2 years high in Jan '15 and has been in a down trend since then. Thanks to lower petrol and diesel prices and a falling interest rate regime, auto sales are picking up. Even CV sales are on the rise, indicating economic recovery. The index is in bull territory above its three EMAs, but haven't yet reversed the down trend (marked by blue down trend line).

BSE Bankex


BSE Bankex also touched a 2 years high in Jan '15, and has been in a down trend since then. Its recovery from its Feb '16 low has stalled near its falling 200 day EMA. Large NPAs of PSU banks have kept the index subdued. Comparatively, private banks are performing much better.

BSE Capital Goods Index


BSE Cap. Goods touched a 2 years high in Jul '15, only to suffer a sharp correction. After dropping to a 2 years low in Feb '16, the index formed a 'double bottom' reversal pattern and moved convincingly above the blue down trend line. However, it is trading well below its falling 200 day EMA in bear territory.

BSE Consumer Durables Index


BSE Consumer Durables has been in a bull market for the past 2 years, pleasantly surprising the market with its counter-trend performance. The index touched a 2 years high in Nov '15, and has been consolidating sideways with a slight downward bias since then. It is trading above its three EMAs in a bull market.

BSE FMCG Index


A perennial market favourite, BSE FMCG fell victim to a down trend after touching a 2 years high in Feb '15. Two poor monsoons in a row played spoilsport for the sector. Early forecasts of this year's monsoon have indicated a rain surplus. The index has duly breached its down trend line, but it hasn't been a convincing breach yet.

BSE Healthcare Index


BSE Healthcare was in a bull market till Oct '15 when it formed a 'triple top' reversal pattern and entered a down trend. The index is trading below its down trend line and its 200 day EMA in bear territory. FDA strictures against several well-known pharma companies has put a question mark on future growth of the export market. Domestic market has also been affected by price control and government regulation against combined dosages.

BSE IT Index


BSE IT touched a 2 years high in Mar '15 and entered a sideways consolidation within a large 'pennant' pattern. Despite Rupee devaluation, IT companies have not benefitted much due to slow growth in Europe and visa strictures in USA. Market leaders should be able to overcome these near-term issues. Avoid the mid-cap and small-cap companies.

BSE Metal Index


BSE Metal has been a victim of the commodity down cycle - correcting more than 50% from its Jun '14 top. The index is facing resistance from its 200 day EMA. Contrarian investors can pick market leaders, but need to remain patient.

BSE Oil & Gas Index


BSE Oil & Gas has been correcting since touching a 2 years high in Jun '14. Despite lower prices in the international market, higher duties locally and price control have proved detrimental to profitability. The index is trading in bull territory above its three EMAs but remains in a down trend.

BSE Power Index


BSE Power is a sector investors should not touch with a 10 ft. pole. Too much government interference, rampant power theft and poor performance of state electricity boards have turned this sector into a basket case.

BSE Realty Index


BSE Realty is a clear avoid for investors. The index is in a 2 years long down trend and may not be able to reverse the trend anytime soon. However, there may be no better time like now to invest in an apartment or house for personal use. 

Friday, April 15, 2016

Want to be a successful long-term investor? Act like a professional golfer

For the uninitiated (and the disinterested), here is a brief outline of the career progression of a typical professional golfer:
  • an early interest in the game from a father who plays golf and/or proximity to a public golf course
  • interest turns into passion - leading to playing regularly come rain or shine
  • lessons from a local golf instructor that fine tunes skills
  • appearance in local golf tournaments where skills and potential are recognised by experts
  • a golf scholarship from a college/University
  • competing in inter-college, regional and national amateur tournaments
  • becoming a professional golfer after (or even before) completing a college degree
  • honing skills in lower level professional tournaments before qualifying for national/international level tournaments
  • maintaining status in national/international level tournaments by winning at least once in two years, or by consistently performing every year to be ranked within the top 100/150
  • winning one or more Major tournaments - like the Masters, British Open, US Open, PGA Championship - to earn a place in the Hall of Fame
If you are still with me so far, visualise those bullet points as a large funnel. Thousands of kids around the world show an interest in the game that turns into a passion. As they progress along the skills and experience path, the funnel starts to get narrower and narrower.

Many don't make it to college. Those who do, fail to make a mark in inter-college tournaments. Only a handful perform outstandingly at the amateur level to get a direct entry into a few professional tournaments. The rest grind their way through lower level professional tournaments, and may never get to play in any of the Major tournaments.

So, what does all this have to do with successful long-term investing? I'm coming to that.

Making big money as a professional golfer is extremely difficult, if not impossible. How difficult? Only 5 golfers in the entire history of the game have managed to win all the four Major tournaments in their careers. Many well-known golfers have never won a Major. A few have won one Major tournament only to fade into oblivion after that.

In the recently concluded Masters tournament, last year's winner Jordan Spieth had a 5 shot lead with 9 holes left to play. Everyone expected him to win again. Inexplicably, Jordan dumped two shots into the creek in front of the 12th hole to lose his lead and finished second. 

The game itself requires a lot of skill and dedication. On top of it, one requires an extraordinary amount of patience and equanimity. Unlike in most professional sports, golfers don't make any money just by playing in a tournament. They have to qualify for prize money by being among the top 60 or 70 after the first 2 days of a typical 4 day tournament that has 140+ entrants. Several past winners failed to qualify for the last 2 days of the 2016 Masters.

Tournament organisers rarely help in arranging travel and hotel bookings. So, a golfer has to take care of all logistics and pay upfront from his own pocket for travel and lodging. If he fails to qualify after the first 2 days, he has to pack his bags and go home without earning anything, or head for the next tournament early to put in some practice to iron out mistakes.

Anyone who has been investing in the stock market for any length of time should be able to draw an analogy from the golfer's career funnel. 

Most investors show a lot interest and passion initially. But they become euphoric when a stock's price moves up and get out quickly; or, fail to remain calm under adverse circumstances, averaging as a stock's price continues to move down.

As losses increase, many investors sell and give up. Others soldier on in the hope of recovering their losses, but often fail to do so. Only a very few develop the skills, patience and equanimity to make money consistently and build wealth over the long-term. 

Moral of the story? Learning about fundamental and technical analysis is necessary but not sufficient. Having the correct mental make-up - of being dispassionate at a gain or a loss and taking the appropriate buy/sell decisions - will separate the long-term wealth-builders from the short-term thrill seekers.

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Wednesday, April 13, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 13, 2016

The stock market caught a strong tailwind of macroeconomic news. The IIP number was positive for Feb '16 after 3 months of contraction. CPI inflation dropped below 5% to its lowest level in 6 months. Early monsoon forecasts indicated a rain surplus.

In a holiday-shortened trading week, FIIs were net buyers of equity worth Rs 1050 Crores - Rs 100 Crores more than their net sales during the first 6 trading days of the month. Even DIIs were net buyers of equity worth Rs 500 Crores.

Both Sensex and Nifty overcame resistances from their respective long-term moving averages, and closed at their highest levels in 2016. But all may not be well for bulls yet.

BSE Sensex chart pattern


The following remarks appeared in the previous post on the daily bar chart pattern of Sensex: "Some more correction or consolidation can't be ruled out, but bulls may fight back at any time."

On Mon. Apr 11, the index formed a 'reversal day' pattern (lower low, higher close) and emerged from the long-term 'support-resistance zone' between 23840 and 24830.

The index opened with an upward 'gap' today and closed in bull territory above its 200 day EMA for the first time in more than 5 months. But bulls will be wise to postpone their celebrations.

Why? All four daily technical indicators are in bullish zones and have good upward momentum, but are showing negative divergences by touching lower tops (marked by blue arrows) while the Sensex touched a new high for the year.

Expect some profit booking next week. In case FIIs keep buying and the index continues to rally, strong resistance is likely from the down trend line and the next 'support-resistance' level of 26300.

Q4 (Mar '16) results will be the next trigger for the market. Check them out and look for consistent performers.

NSE Nifty chart pattern


The weekly bar chart pattern of Nifty formed a large 'reversal week' bar (lower low, higher close) and crossed above its 50 week EMA for the first time since the week ending on Oct 23, '15.

The index is still 100 points below the down trend line and the next 'support-resistance' level of 7950. Those two hurdles will need to be convincingly crossed with good volume support for bulls to regain control of the chart.

Bears may put up a strong fight to prevent that from happening.

Weekly technical indicators are looking bullish and showing good upward momentum. However, MACD is still in negative zone. Slow stochastic is entering its overbought zone; the previous time it did that was in Aug '15 when it had faced strong resistance from the down trend line.

ROC has also reached the edge of its overbought zone from where it had corrected in Aug '15. So, excitement and euphoria at today's market move should be curtailed. Remain cautiously optimistic.

If initial Q4 (Mar '16) results disappoint the market, Nifty can face a sharp correction.

Bottomline? Chart patterns of Sensex and Nifty have just about managed to overcome resistances from long-term moving averages. Expect bears to strongly defend the blue down trend lines on both charts. Check forthcoming Q4 (Mar '16) results to plan your next moves.

Tuesday, April 12, 2016

WTI and Brent Crude Oil charts: will bear market rallies falter again?

WTI Crude Oil chart


The following comments appeared in the previous post on the daily bar chart pattern of WTI Crude oil: "Oil's price can correct some more. Bulls may use the dip to mount another attempt at crossing the 200 day EMA."

Oil's price corrected deeper into bear territory below its 20 day and 50 day EMAs. Bulls used the dip to make another attempt to cross above its 200 day EMA - but haven't been successful so far.

Even if oil's price crosses above its 200 day EMA, the strong resistance zone between 42-44 will be more difficult to overcome.

So, what caused the renewed price spurt? Was it hopes that the oil producer's meeting at Doha this weekend will tackle the supply glut? Or, was it due to a weaker US Dollar (which is negatively correlated with oil's price)? Or, signs of greater off-take from China? 

All of the above - as per this article from Reuters.

Daily technical indicators are in bullish zones, and showing good upward momentum. But yesterday's (Apr 11) volume bar is a sign that bulls may be running out of steam.

On longer term weekly chart (not shown), oil’s price closed above its rising 20 week EMA, but is trading below its falling 50 week and 200 week EMAs in a long-term bear market. Weekly MACD is rising in negative zone. RSI has crossed above its 50% level. Slow stochastic looks ready to re-enter its overbought zone. 

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude oil shows a renewed attempt by bulls to overcome a strong bear stranglehold. After falling below its 20 day and 50 day EMAs, oil's price rose sharply to touch 43 - its highest level during the year.

Oil's price has so far failed to test resistance from its sliding 200 day EMA - but may do so if oil producers agree to cut production. Unlikely, since Iran and Saudi Arabia are at loggerheads.

All three daily technical indicators - despite their upward momentum - are showing negative divergences by failing to touch new highs with oil's price.

Bears may attack with their 'sell on rise' strategy at any time.

On longer term weekly chart (not shown), oil's price closed above its 20 week 
EMA, but is trading below its falling 50 week and 200 week EMAs. Weekly MACD is rising in negative zone. RSI has crept above its 50% level. Slow stochastic is inside its overbought zone. There is very little chance of the long-term bear market ending in the near future.

Monday, April 11, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Apr 08, 2016

S&P 500 index chart


The following comments appeared in last week's post on the daily bar chart pattern of S&P 500: "Daily technical indicators are in their overbought zones, and showing negative divergences by failing to touch new highs with the index. Some correction or consolidation can be expected."

As expected, the index corrected a bit during the first two days of the week and then consolidated sideways during the next three days. At the time of writing this post, the sideways consolidation continues.

The rising 20 day EMA provided good support. The 'golden cross' of the 50 day EMA above the 200 day EMA is about to restore technical control to bulls.

Daily technical indicators have corrected overbought conditions but remain in bullish zones. Note that the MACD signal line is forming a 'rounding top' pattern and Slow stochastic is on the verge of dropping below its 50% level. These are bearish signs in the near term.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs for the 5th week in a row. The index is trading 230 points above its rising 200 week EMA in a long-term bull market. Weekly technical indicators are in bullish zones.

FTSE 100 index chart


The daily bar chart pattern of FTSE 100 continued its sideways consolidation during the week. The rising 50 day EMA provided good support. At the time of writing this post, the index has slipped down after testing resistance from its 200 day EMA.

Note that each test of a resistance level makes it weaker and more susceptible to a breach. In other words, the index may break out above its 200 day EMA soon.

Daily technical indicators are in bullish zones. Slow stochastic is showing good upward momentum, but MACD and RSI are moving sideways. 

On longer term weekly chart (not shown), the index closed above its rising 20 week EMA, but is trading below its sliding 50 week and 200 week EMAs in a long-term bear market. Weekly technical indicators are looking bullish.