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Tuesday, May 31, 2016

Why you need the resilience and discipline of a door-to-door salesman to succeed in the stock market

If you are thinking: "What on earth is a door-to-door salesman?" then you probably belong to a generation that has never seen 3D picture discs in a View-Master or listened to a 78 rpm vinyl record on a gramophone. In which case, you have obviously never met a door-to-door salesman. 

There was a time in the not-so-distant past, when many retail products - particularly encyclopedias - were sold by salesmen who knocked on the doors of homes to demonstrate and sell their wares.

Just like the buggy whip and the hurricane lantern have almost disappeared with the onslaught of industrial and technological progress, so has the profession of door-to-door selling.

A few years ago, Forbes magazine had listed '10 Top Dead or Dying Career Paths'. Telemarketing and door-to-door selling was 7th on the list - just ahead of photo film processing.

Before the advent of the Internet and social media, the only way smaller manufacturers or dealers could mass-market their products was through door-to-door selling. 

Salesmen were paid a token salary - or none at all - and made money through sales commissions only if they met their monthly or quarterly targets. Each salesman was allocated a specified locality or territory - where they had to compete with other salesmen selling similar or different products.

Home owners were bothered and irritated by their door bells being rung by salesmen at all odd hours trying to sell them anything from incense sticks and toothpaste to books and vacuum cleaners.

Most slammed the door shut on the faces of the salesmen. A few who were kind enough to listen to a salesman's pitch probably didn't buy, giving some excuse like "I just bought a similar product" or "I don't have enough cash with me."

In other words, making a sale itself was a difficult task. Meeting stiff monthly sales quotas was nearly impossible. Still, the salesmen would go on their rounds come rain or shine - knocking on doors and getting them slammed in their faces.

You can just imagine the kind of resilience and discipline that was required to carry on - despite knowing that the chances of success were negligible. But when they did make a sale, good salesmen ensured that they sold their higher-valued products so that they could earn more commission.

Being able to handle repeated disappointments and having the mental wherewithal to bounce back and keep trying is just the kind of discipline one requires for success in the stock market.

A successful salesman eventually developed a winning strategy after repeated failures. So should a stock investor. 

If you have tasted some success by buying a stock without doing much research and then selling it at a profit, you are unlikely to be able to repeat your success.

Even after doing proper study of a company's annual report and its stock price chart, the stock you pick may not give you the returns you expect. 

Eventually, the resilient and disciplined investors will learn from their mistakes (or follow the advice of an experienced investor) and learn to follow a plan and a strategy that enable them to select winning stocks.

And once they have picked a winner, they buy a lot of it and hold on for the long-term to reap the benefits of dividends, rights, bonuses and buybacks.

Monday, May 30, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 - May 27, 2016

S&P 500 index chart


Failure to technically breach the 2040 level on the downside and positive divergence on the Slow stochastic - both mentioned in last week's post on the daily bar chart pattern of S&P 500 - had given a hint of a possible rally towards 2080.

The index rallied even further, closing just below the 2100 level and gaining 2.3% on a weekly closing basis. Bears are not out of the game yet, because sliding volumes may bring an end to last week's rally.

All three EMAs are rising and the index is trading above them in a bull market. But failure to cross above previous tops of Apr '16 and Nov '15 doesn't augur well for bulls. 

The bearish pattern of 'lower tops and lower bottoms' visible on the 200 day EMA is another sign that bulls may be losing control of the chart.

All three daily technical indicators are in bullish zones, and showing upward momentum. However, Slow stochastic is well inside its overbought zone, which may trigger a correction.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 12th week in a row. Weekly technical indicators are in bullish zones and showing slight upward momentum.

FTSE 100 index chart


The daily bar chart pattern of FTSE 100 shows that bulls won last week's battle, though they are nowhere close to winning the war.

The index broke out above the rectangular range between 6200 and 6050 within which it was consolidating since the beginning of the month - losing momentum after crossing above its 200 day EMA.

The index gained 1.8% on a weekly closing basis. However, volumes tapered off as the index moved sideways during the last two days of the week.

Of the three daily technical indicators, MACD and RSI are in bullish zones, but their upward momentum looks weak. Slow stochastic is well inside its overbought zone, and can trigger a correction.

On longer term weekly chart (not shown), the index just managed to close above its 50 week EMA, but closed below its 200 week EMA in a long-term bear market for the 6th week in a row. Weekly technical indicators are looking bullish, but not showing much upward momentum. 

Sunday, May 29, 2016

BSE Sensex and NSE Nifty index chart patterns – May 27, 2016

During the past week, FIIs were net buyers of equity worth Rs 675 Crores, as per provisional figures. DIIs were also net buyers of equity worth more than Rs 1900 Crores - thanks to regular inflows into mutual funds.

Shorts were badly trapped in F&O expiry week. FIIs turned buyers during the last three days of the week, joining DIIs in propelling Sensex and Nifty well past their respective down trend lines.

The Feb '16 'double bottom' patterns visible on the charts below can now be considered floors for both indices, from where the next legs of their up moves have started.

BSE Sensex chart pattern



After facing strong resistance from the blue downtrend line during Apr & May '16, the daily bar chart pattern of Sensex soared past the trend line, its three EMAs and the resistance level of 26300 into bull territory.

Looks like the down trend from the Mar '15 top of 30025 has finally been reversed.

The 20 day EMA has crossed above the 200 day EMA. The 'golden cross' of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market.

The next resistance level for the index is likely to be 27250 - where multiple previous bottoms occurred during Mar-Aug '15. But the index may pullback towards the downtrend line before testing resistance from the 27250 level.

Why? Because technical indicators are suggesting that the time may be ripe for some profit booking. 

All four indicators are in bullish zones. ROC and RSI are at the edges of their overbought zones. Slow stochastic is well inside its overbought zone. MACD, ROC and RSI are showing negative divergences by failing to touch new highs with the index.

Any pullback towards the trend line will provide a good adding opportunity to those (including yours truly) who were caught off guard by last week's sudden upward breakout.  

NSE Nifty chart pattern



The weekly bar chart pattern of Nifty had failed to close above the down trend line despite breaching the trend line intra-week 5 weeks in a row. The inevitable unexpectedly happened during F&O week, as shorts ran for cover amidst combined buying by FIIs and DIIs.

The index broke out with decent (but not significantly higher) volume support, and closed well above its two weekly EMAs, the blue downtrend line and the resistance level of 7950 - reversing the down trend from the Mar '15 top of 9119.

The next resistance level is likely to be 8275, where several bottoms were touched last year.

Weekly technical indicators are in bullish zones. MACD has entered positive zone above its rising signal line. ROC, RSI and Slow stochastic are in their respective overbought zones.

Note that ROC and Slow stochastic are showing negative divergences by failing to touch new highs with the index. That may trigger a pullback towards the down trend line.

The breadth indicator NSE TRIN (not shown) has dropped inside its overbought zone, hinting at a correction. The likely dip will be an adding opportunity.

Bottomline? Bulls finally overcame strong resistances from the blue down trend lines on the chart patterns of Sensex and Nifty. The imminent onset of monsoon and decent Q4 (Mar '16) results provided incentive for bulls to fight back. Look for opportunities among companies that have declared good Q4 and annual results.

Wednesday, May 25, 2016

How Election Results can affect Stock Market movements - a guest post

Recent results of elections in four states and one union territory threw up some interesting outcomes. Congress and its various alliances got a drubbing in all four states, though they managed to retain Puducherry.

BJP and its allies won Assam - opening their account in a North-Eastern state for the first time ever. They managed to marginally increase their seat share in West Bengal, and played spoilsport for the Left-Congress alliance in several more seats.

The strength of Congress in the Rajya Sabha will get reduced. In this month's guest post, Nishit explains why the results may be beneficial for the stock market and how results of state elections in 2017 can affect the market.

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Election results for four State Assemblies and one Union territory have been declared. Election results often influence the stock market because Government policies play a big role in the progress of the economy and as a consequence of which the market reacts.

In 2004, it was the fear of change, when the well entrenched NDA Government of Vajpayee was uprooted, and the market tanked. In 2009, it was relief that Manmohan Singh was back and would no longer require support from Communists. Similarly, in 2014, the Modi wave drove the market up.

Assembly polls do influence the market because they throw markers to the future. BJP consolidated its position during the recent state elections, and hence the market did not tank. If Assam was not won, then the market may have cracked.

There are no elections scheduled for the Assembly till about March 2017. At that point of time, the key states of UP, Punjab and Uttarakhand would be going to the polls. If BJP does badly, the market will tank and vice versa.

Election results are one of the influencing factors for the way the market moves and one must keep an eye on them. Market movements are merely effects and the underlying causes are many. An effective study of causes why the market moves as it does will help one make money.

The market rallied after state election results on May 19 '16 because Mamata Banerjee made the statement of supporting the GST Bill after results were out. The results also mean that in due course, Congress will be further weakened in the Rajya Sabha - enabling the NDA to pass important bills more easily.

Next year there will be two occasions when the market may get influenced by election results. In March 2017 with UP and Punjab and in late 2017 when Gujarat and Goa go to the polls. Imagine the scene should BJP lose in Gujarat!

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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, May 24, 2016

WTI and Brent Crude Oil charts: an update

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil received good support from its rising 20 day EMA and rallied to a new high if 49.50 on Wed. May 18, but formed a 'reversal day' bar (higher high, lower close) and slipped down.

Note that volumes were considerably lower during the rally to the new high - which was a signal that the rally was not going to be sustainable.

Daily technical indicators are correcting overbought conditions. MACD faced resistance from the edge of its overbought zone and is about to cross below its signal line. RSI has dropped down from its overbought zone. Slow stochastic has fallen to the edge of its overbought zone.

MACD and Slow stochastic are showing negative divergences by failing to touch new highs with oil's price. Some more correction or consolidation is likely. 

The 50 day EMA has crossed above the 200 day EMA - the 'golden cross' that confirms a return to a bull market. But it is not yet a convincing cross.

On longer term weekly chart (not shown), oil’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, but not showing much upward momentum.

Brent Crude Oil chart

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The daily bar chart pattern of Brent Crude Oil bounced up into bull territory above its three EMAs with strong volume support, and rose almost to the 50 level on Wed. May 18 but formed a 'reversal day' bar and corrected down.

The 'golden cross' of the 50 day EMA above the 200 day EMA that technically confirms a return to a bull market is still awaited.

All three daily technical indicators are showing negative divergences by failing to touch new highs with oil's price - hinting at more correction or consolidation.

Supply outages in North America and Africa have been largely responsible for the recent rise in oil prices.

On longer term weekly chart (not shown), oil'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, but Slow stochastic is looking overbought.

Monday, May 23, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 - May 20, 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: "A continuation of the correction from the Apr 20 top of 2111 is likely. More ominous for bulls is the formation of a 'head and shoulders' reversal pattern with a 'neckline' at 2040. A breach of the 'neckline' may lead to a correction down to 1970."

The importance of the 2040 level for bulls is clearly visible. On Tue. May 17, the index received support from the 2040 level. The next day, the index dropped below 2040 intra-day, but closed above it. On Thu. May 19, the index dropped all the way to its 200 day EMA, but bounced up to close exactly at 2040.

The 2040 level wasn't breached technically because the index did not close below that level - keeping bullish hopes alive. On the last day of the week, the index faced resistance from its 20 day EMA, but closed above its 50 day EMA with a token weekly gain of about 6 points.

Daily technical indicators are in bearish zones. MACD is moving sideways below its falling signal line in negative zone. RSI is moving up towards its 50% level. Slow stochastic has bounced up after receiving support from the edge of its oversold zone.

Note that Slow stochastic is showing positive divergence by touching a higher bottom while the index dropped lower. The index may try to move above its 20 day EMA towards the 2080 level. However, the possibility of another test of support from the 200 day EMA, and a fall below it, seems more likely.

On longer term weekly chart (not shown), the index dropped below its 20 week EMA intra-week but received support from its 50 week EMA, and closed above its three weekly EMAs in a long-term bull market for the 11th week in a row. Weekly technical indicators are in bullish zones but not showing any upward momentum.

FTSE 100 index chart


A struggle for domination between bulls and bears continues on the daily bar chart pattern of FTSE 100. The index managed to cross above its 20 day and 50 day EMAs and the 6200 level intra-day on Tue. May 17, but stopped short of testing resistance from the 200 day EMA.

Bears pounced immediately. The index dropped to close near 6050 on Thu. May 19, before bouncing up to close above 6150 on Fri. May 20, with a weekly gain of about 18 points.

The index has been consolidating sideways within a 'rectangle' pattern during this month. A breakout can occur in either direction. An upward breakout above 6200 can take the index to 6350. A more likely downward breach of 6050 can drop the index to the long-term 'support-resistance level' of 5900.

Daily technical indicators are in bearish zones. MACD is moving sideways below its falling signal line in negative territory. RSI is moving up towards its 50% level. Slow stochastic has emerged from its oversold zone, and showing positive divergence by forming a bullish pattern of 'higher tops and higher bottoms'.

The sideways consolidation may continue a bit longer. 

On longer term weekly chart (not shown), the index closed below its three weekly EMAs in a long-term bear market for the 3rd week in a row. Weekly technical indicators are looking bearish. 

Saturday, May 21, 2016

BSE Sensex and NSE Nifty index chart patterns – May 20, 2016

A hawkish stance by the US Fed raised the spectre of an interest hike in June '16. US Dollar rose to multi-week highs. Oil prices and Rupee plummeted. Brexit concerns (Britain's emexit from Eurozone) exacerbated a sell-off in global stock markets.

Indian stock market wasn't spared, as FIIs were net sellers of equity worth almost Rs 2100 Crores during the week, as per provisional figures. DIIs were net buyers of equity worth nearly Rs 2600 Crores - but could not prevent Sensex and Nifty from closing lower for the week.

Q4 (Mar '16) results for PSU banks have been a disaster. The worst may not be over for them. ITC results beat street estimates. Their Rs 25000 Crores planned investments in processed foods and a 1:2 Bonus announcement came too late on Friday (May 20) to pep up bulls.

BSE Sensex chart pattern


The daily bar chart pattern of Sensex made another futile attempt to cross above the blue down trend line that has been dominating the chart for the past 15 months.

Once again, the index faced strong resistance from the trend line and dropped below its 200 day and 20 day EMAs into bear territory. The rising 50 day EMA provided support - as it had done in the past two months.

For the past 6 weeks, the index has been consolidating sideways within a 'symmetrical triangle' pattern - with the down trend line acting as the upper boundary and the 50 day EMA acting as the lower boundary.

Triangles are unreliable patterns. One must wait for a breakout - which can occur upwards or downwards - before taking a decision to buy/sell.

Daily technical indicators are looking bearish. MACD is falling below its signal line in positive zone. ROC is about to cross below its 10 day MA and enter negative territory. RSI is facing resistance from its 50% level. Slow stochastic is about to slip below its 50% level.

Some more consolidation within the 'symmetrical triangle' is likely. ITC's unexpected bonus announcement may stoke bullish fervour. Bears are unlikely to give up control during F&O expiry week.

In case of a breakout above the trend line or a drop below the 50 day EMA, expect the index to remain within the 'support-resistance zone' between 24830 and 26300.

NSE Nifty chart pattern


The weekly bar chart pattern of Nifty crossed above the blue down trend line intra-week but failed to close above it for the 5th week in a row. The index closed below its 50 week EMA but above its 20 week EMA. 

For the 9th straight week, the index consolidated within the 'support-resistance zone' between 7530 and 7950. Nifty is showing clear signs of wanting to breakout upwards - but FII selling has prevented bulls from regaining control.

Weekly technical indicators are providing conflicting signals, which often happens during periods of consolidation. MACD is rising above its signal line and is poised to enter positive zone. ROC has crossed below its 10 week MA in positive zone. RSI has risen to the edge of its overbought zone. Slow stochastic is about to drop from its overbought zone.

Bottomline? Bears are strongly defending the blue down trend lines on the chart patterns of Sensex and Nifty. The imminent onset of monsoon may provide incentive for bulls to fight back. But that may only happen after a couple of weeks. Till then, remain invested, and look for opportunities among companies that have declared good Q4 (Mar '16) results.

Friday, May 20, 2016

8 Signs of a Doomed Stock

Let me assume that you have been following my posts regularly, and are no longer swayed by stock market cacophony and 'expert tips' sent by SMS to your smart phone.

You have been doing due diligence and picking stocks based on solid research. Already some of them have moved higher since you bought them.

But there are these one or two exceptions that are refusing to move up. In fact, they may be gradually sliding down despite apparently good track records.

As a long-term investor, what are you supposed to do with the laggards? Hold on, and hope for prices to improve? Buy more as the stock is now available at a price lower than your 'buy price'? Get rid of it?

In a recent video posted at investopedia.com, you can check out more information about the '8 Signs of a Doomed Stock':

  1. Negative cash flows from operations
  2. High debt/equity ratio
  3. Low interest coverage ratio
  4. Sustained decline in price
  5. Profit warnings issued before or during quarterly results
  6. Large selling by owners/directors
  7. Resignations by key executives/managers
  8. Investigations by SEBI/Enforcement Directorate/Income Tax department
Any one of the above signs may not be enough to warrant selling. But several of these signs taken together is almost a guarantee that the stock's price will crash.

Related Posts

Wednesday, May 18, 2016

Nifty chart: a midweek update (May 18 '16)

FIIs were net sellers of equity worth Rs 550 Crores during the first three days of this week. DIIs were net buyers of equity worth Rs 500 Crores, as per provisional figures.

After 17 straight months of contraction, WPI inflation moved up to 0.34% in Apr '16, compared with -0.85% in Mar '16 and -2.43% in Apr '15. Higher prices of potato, pulses and sugar contributed to the rise.

With CPI inflation moving above the 5% mark, RBI is unlikely to tinker with interest rates during its policy meeting in Jun '16. That leaves the onset of monsoon as the only upward trigger for the index, as better Q4 (Mar '16) results have barely moved the market.


The daily bar chart pattern of Nifty shows bulls and bears are locked in a tussle for supremacy with neither side ready to concede defeat. Bulls are buying intra-day dips. Bears are selling intra-day rises - leading to increased volatility.

The scale appears to be gradually tilting towards bulls. The 200 day EMA provided good support on Mon. May 16 - even though FIIs and DIIs were both net sellers of equity.

On Tue. May 17, the index rose to test the 7950 level intra-day, but dropped to close below the 7900 level - forming a bearish 'shooting star' candlestick pattern that may end the rally from the May 6 low.

Today was expected to be a down day, but the index found support from its rising 20 day EMA and closed above the 7850 level.

Nifty is trading above its three EMAs in bull territory. However, the 'golden cross' of the 50 day EMA above the 200 day EMA that will technically confirm a return to a bull market is still awaited.

The index seems to be consolidating sideways within a 'symmetrical triangle' pattern since forming a 'reversal day' bar on Apr 28. Triangles are unreliable, since the eventual breakout can occur in either direction.

A triangle formed during the middle of a bull rally often turns out to be a 'continuation' pattern. So, there is a better chance of an upward breakout. That should take Nifty well past the 8000 level.

A downward breakout - should it occur - may drop the index to the zone between 7500-7600.

Daily technical indicators are in bullish zones. MACD and RSI are moving sideways. Slow stochastic is showing a bit of upward momentum.

Results of several state elections will be declared on May 19, and can provide some boost to bullish sentiments if the post-poll surveys turn out to be correct.  

Stay cautiously optimistic, and stick to your financial and asset allocation plans.

Tuesday, May 17, 2016

Gold and Silver charts: an update

Gold chart pattern


In the previous post, bearish technical patterns, e.g. a 'shooting star' candlestick and negative divergences visible on the daily chart pattern of Gold had led to the following remarks:

"A pullback towards the top of the 'symmetrical triangle' is quite likely. The dip will provide a lower entry point."

Gold's price pulled back to the 1260 level, but received good support from its 20 day EMA and bounced up to touch an intra-day high of 1290 on Mon. May 16. However, it closed lower at 1275 - forming another bearish 'shooting star' candlestick pattern.

Daily technical indicators are in bullish zones, but not showing any upward momentum. MACD is sliding below its signal line in positive zone. RSI is moving sideways above its 50% level. Slow stochastic is slipping down towards its 50% level.

Some more correction or consolidation is possible. Any dips can be used to enter. Why? Because, all three EMAs are rising and gold's price is trading above them in a bull market.

On longer term weekly chart (not shown), gold’s price pulled back to its 200 week EMA as expected, before bouncing up. Weekly technical indicators are correcting overbought conditions. Another test of support from the 200 week EMA is likely.

Silver chart pattern



A 'reversal day' bar formed on May 2 and overbought technical indicators had hinted at a correction in the previous post on the daily bar chart pattern of Silver.

Silver's price corrected below its 20 day EMA and touched an intra-day low of 16.80 on Fri. May 13 before bouncing up to close just above 17.

Daily technical indicators are giving mixed signals. MACD is falling below its signal line in positive zone. RSI is looking mildly bullish by staying above its 50% level. Slow stochastic has dropped to the edge of its oversold zone.

Expect some more correction or consolidation. Dips are providing adding opportunities.

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

Monday, May 16, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 - May 13, 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: "An upward bounce is possible from current level. Bears may use it to sell again."

The index did bounce up above the 2080 level into bull territory. But accompanying volumes were not strong enough to turn the bounce into a rally. Bears used the opportunity to sell. The index closed just below its 50 day EMA - losing 10 points (0.5%) on a weekly closing basis.

Daily technical indicators are looking bearish. MACD is falling below its signal line, and about to enter negative zone. RSI has dropped below its 50% level after a brief foray above it. Slow stochastic faced resistance from its 50% level and is dropping towards its oversold zone.

A continuation of the correction from the Apr 20 top of 2111 is likely. More ominous for bulls is the formation of a 'head and shoulders' reversal pattern with a 'neckline' at 2040. A breach of the 'neckline' may lead to a correction down to 1970.

On longer term weekly chart (not shown), the index closed lower for the 3rd straight week but above its three weekly EMAs in a long-term bull market for the 10th week in a row. Weekly technical indicators are in bullish zones but showing downward momentum.

FTSE 100 index chart


The daily bar chart pattern of FTSE 100 has some good news and some bad news for both bulls and bears. The index rose above its 50 day EMA to touch a high of 6193 on Thu. May 12, but faced strong resistance from its sliding 20 day EMA and closed at 6104 (lowest closing level during the week).

In the process, a 'reversal day' bar (higher high, lower close) - accompanied by the highest volumes of the week - got formed. On the next day, the index slipped below the 6100 level intra-day but closed higher at 6138 - forming another 'reversal day' bar (lower low, higher close).

A bitter struggle is going on between bulls and bears. Bulls ensured that the index closed above the support level of 6100 on all 5 trading days of the week. Bears ensured that the index closed below its three EMAs in bear territory on all 5 days.

Daily technical indicators are bearish. MACD is sliding deeper into negative zone. RSI is moving sideways below its 50% level. Slow stochastic is about to re-enter its oversold zone. (At the time of writing this post, the index is testing support from the 6100 level.)

On longer term weekly chart (not shown), the index closed below its three weekly EMAs in a long-term bear market for the 2nd week in a row. Weekly technical indicators are beginning to look bearish. Bears are regaining control after the 900+ points rally from the Feb '16 low to the Apr '16 top.

Sunday, May 15, 2016

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

FIIs and DIIs were both net buyers of equity last week. Their net buying was worth Rs 1700 Crores and Rs 2100 Crores respectively, as per provisional figures. Sensex and Nifty closed more than 1% higher for the week after two weeks of correction - but failed to close above their down trend lines.

There was a 'double whammy' on the macroeconomic front. The IIP number was a paltry 0.1% in Mar '16 against 1.98% in Feb '16. For FY 2015-16, IIP was 2.4% against 2.8% in FY 2014-15. CPI inflation rose to 5.39% in Apr '16 against 4.83% in Mar '16. A further cut in interest rates may be kept in abeyance by RBI.

However, India's trade deficit narrowed for the 4th straight month to US$ 4.84 Billion in Apr '16 - the lowest level since Mar '11 - against $ 5.07 Billion in Mar '16. Lower oil prices and subdued gold demand due to the jewellers' strike helped reduce the trade gap.

BSE Sensex chart pattern



The daily bar chart pattern of Sensex oscillated about its 200 day EMA during the week - consolidating sideways within a narrow range and receiving good support from its 20 day EMA.

Technically, the index is trading in a bear market, as it failed to close above its 200 day EMA by the end of the week. The down trend from the Mar '15 top - marked by blue down trend line - has entered its 15th month.

The down trend will remain in force till it gets reversed convincingly. That means, the index needs to cross above the down trend line with strong volume support, and then continue to close above it for several days in a row.

So far, five attempts by Sensex to cross above the down trend line since Jul '15 have been strongly repelled by bears. Remember that unlike support/resistance levels, which get weakened by each test, a trend line gets strengthened the more it gets tested.

Daily technical indicators are turning bearish - hinting at a continuation of the current consolidation/correction. MACD is moving sideways in positive zone, but remains below its falling signal line. ROC managed to cross above its falling 10 day MA - only to re-enter negative territory. RSI is facing resistance from its 50% level. Slow stochastic looks ready to drop below its 50% level.

There is a good chance that the index will correct towards the lower edge of the 'support-resistance' zone between 24830 and 26300, before it can gather enough strength to cross above the down trend line.

On longer term weekly chart (not shown), Sensex failed to close above its 50 week EMA, but is trading almost 1800 points above its rising 200 week EMA in a long-term bull market. The consolidation is providing an adding opportunity.

NSE Nifty chart pattern



For the fourth week in a row, the weekly bar chart pattern of Nifty crossed above its blue down trend line intra-week, but failed to close above it. Bears are putting up a stiff fight to defend the down trend line that has been ruling the chart from Mar '15 onwards.

The index managed to close almost exactly at the level of its 50 week EMA, but the failure to close above the down trend line on a weekly basis may lead to a correction down to the lower edge of the 'support-resistance' zone between 7530 and 7950.

Weekly technical indicators are giving mixed signals. MACD is rising above its signal line, but is yet to enter positive territory. ROC has dropped sharply from its overbought zone and is seeking support from its rising 10 week MA. RSI has bounced up from its 50% level. Slow stochastic is about to drop from its overbought zone.

The breadth indicator NSE TRIN (not shown) is in neutral zone. That may lead to some more consolidation around current levels. Prediction by Skymet of an early onset of monsoon may provide some impetus to bulls.

Bottomline? The down trends visible on the chart patterns of Sensex and Nifty have entered their 15th month. The macroeconomic condition appears to be taking two steps forward and one step back. Earnings growth of Indian companies are mainly due to lower costs of commodities. Be stock-specific and enter slowly with appropriate stop-losses.

Friday, May 13, 2016

Day Trading Strategies for Beginners

The post title is a bit of an oxymoron - because beginners should stay as far away from day trading as possible. Why? Because to make money on a consistent basis from day trading, one requires two important skills:

  • more than a working knowledge of technical analysis
  • a trading strategy that has been honed over several years

But isn't technical analysis what this blog is all about? Yes. However, learning about technical analysis may be necessary, but it is not sufficient. 

A trading strategy for picking entry points, exit points, setting stop-losses, identifying chart patterns while they are still forming and having the discipline to stick to the strategy takes many years of experience.

Lack of appreciation of the skills and discipline required for trading success is why majority of day traders lose money

That is like warning someone that smoking and drinking are injurious to health. People do it anyway because their peers are doing it, and they don't want to miss out on all the fun.

It is the fun and excitement of making money with very little capital outlay and even less effort that draws beginners to day trading like moths to a flame.

There are two choices in front of beginners:

  • tread the path of slow and steady - gradually build up your capital by investing your monthly savings in one or two mutual funds; once you have around Rs 5 Lakhs in your funds, think about building a portfolio of individual stocks; then keep adding to your portfolio from your monthly savings, and retire rich
  • jump into the stock market after opening a demat account and a trading account; pay some margin money and start day trading

The first choice is the one I endorse. It is the saner and safer choice that almost guarantees investing success. But it is also boring - like watching a fruit tree growing from a sapling till it starts bearing fruit several years down the line.

If the adrenaline rush of making quick money with very little effort or cash excites you - then you will try your hand at day trading anyway. Regardless of all the warnings that it may be injurious to your wealth.

In that case, you might as well go through Justin Kuepper's article 'Day Trading Strategies for Beginners' in investopedia.com.

Wednesday, May 11, 2016

Nifty chart: a midweek update (May 11 '16)

FIIs and DIIs have both been net buyers of equity during the first three days of this week. FII buying was worth Rs 190 Crores, as per provisional figures - thanks to their net selling today following announcement of the Mauritius tax treaty. DII buying was worth nearly Rs 1150 Crores.

India plans to impose capital gains tax on investments routed through Mauritius from Apr '17. A similar tax treaty with Singapore may be in the pipeline. Mauritius and Singapore are the source of the bulk of FII investments in India since 2000.

The revised treaty should help reduce 'round-tripping' of Indian 'black' money sent abroad through 'hawala' channels and routed back through Mauritius to turn them into 'white' money investments without paying taxes. However, there is concern that some FIIs may withdraw their investments from India.

The following remarks were made in the previous mid-week update on the daily bar chart pattern of Nifty: "Some more correction is likely. Expect the rising 50 day EMA to provide some downside support - as it had done in the past two months."

The index dropped below the 7700 level intra-day on Fri. May 6, but received good support from its rising 50 day EMA. On Mon. May 9, the index bounced up strongly above its 200 day EMA into bull territory on the back of FII and DII buying.

On the next two days, the index failed to overcome resistance from the 7900 level, and pulled back to the 200 day EMA in early trading today before value-buying by DIIs took the index to a close near 7850.

Technical indicators are in bullish zones. MACD is moving sideways below its falling signal line in positive zone. RSI is above its 50% level, but turning down. Slow stochastic has risen sharply above its 50% level.

However, all three indicators are showing negative divergences by touching lower bottoms in May '16 while the index touched a higher bottom (marked by blue arrows). 

That may encourage bears to step in and try to push the index down towards 7500-7600Whether that can happen or not will depend on what stance the FIIs take.

On longer-term weekly chart (not shown), Nifty received good support from its rising 20 week EMA and has closed above all three EMAs in a long-term bull market. Weekly technical indicators are looking bullish. Dips can be used to add/enter.

Tuesday, May 10, 2016

WTI and Brent Crude Oil charts: bears spoil the bull party

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil seemed to defy fundamentals and technicals as it continued its rally - giving a huge 20 points (77%) gain in 3 months from the Feb '16 low of 26.

Oil's price has traded above its 200 day EMA in bull territory for the past three weeks, giving bulls plenty to cheer about. However, the rally appears to have stalled just short of the 47 level.

For the past 6 trading sessions, oil's price has consolidated sideways in a range between 43 and 46 - closing near the lower edge of the range, but receiving support from the 20 day EMA.

Bulls still have a lot of work left. The 'golden cross' of the 50 day EMA above the 200 day EMA, which technically confirms the beginning of a bull market, is still awaited.

Daily technical indicators are in bullish zones, but looking bearish and showing negative divergences by failing to touch new highs with oil's price. MACD has crossed below its signal line in positive zone. RSI and Slow stochastic are falling towards their respective 50% levels.

It is quite likely that oil's price will return to bear territory below its 200 day EMA.

On longer term weekly chart (not shown), oil’s price has slipped below its 50 week EMA after a brief foray above it, and is trading well below its 200 week EMA in a long-term bear market. Weekly technical indicators are showing downward momentum.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil received good support from its 200 day EMA and bounced up to the 48 level on Thu. Apr 28 - but was backed by falling volumes. 

On the next day, a 'reversal day' bar (higher high, lower close), backed by strong volumes, got formed. That seems to have ended the strong 21 points (78%) rally from the Jan '16 low of 27. 

Oil's price pulled back to its 200 day EMA, where it received good support for a few days. On Mon. May 9, oil's price plunged below its 200 day EMA with a sharp increase in volumes. That is usually a sign of bear domination.

Daily technical indicators are turning bearish. MACD has dropped from its overbought zone and crossed below its signal line. RSI and Slow stochastic have fallen from their overbought zones and slipped below their respective 50% levels.

Some more correction in oil's price is likely.

On longer term weekly chart (not shown), oil's price faced strong 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 showing downward momentum.

Monday, May 9, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 - May 06, 2016

S&P 500 index chart


The daily bar chart pattern of S&P 500 continued its correction from the Apr 20 top of 2111. On Mon. May 2, the index bounced up to close above the 20 day EMA and the 2080 level. Bears used the opportunity to sell. 

The index dropped to seek support from its 50 day EMA. On Fri. May 6, the index slipped below its 50 day EMA and the 2040 level intra-day, but bounced up to close at 2057 - forming a 'reversal day' pattern (lower low, higher close).

Daily technical indicators are looking bearish - suggesting that the correction may not be over yet. MACD is falling below its signal line in positive zone. RSI has crossed below its 50% level, but showing signs of turning up. Slow stochastic has entered its oversold zone.

An upward bounce is possible from current level. Bears may use it to sell again.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 9th week in a row. Weekly technical indicators are showing downward momentum.

FTSE 100 index chart


The following comments appeared in last week's post on the daily bar chart pattern of FTSE 100: "Some more correction can't be ruled out. Expect downside support from the zone between 6100-6200."

The index dropped below its three EMAs into bear territory and received good support from the zone between 6100-6200. On Fri. May 6, the index touched a low of 6055 intra-day, but recovered to close at 6126 - forming a 'reversal day' bar (lower low, higher close).

Daily technical indicators are in bearish zones. MACD has entered negative territory. RSI is below its 50% level. Slow stochastic is inside its oversold zone.

The index may attempt to bounce up, but bears are unlikely to loosen their grip.

On longer term weekly chart (not shown), the index closed below its three weekly EMAs in a long-term bear market. Weekly technical indicators are turning bearish.

Saturday, May 7, 2016

BSE Sensex and NSE Nifty index chart patterns – May 06, 2016

FIIs were net buyers of equity during Mar & Apr '16, but turned net sellers during the first trading week of May '16. Their net selling was worth Rs 750 Crores, as per provisional figures. DIIs turned net buyers worth Rs 730 Crores during the week, after being net sellers during the past two months.

Both Sensex and Nifty lost about 1.5%, closing lower for the second week in a row. Negative global sentiment, profit booking after a sharp rally from the Feb '16 lows and strong resistances from the blue down trend lines dominating the two index charts kept bulls away.

JP Morgan's Global All-Industry Output Index - which combines survey data from USA, UK, France, Germany, Japan, China, Russia - nudged up to 51.6 in Apr '16 from 51.5 in Mar '16. A PMI covering services rose to 51.9 in Apr from 51.5 in Mar. (A number above 50 indicates growth.)

BSE Sensex chart pattern


The daily bar chart pattern of Sensex closed below its 200 day EMA in bear territory on all 5 trading days of the week. However, the 50 day EMA has provided good downside support.

Note that the upward 'gap' between 25180 and 25358, formed on Apr 13 '16, has been completely filled. There is a possibility that the index may resume its up move soon.

Daily technical indicators are looking bearish. MACD has crossed below its signal line in positive zone after forming a 'double top' pattern. ROC has dropped below its 10 day MA and seeking support from the edge of its oversold zone. RSI has fallen below its 50% level. Slow stochastic has entered its oversold zone.

Some more correction or consolidation around current levels is likely before bulls gather enough strength to fight back. The advent of monsoon - still about 3 weeks away - may provide the necessary upward trigger.

On longer term weekly chart (not shown), Sensex is trading more than 1500 points above its rising 200 week EMA in a long-term bull market. That means corrections can be used as adding opportunities.

NSE Nifty chart pattern


For the third week in a row, the weekly bar chart pattern of Nifty crossed above its blue down trend line intra-week, but failed to close above it. That means the down trend from the Mar '15 top of 9119 remains in force.

The index received support from its rising 20 week EMA, keeping bullish hopes alive. However, weekly technical indicators are showing signs of bearishness that can lead to some more correction.

MACD is rising above its signal line, but hasn't entered its positive zone yet. ROC is trying to re-enter its overbought zone. RSI has formed a 'rounding top' pattern, and is seeking support from its 50% level. Slow stochastic has started to move down from its overbought zone.

The market breadth indicator NSE TRIN (not shown) has not reached its oversold zone yet. That means the ongoing correction may continue next week.

Bottomline? Chart patterns of Sensex and Nifty are correcting after failing to reverse 14 months long down trends. The current macroeconomic situation is better than what it was when the down trend started in Mar '15. It may take at least another quarter for earnings growth of Indian companies to catch up with stock valuations. Add/enter gradually.