Wednesday, November 30, 2016

Worst over for Nifty bulls, but bears still rule: a mid-week technical update (Nov 30, 2016)

FIIs were net sellers of equity for the second month in a row. As per provisional figures, their net selling during Nov '16 was worth a huge Rs 199.8 Billion. DIIs were net buyers of equity worth Rs 182.8 Billion.

On a closing basis, Nifty lost 401 points (4.6%) during the month - even after it recovered 309 points from the month's low of 7916 (touched on Nov 21).

The unexpected shock of demonetisation of high-value bank notes has been discounted by the market. A combination of short-covering and value buying has triggered a recovery of sorts.


For the past three months, the daily bar chart pattern of Nifty has remained below the down trend line - showing bear domination after a strong rally from the Feb 29 low (of 6826) to the Sep 7 top (of 8969).

Time wise the index spent 3 months in correcting a 6 months long rally. Retracement level wise, the index has retraced 49% (close to the Fibonacci 50% level) of the 2143 points rally.

Note that the down trend was already two months old when the index crashed on Nov 9 - struck by a double whammy of Trump's election win in the US Presidential elections and Modi's bank-note demonetisation.

In the previous mid-week update, three technical reasons were given why Nifty was unlikely to breach the 'Support-resistance zone' between 7900-8000. The sharp pullback (of 309 points in 7 trading sessions) shows that the correction was used as a buying opportunity.

How much further can Nifty move up? Several resistances can soon put paid to the current leg of the rally. 

Nifty is facing resistance from its falling 20 day EMA. Looming overhead is the 'Support-resistance zone' between 8300-8400. The 200 day EMA is close to 8300 and the 50 day EMA is nearly at 8400.

Even if Nifty can move above 8400 - and the probability appears low unless FIIs resume buying - the down trend line at 8525 will provide strong resistance.

Daily technical indicators have corrected oversold conditions, and are showing upward momentum but remain in bearish zones. Another 1-2% up move is possible before bears resume selling. The index has closed below its three EMAs in bear territory for 13 trading sessions in a row. 

Nifty's TTM P/E has slid down from 23.31 at the beginning of the month to 21.61 today; an improvement, but still above its long-term average. The breadth indicator NSE TRIN (not shown) almost reached its oversold zone before turning down - suggesting that the rally may continue a bit longer.

Don't worry if you missed buying during the previous week's dip. Buy according to your asset allocation plan and SIP, and stay invested for the long-term.

Monday, November 28, 2016

S&P 500 and FTSE 100 charts (Nov 25 '16): poised for corrections?

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 soared past its previous high of 2194 without a care in the world and touched a new lifetime high of 2213 during a holiday-shortened trading week.

The index is trading well above its three rising EMAs in a bull market. However, the past three weeks' rally has formed a steep 'rising wedge' pattern from which the likely breakout is downwards.

Volumes are sliding. All three daily technical indicators are looking overbought, which can trigger some correction and/or consolidation. 

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market for the 38th week in a row. All three indicators are in bullish zones but showing negative divergences by failing to touch new highs with the index.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 gradually moved up during the week, but failed to overcome resistance from its 50 day EMA.

At the time of writing this post, the index has corrected down a bit, though it remains above the support level of 6700.

Bears will retain the upper hand as long as the index trades below the downward-sloping trend line, and keep the door open for a fall below 6700.

Daily technical indicators are in bearish zones and not showing much upward momentum. Some more sideways consolidation is likely.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 22nd week in a row. Weekly MACD and RSI are in bullish zones but not showing any upward momentum. Slow stochastic is below its 50% level in bearish zone.

Sunday, November 27, 2016

Sensex and Nifty charts have formed intermediate bottoms (Nov 25 '16)

Selling by FIIs abated a little during the week gone by. Their total net selling in equities was Rs 54.1 Billion, as per provisional figures. DIIs bought heavily. Their total net buying in equities touched Rs 61.9 Billion.

Both Sensex and Nifty breached their previous lows (the possibility was mentioned in last week's post), but recovered to gain about 0.5% on a weekly closing basis.

Demonetisation of bank notes continued to roil both houses of Parliament. Opposition parties joined forces in a desperate bid to project themselves as pro-poor when they were really protesting against the loss of their 'slush' funds.

In a surprising move, RBI has temporarily increased CRR to 100% in a bid to suck out excess liquidity from banks that was being parked in govt. bonds. Yields are expected to rise and bank share prices may take a hit.

BSE Sensex index chart pattern


The Daily bar chart pattern of Sensex dropped to an intra-day low of 25718 on Mon. Nov 21, and closed below its Nov 9 'panic bottom' of 25902 - proving once again that 'panic bottoms seldom hold'.

After consolidating sideways around the support level of 25900 for the next three days, the index bounced up strongly to close above the 26300 level.

The index is trading below its three EMAs in bear territory and is well below the blue down trend line. The 20 day EMA has crossed below the 200 day EMA. The 'death cross' of the 50 day EMA below the 200 day EMA, which technically confirms a bear market, appears imminent.

The down trend that started after Sensex touched a high of 29077 on Sep 8 continues. Bears definitely have the upper hand.

However, there are technical signs that the index has found an intermediate bottom and a pullback rally has started.

All four technical indicators are looking oversold, but are showing slight upward momentum as they try to emerge from their respective oversold zones. 

ROC is showing positive divergence by not falling lower with the index. MACD and Slow stochastic have formed small 'rounding bottom' reversal patterns inside their oversold zones. RSI has formed an 'inverse head and shoulders' like reversal pattern inside its oversold zone.

Since touching the 'panic bottom' on Nov 9, the index had formed a small 'falling wedge' pattern, from which it broke out upwards on Fri. Nov 25.

By touching a low of 25718 on Nov 21, the index retraced 61.7% of its entire rally from 22495 (Feb 29 low) to 29077 (Sep 8 top). That is almost the same as the 61.8% Fibonacci retracement level.

A combination of value buying and short-covering can propel Sensex towards its 200 day EMA (at about 27000). That can be a trigger for bears to strike again. Bulls may try to wrest control with a convincing rally above 27600. 

The market appears to have discounted most of the likely adverse fallouts of the demonetisation drive. Lengthy queues in front of banks and ATMs have been shrinking.  

Time to take out your 'buy list'. Accumulate slowly instead of buying in bulk. Some more consolidation or correction can't be ruled out. 

NSE Nifty index chart pattern


The following comments appeared in last week's post on the weekly bar chart pattern of Nifty: "The index had formed a high-volume 'panic bottom' in the previous week. A 'panic bottom' seldom holds. A drop below 8000 seems likely."

The index touched an intra-week low of 7916 before bouncing up to close above 8100. 

In the process, Nifty formed a 'reversal week' bar (lower low, higher close) - as well as a 'hammer' candlestick pattern. Both can be bullish reversal patterns.

Of the four weekly technical indicators, MACD is falling below its signal line and looks poised to enter negative zone. ROC, RSI and Slow stochastic are looking oversold.

A pullback rally towards 8300 is likely. Bears will probably use the opportunity to sell. A convincing move above 8570 is required if bulls wish to regain control.

Bottomline? Sensex and Nifty charts may have formed intermediate bottoms. Valuations have improved, but weak earnings growth of India Inc. may continue for a quarter or two more. Be cautiously optimistic that the worst is over. Any pullback rally can trigger bear selling.

Friday, November 25, 2016

5 Reasons why FIIs may continue to sell Indian equities

The Indian stock market topped out in early Sept '16, and was going through what looked like a routine bull market correction when the bottom seemed to fall out on Nov 9 '16.

A 'double whammy' of Modi's announcement of demonetisation of Rs 500 and Rs 1000 bank notes and Trump's unexpected victory in the US Presidential elections created major panic in the market.

Those were triggers for increased selling by FIIs. Here are 5 reasons why they may continue to sell Indian equities for some more time:

1. FIIs were net sellers of Indian equity worth Rs 57.7 Billion during Oct '16 as Nifty's TTM P/E was in a range between 22.98 and 23.80 - well above its average valuation.

During Nov '16, Nifty's TTM P/E range has been slightly lower so far - between 21.19 and 23.31 - but still well above its average valuation.

2. US bond yields have moved up above 2.3%, and are expected to move up further to 2.6% or so. Why? Because of rising inflation expectations on prospects of Trump's pro-growth policies.

FIIs prefer the safety of US bonds to riskier emerging market equities.

3. US Fed is likely to increase interest rates at its policy meeting in Dec '16. At least two more interest rate increases are expected during 2017. 

Since rising interest rates usually lead to lower bond prices, yields will get a further boost which can cause more FII outflows. 

4. China's economy is slowing down, which has triggered a slump in commodity prices because China is one of the biggest buyers of commodities. Since commodity prices and the US Dollar trend in opposite directions, the Dollar has been strengthening.

A strong Dollar usually leads to selling in all emerging markets. Currencies of Indonesia, Phillipines, Mexico, South Africa, Turkey have depreciated much more than the Indian Rupee.

5. As per nominal interest rate parity theory, lower interest rates lead to a stronger currency and higher interest rates lead to a weaker currency. This is a major reason why the Indian Rupee has been depreciating against the US Dollar for quite some time.

The recent FII selling in the Indian stock market has further depreciated the Rupee against the Dollar.

In a recent interview on a business TV channel, the global equity strategist of Citi Group said unequivocally: FIIs look at three things - US Dollar, US Treasury yield and China.

Rising US Dollar and rising US Treasury yields means selling in emerging market equities (and vice versa - i.e. falling Dollar and falling yields trigger buying in emerging market equities). 

A likely Trump policy against outsourcing of US manufacturing will further affect economic growth in export-oriented nations like China, Taiwan, South Korea, Malaysia.

A self-contained economy like India will be less affected by such a policy. So far, Trump has mentioned about restricting H1B and L1 visas but nothing against services outsourcing.

Demonetisation of bank notes has led to shorter-term ETF money outflows. Longer-term long-only funds may wait for Q3 and Q4 results of India Inc. before taking a call.

If the short-term damage to India's GDP growth is not 2% (as Dr Manmohan Singh mentioned in the Rajya Sabha) but 0.5% (as Mark Mobius of Templeton said in a TV interview), Indian economy should recover over the next 6 months.

Wednesday, November 23, 2016

3 Reasons why Nifty has formed an intermediate bottom: a midweek technical update (Nov 23 '16)

Selling by FIIs has eased a bit. Their total net selling in equities during the first three days of the week was worth Rs 30.3 Billion. DIIs were net buyers of equity worth Rs 35.4 Billion, as per provisional figures.

Opposition parties increased the decibel level of their protests both inside and outside Parliament against the demonetisation of high-value bank notes. Reminds me of a Bengali proverb: 'Chor-er Ma-er boro gola' (A thief's mother shouts the loudest about his innocence).

Deep-rooted transaction processes in a largely cash-based economy have received a severe shock that brought some activities - like goods transportation by road, payments to migrant farm labour during harvesting season - to a virtual standstill. 



The following comments appeared in last week's technical update on the daily bar chart pattern of Nifty: "The chart is turning bearish by the day. A deeper correction may be in the offing. The zone between 7900-8000 is the next likely support."

The index dropped below the 8000 level and touched an intra-day low of 7916 on Mon. Nov 21, before closing at 7929 - its lowest closing level in nearly 6 months. 

It has since bounced up a little to close above the 8000 level, but is trading below its three falling EMAs in bear territory.

Has Nifty entered a bear market? Should long positions be liquidated? How much lower can Nifty fall?

Those are questions bothering many small investors. Let me try to answer them - in reverse order.

If the 'Support-Resistance zone' between 7900-8000 gets convincingly breached on the downside, Nifty can fall to the 7500-7700 zone. But that may not happen just yet. Why? 

Because of three technical reasons that suggest that an intermediate bottom is in place:

1. The previous intra-day 'BrExit' low of Jun 24 '16 was 7927. Since price charts have 'memory' (i.e. the collective memory of market participants), the index dropped lower to 7916 on Nov 21, but closed a tad bit higher at 7929.
2. The 50% Fibonacci retracement level of the entire rally from the Feb 29 low of 6826 to the Sep 7 top of 8969 (of 2143 points) is 7898. The index dropped close to that level before bouncing up.
3. All three daily technical indicators are looking oversold - hinting at a rally.

Note that MACD and RSI are showing negative divergences by falling lower than their Feb 29 lows. Some more correction or consolidation is likely.

Bears (read FIIs) are selling at every rise. So, short-term long positions can be liquidated if the next rally moves up towards the 8300-8400 'Support-Resistance' zone. Long-term investors should stick to their asset allocation plans.

Nifty hasn't technically entered a bear market despite trading below its three daily EMAs for seven trading sessions in a row. Why? Because it hasn't yet met three additional technical conditions of a bear market. These are:

  • A correction of 20% or more from the top - Nifty has corrected about 12% so far.
  • A fall below the 50% Fibonacci retracement level - Nifty bounced up before doing so.
  • The 'death cross' of the 50 day EMA below the 200 day EMA - it hasn't happened yet.

Nifty's TTM P/E has remained between 21 and 22 for the past 7 trading sessions. The breadth indicator NSE TRIN (not shown) is showing upward momentum in neutral zone - hinting at some more correction or consolidation.

Wait and watch while the RBI announces new measures to alleviate the cash shortage situation. While new Rs 2000 bank notes are readily available in cities, their usage is restricted because of non-availability of smaller denominations. New Rs 500 bank notes are conspicuous by their absence.

Continue with your SIPs. But don't jump in to buy in large quantities.

Tuesday, November 22, 2016

WTI and Brent Crude Oil charts: bull rallies triggered again by OPEC production cut hopes

WTI Crude Oil chart


Oversold technical indicators had led to the following comments on the previous post on the daily bar chart pattern of WTI Crude Oil: "A pullback towards the 200 day EMA and the lower edge of the 'rising wedge' may have started. Bears will probably use the opportunity to sell again."

The pullback faced strong resistance from the 200 day EMA as bears resumed their selling, which dropped oil's price towards a 3 months low of 42.

Oversold technical indicators and positive divergences visible on RSI and Slow stochastic (which failed to touch new lows) triggered another rally to the lower edge of the large 'rising wedge' pattern.

Growing conviction that OPEC members may agree to a production cut at its Nov 30 meeting in Vienna propelled oil's price above its three EMAs into bull territory.

Bulls may continue their domination for another week.

On longer term weekly chart (not shown), oil's price has closed above its entangled 20 week and 50 week EMAs, but well below its sliding 200 week EMA in a long-term bear market. Weekly technical indicators are looking mildly bullish.

Brent Crude Oil chart


The following comments were made in the previous post on the daily bar chart pattern of Brent Crude Oil: "Daily technical indicators are looking oversold, but showing some signs of a recovery. A pullback towards the 200 day EMA and the lower edge of the 'rising wedge' is likely."

The initial pullback faced strong resistance from the 47 level and dropped to a 3 months low of 43.50. Oil's price pulled back again - this time to its 200 day EMA, where it again faced resistance.

After dropping to a higher low of 46, oil's price rallied sharply on hopes of an output cut by OPEC members and rose past its three EMAs towards the lower edge of the large 'rising wedge' pattern.

All three daily technical indicators are showing upward momentum, though MACD is still inside its negative zone. Slow stochastic has formed a bullish 'inverse head and shoulders' like pattern inside its oversold zone.

Oil's price may attempt to test its Oct '16 top.

On longer term weekly chart (not shown), oil's price has closed above its entangled 20 week and 50 week EMAs, but well below its falling 200 week EMA in a long-term bear market. Weekly technical indicators are looking slightly bullish.

Monday, November 21, 2016

S&P 500 and FTSE 100 charts (Nov 18 '16): in bull markets but bears lurking around the corner

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 continued to rally during the week. It touched an intra-day high of 2190 on Fri. Nov 18 before retreating a bit - forming a small 'reversal day' bar (higher high, lower close).

The index stopped just short of the lifetime intra-day high of 2194. Interestingly, 2190 was the lifetime closing high. Both highs were touched on Aug 15 '16. 

All three EMAs are rising, and the index is trading above them in a bull market. However, the previous 7 trading bars may have formed a 'rising wedge' pattern from which the likely breakout is downwards. The pattern is still evolving.

Daily technical indicators are looking a bit overbought. MACD is rising above its signal line and entered its overbought zone. RSI is below the edge of its overbought zone but not showing any upward momentum. Slow stochastic is well inside its overbought zone.

The post-election rally was a too sharp. The index may undergo a bit of correction or consolidation before making another attempt to touch a new lifetime high. 

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market for the 37th week in a row. All three indicators are in bullish zones and showing upward momentum.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 remained in pause-mode through the week - consolidating sideways within a narrow range of 6730-6820.

The index remained above its rising 200 day EMA and the support level of 6700 in bull territory, but below its falling 20 day and 50 day EMAs.

Daily technical indicators are in bearish zones and not showing any upward or downward momentum. Bears will try to dominate as long as the index trades below the down trend line (connecting its Oct and Nov '16 tops).

A downward breach of the 6700 level remains a possibility.

On longer term weekly chart (not shown), the index closed just above its 20 week EMA and well above its 50 week and 200 week EMAs in a long-term bull market for the 21st week in a row. Weekly technical indicators are looking bearish and showing downward momentum.

Sunday, November 20, 2016

BSE Sensex and NSE Nifty charts (Nov 18, 2016): slipping into bear phases?

FIIs went on a selling spree in a holiday-shortened trading week. Their net selling in equity was worth Rs 62.2 Billion, as per provisional figures. DIIs failed to match them with their net buying in equities worth Rs 45.3 Billion.

Both Sensex and Nifty gave up further ground - losing 2.5% and 2.7% respectively - on a weekly closing basis. Both indices may test, and even breach, their lows of the previous week.

Rupee depreciation against the US Dollar, a likely US interest rate hike which can cause more outflow of foreign capital, RBI's failure to supply adequate currency to replace the demonetised bank notes of Rs 500 and Rs 1000 have badly dented bullish sentiments.

BSE Sensex index chart pattern



The following were the concluding comments in last week's post on the daily bar chart pattern of Sensex: "Small investors should not be in a hurry to start bottom fishing. A test of Wednesday's low of 25900 can't be ruled out."

The index continued its downward trajectory, closing lower on all four trading days of the week. It has closed below its 200 day EMA in bear territory for 5 straight days, and is within handshaking distance of the previous week's low of 25902.

The bottom has fallen out of the previous week's 'flag' pattern, so it has been replaced with a down trend line. As per trend line theory, the down trend will remain in force till it gets breached convincingly.

The 20 day EMA is about to cross below the 200 day EMA. The 50 day EMA has formed a 'rounding top' reversal pattern. These are signs that the index may be slipping into a bear phase.

Sensex has retraced 48% of its gains from the Feb 29 '16 low (of 22495) to the Sep 8 '16 top (of 29077). That is close to the 50% Fibonacci retracement level from which bull market corrections are likely to reverse.

Stock indices don't really follow mathematics or logic. There is no reason to go long during F&O expiry week. However, there is some possibility of at least a technical bounce.

All four daily technical indicators are inside their oversold zones. Note that ROC is showing positive divergence by not falling lower with the index. 

Any pullback towards the 200 day EMA will provide another selling opportunity to bears (i.e. FIIs).

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty dropped to close well below its 50 day EMA, and looks poised to revisit its previous week's low of 8002. 

The 20 week EMA is forming a bearish 'rounding top' pattern. So is the signal line of the MACD indicator. Weekly ROC, RSI and Slow stochastic are looking oversold and showing downward momentum.

The index had formed a high-volume 'panic bottom' in the previous week. A 'panic bottom' seldom holds. A drop below 8000 seems likely. Support levels below 8000 were mentioned in last Wednesday's post.

Oversold conditions indicate the possibility of a technical bounce towards 8300 next week. If you are a short-term player, use the likely bounce to close out long positions.

For long-term investors, the current state of the index is a good test of their patience and discipline. Both characteristics will be under stress. The men will get separated from the boys.

Bottomline? Sensex and Nifty charts are turning bearish due to global and local events. Valuations are improving, but weak earnings growth of India Inc. is going to take some more time to overcome the demonetisation shock. Caution is advised. Any technical bounce may be followed by lower levels on both indices.

Friday, November 18, 2016

5 Steps to Build Wealth and Grow it Over Time

Most people know how to earn money. Some become engineers, computer programmers, accountants. They earn a lot of money. Others become movie stars, sports stars, rock stars. They earn a lot more money.

Then there are doctors, lawyers, drug smugglers, terrorists, politicians. They earn a tremendous amount of money - mostly in cash. They try to hide it from the taxman in dubious overseas accounts and real estate deals.

This latter group is spending sleepless nights of late, as the Indian Prime Minister has declared a war on ill-gotten gains - first, through a self-declaration scheme, followed by demonetisation of high value bank notes.

Earnings don't necessarily lead to wealth creation. Why? Because most people spend what they earn, and save and invest whatever little they have left.

Wealth creation requires proper planning, systematic investing in different assets according to the plan, and allowing compound interest to do its magic by investing for the long-term.

So, how should you get started? Here are 5 easy-to-implement steps:

1. Get in touch with a good financial adviser to make financial and asset allocation plans according to your earnings, financial goals and risk tolerance. You can do this yourself - but it may be better to seek the advice of a professional first.

2. Save first and spend later. From your financial plan, you will know how much you need to invest every month to achieve your goals. This amount should be invested first before you spend a single Rupee.

3. Live within your means. Whatever is left after investing should be your spending ceiling every month. That means you can't resort to debt - of the credit card or EMI variety. Already bogged down with EMIs? Pay them off early.

4. Invest regularly and consistently. This may pose problems if your earnings are irregular. All the more reason for you to be more disciplined about your planning, saving and investing.

5. Have a long-term view. Don't get swayed by short-term fluctuations in the prices of your assets. The longer the duration of your systematic investing, the greater will be your wealth.

Read more in this article by Diane Manuel in investopedia.com.

Wednesday, November 16, 2016

Nifty chart: a midweek technical update (Nov 16 '16)

FIIs turned sellers with a vengeance after returning from a long weekend. In the two days of trading this week, their net selling in equities touched a whopping Rs 43.1 Billion. DIIs were net buyers of equity worth Rs 22.4 Billion, as per provisional figures.

On the first day of the winter session of Parliament today, opposition parties pilloried the government's mishandling of the fallout of last week's demonetisation of Rs 500 and Rs 1000 bank notes.

News on the macroeconomic front was mixed. Both CPI and WPI inflation declined in Oct '16, increasing the possibility of another interest rate cut by RBI. However, the trade deficit widened in Oct '16, as gold imports doubled from a year ago.  


The daily bar chart pattern of Nifty is still in the process of assessing the consequences of the bank notes demonetisation. So far, the assessment isn't good for bulls.

As per anecdotal evidence, buying and selling in wholesale and retail markets, shopping malls, jewellery and electronic stores have come to a grinding halt.

Consumption may not revive in a hurry even if the RBI can ensure adequate circulation of new bank notes to replace the demonetised ones.

The likely negative impact on the bottom lines of FMCG, Consumer Discretionary and Jewellery companies has sent their stocks on a free fall.

Nifty has sliced through the long-term 'support-resistance zone' between 8400 and 8300 like a knife through butter, and has closed below its 200 day EMA in bear territory for three consecutive days.

Daily technical indicators are looking oversold. Buying support that emerged today was used by bears to sell again. Some more correction is likely.

The bullish 'flag' pattern has been replaced with just a down trend line. Why? Because of the bearish 'rounding top' reversal pattern visible on the 50 day EMA. 

The chart is turning bearish by the day. A deeper correction may be in the offing. The zone between 7900-8000 is the next likely support. 

If that support zone also fails due to continued FII selling, Nifty can revisit the Apr-May '16 lows (7500-7700).

Nifty's TTM P/E has fallen below 22, and is entering fair valuation territory. The breadth indicator NSE TRIN (not shown) is rising in neutral zone, and hinting at some more correction.

The index has so far corrected about 11% from its Sep '16 top of 8969, and retraced 45% of its gains from the Feb '16 low of 6826. No need to hit the panic button just yet.

It may be prudent to stand aside and let the current volatile phase play out. If you have SIPs in place, continue with them. 

Tuesday, November 15, 2016

Gold and Silver charts: succumb to vicious bear attacks

Gold chart pattern


In the previous post on the daily bar chart pattern of Gold, the possibility of a breakout above 1280 and resistance from the zone between 1290 and 1310 was mentioned.

On Nov 1, gold's price did breakout above 1280 but faced resistance from 1290. The next day, gold's price spurted to 1310 but couldn't move higher. During the next two days, 1310 continued to provide strong resistance.

On Nov 7, bear selling caused gold's price to pull back to the 1280 level, before dropping further towards its 200 day EMA on Nov 8.

Trump's unexpected victory in the US Presidential elections caused strong volatility on Nov 9. Gold's price spiked up to 1340 intra-day with a huge volume surge, only to drop and close near its 200 day EMA.

As the US Dollar strengthened against a basket of global currencies, more selling by bears pushed gold's price below its 200 day EMA into bear territory, and then down to 1210 - followed by a brief recovery.

The possibility of the formation of a bearish 'flag' pattern and a subsequent price drop below 1220 was also mentioned in the previous post.

Though a 'flag' pattern didn't get formed, the chart structure was looking quite bearish despite the formation of a bullish 'ascending triangle' pattern.

Daily technical indicators are looking oversold. Any technical bounce towards 1250 may provide another selling opportunity to bears. 

On longer term weekly chart (not shown), gold’s price formed a large 'reversal week' bar (higher high, lower close) and closed below its three weekly EMAs in a long-term bear market. The 50 week EMA failed to cross above the 200 week EMA. Weekly technical indicators are in bearish zones. 

Silver chart pattern



The daily bar chart pattern of Silver broke out above a small 'ascending triangle' pattern on Nov 1 and entered bull territory above its three EMAs. 

After facing some resistance from the zone between 18.50 and 18.75, silver's price dropped below its 50 day EMA but received good support from its 20 day EMA.

On Nov 8, silver's price re-entered bull territory above its three EMAs and rose to touch the 19 level the next day. 

After failing to overcome resistance from the 19 level on Nov 9 & 10, silver's price crashed below its three EMAs into bear territory on Nov 11 and dropped further on Nov 14.

All three daily technical indicators are in bearish zones and showing downward momentum - hinting at some more correction. 

Note that both RSI ('double top') and Slow stochastic ('head and shoulder') formed reversal patterns in bullish zones that triggered the sharp corrections. 

On longer term weekly chart (not shown), silver’s price has closed well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are looking bearish and showing downward momentum.

Monday, November 14, 2016

S&P 500 and FTSE 100 charts (Nov 11 '16): relief rallies face bear resistance

S&P 500 index chart pattern


The following comments appeared in last week's post on the daily bar chart pattern of S&P 500"All three daily technical indicators are looking oversold, which can trigger a pullback towards the 200 day EMA and the 2120 level. Bears may use the opportunity to sell again."

The pullback was much stronger than expected. A huge volume surge sent the index soaring past its 200 day EMA and the 2120 level and breached the down trend line of the 'descending triangle' pattern.

After crossing the 2180 level intra-day on Thu. Nov 10, the index faced bear selling and pulled back to the top of the 'descending triangle' before bouncing up to close above the 2160 level with a weekly gain of 3.8%.

What triggered the 100 points price spurt from last week's low? Oversold technical conditions led to some short covering and value buying. 

Trump's unexpected victory in the US Presidential election then led to a 'relief rally' as the 'event uncertainty' got removed and the market probably expected that a businessman at the helm will be good for business growth.

Daily technical indicators are in bullish zones. MACD rose sharply to enter positive zone. RSI crossed above its 50% level but lost upward momentum. Slow stochastic entered its overbought zone but also lost upward momentum. 

Some consolidation can be expected around current levels before the index attempts to touch a new high.

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market for the 36th week in a row. Weekly MACD and RSI are in bullish zones. Slow stochastic has emerged from its oversold zone. All three indicators are showing upward momentum.

FTSE 100 index chart pattern


The following comments appeared in last week's post on the daily bar chart pattern of FTSE 100: "All three daily technical indicators are looking oversold. A technical bounce is likely. Bears may use such a bounce to sell again."

A strong technical bounce took the index past its falling 20 day and 50 day EMAs by Wed. Nov 9. The next day, bears flexed their muscles as the index breached the down trend line intra-day but stopped short of the 7000 level and dropped below its 20 day and 50 day EMAs - forming a 'reversal day' bar.

By the end of the week, the index fell further to test support from the 6700 level but closed at 6730 with a 0.5% weekly gain.

All three daily technical indicators are in bearish zones and showing downward momentum. A downward breach of the 6700 level and a test of support from the 200 day EMA is likely.

On longer term weekly chart (not shown), the index closed below its 20 week EMA for two straight weeks, but above its 50 week and 200 week EMAs in a long-term bull market for the 20th week in a row. Weekly technical indicators are looking bearish and showing downward momentum

Sunday, November 13, 2016

BSE Sensex and NSE Nifty charts (Nov 11, 2016): turning bearish after 'flag' patterns get breached on the downside

In a full week of trading, FIIs were net sellers of equity worth Rs 39 Billion, as per provisional figures. DIIs couldn't quite match them, as their net buying in equities totalled Rs 29 Billion.

Sensex lost 1.4% while Nifty lost 1.6% on a weekly closing basis. More ominously for bulls, both indices - looking shell-shocked after the demonetisation of Rs 500 and Rs 1000 bank notes - closed below the 'flag' patterns within which they were correcting since the beginning of Sep '16.

Things are slowly improving on the macroeconomic front. The IIP number rose to 0.7% in Sep '16 against a revised -0.99% in Aug '16 and FDI in the country rose to US $5.15 Billion in Sep '16 against US $2.9 Billion in Sep '15.

Modi's 'Make in India' campaign seems to be working for a few second-rung auto companies. During Apr-Sep '16 period, exports exceeded domestic sales by significant amounts for Ford's Ecosport (1.5x), VW's Vento (6x), GM's Chevy Beat (6x), Nissan Micra (10x).

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex closed higher on the first two day's of the week on the back of FII buying. Note the following comments made in last week's post: "The index is approaching twin support from its 200 day EMA and the lower down trend line of the 'flag'. There may be a brief technical bounce."

It was also mentioned that bears may sell the rise and Sensex may fall below its 200 day EMA and fill 'Gap 2' formed on Jun 30. 

But Trump's unexpected victory in the US Presidential elections and Modi's announcement of demonetising of Rs 500 and Rs 1000 bank notes came out of the blue and caused a crash all the way down to the 25900 level during opening trade on Wed. Nov 9.

The index regained most of its losses during the day and closed within the 'flag' pattern. On Thu., it climbed above the 27600 level intra-day, but faced strong resistance from its falling 20 day EMA and closed below 27600.

Heavy selling by FIIs on Fri. Nov 11 triggered a drop below the 200 day EMA and the lower edge of the 'flag'. The index closed the week below the 'flag' and inside 'Gap 2'.

Daily technical indicators are looking bearish. MACD is falling towards its oversold zone. ROC and RSI are inside their respective oversold zones. Slow stochastic rose above its 50% level but its upward momentum has stalled.

Some more correction and/or consolidation is likely. An intra-day fall below the 'flag' on Wed. and a close below the 'flag' on Fri. are signs that the bullish 'flag' may get negated. 

Note that a single day's close within the 3% 'whipsaw' limit below the 'flag' has not yet negated the 'flag' technically.

Bulls will hope that the index can bounce up from 'Gap 2'. Their hopes may be belied. With the value of the Rupee falling against a strong US Dollar after Trump's win, FIIs are unlikely to start buying anytime soon. 

Small investors should not be in a hurry to start bottom fishing. A test of Wednesday's low of 25900 can't be ruled out.

NSE Nifty index chart pattern


Note the following comment made in Wednesday's post on the daily bar chart pattern of Nifty: "...the intra-day breach (of the 'flag') is a warning sign for bulls that the correction from the Sep '16 top may not be over yet."

The weekly bar chart pattern shows Wednesday's crash to the 8000 level, followed by a sharp recovery that failed to close inside the 'flag'. 

Bulls need not throw in the towel yet. Nifty is receiving twin support from its rising 50 week EMA and the 8300 level. Also, the index has closed within the 3% 'whipsaw' limit below the 'flag'.

Weekly technical indicators are looking bearish. MACD is falling below its signal line in positive zone. ROC, RSI, Slow stochastic are about to enter their respective oversold zones. Some more correction or consolidation around current levels is likely. 

Bottomline? Sensex and Nifty charts have closed below 'flag' patterns, showing bear domination. Valuations have improved a bit, but earnings growth of India Inc. is still sluggish. Caution is advised. Re-test of support from Wednesday's lows is a possibility.

Friday, November 11, 2016

Stock prices are fluctuating wildly - what should small investors do?

To answer that question, one needs to understand why stock prices fluctuate. You can read this article to learn more. 

In an ideal world, a stock's price moves only in one direction. If it is moving up, you make money by 'buying low and then selling high'. If it is moving down, you make money by 'selling high and then buying low'.

But life, and stock markets, are never that simple. In a longer-term up trend, there are periods of correction and consolidation that provide opportunities to buy for experienced investors.

A longer-term down trend has periods when there are counter-trend rallies and consolidations that provide selling opportunities.

If you prefer to look at stock price movements through a filter of fundamental analysis, you look at valuations and ratios. If you rely on technical analysis, you look at trend lines and chart patterns.

But there are times when markets seem to go completely haywire. Valuations go out the window in a frenzy of buying. Technical patterns and support levels lose all meaning amid a wave of selling.

Much like what has been going on for the past couple of days. Why? Primarily due to a couple of reasons that Taleb would call 'black swans' - events for which there were little advance warning and which are likely to cause upheavals in the economy and the stock market.

To make matters worse, these two 'black swan' events - Trump's victory in the US Presidential elections and demonetisation of Rs 500 and Rs 1000 bank notes in India - coincidentally occurred on the same day, viz. 9/11!

The best thing for a small investor to do is not to panic. 'This too shall pass'. 

If you have proper financial and asset allocation plans in place, you should simply follow those plans and invest accordingly.

If you don't have plans in place, the stock market will seem like a casino and you are unlikely to realise any of your your financial and investment goals.

If you are itching to fish in troubled waters, remember that you have to know exactly when to enter, how long to stay and when to exit. That is difficult for even experienced investors.

Wednesday, November 9, 2016

Nifty chart: a midweek technical update (Nov 09 '16)

The Indian stock market faced a double whammy today - the overnight demonetisation of Rs 500 and Rs 1000 bank notes, and an unexpected Trump victory in US Presidential elections.

Nifty opened trading with a huge downward 'gap' well below its 200 day EMA and dropped further to the 8000 level before value buying coupled with short-covering led to a recovery of most of the day's losses.

After being net buyers on the first two days of the week, FIIs were big net sellers of equity today. Their net selling for the first three days of the week touched Rs 17 Billion. DIIs were net buyers of equity worth Rs 22 Billion, as per provisional figures.

There was some good news on the economic front. Nikkei India Manufacturing PMI was at a 22 month high of 54.4 in Oct '16 against 52.1 in Sep '16. The Services PMI also increased to 54.5 in Oct '16 against 52 in Sep '16. (A figure above 50 indicates expansion.)



The daily bar chart pattern of Nifty dropped sharply below the 'flag' pattern and the 200 day EMA intra-day, but recovered dramatically to close well within the 'flag' and above its 200 day EMA in bull territory.

Technically, the 'flag' pattern remains intact because the index didn't close below it. However, the intra-day breach is a warning sign for bulls that the correction from the Sep '16 top may not be over yet.

The two upward 'gaps' - formed on Jul 11 and Jun 30 - got completely filled by today's price action. Logically, the index should resume its up move - much like it did after the intra-day BrExit crash on Jun 24.

Daily technical indicators are in bearish zones. MACD and RSI are showing downward momentum, while Slow stochastic is showing upward momentum. The index may face a bit of volatility and consolidation before it can breakout upwards from the 'flag'. 

The 'uncertainty risk factor' of the US Presidential election is behind us. But the bank note demonetisation and its likely consequences have not yet been fully discounted by the market.

Nifty's TTM P/E has slipped further to 22.48, but still remains higher than its long-term average. The breadth indicator NSE TRIN (not shown) is moving up towards its neutral zone - hinting at some consolidation or a bit more correction.

Bravehearts got an excellent opportunity to buy during today's sharp opening dip. If you missed it, don't fret. There are many opportunities in individual stocks for savvy stock-pickers. 

Tuesday, November 8, 2016

WTI and Brent Crude Oil charts: correct sharply below large rising wedge patterns

WTI Crude Oil chart


The following comment appeared in the previous post on the daily bar chart pattern of WTI Crude Oil: "The entire rally since the Aug '16 low may be forming a large 'rising wedge' pattern from which the likely breakout is downwards."

Four days after the previous post, oil's price closed below its 20 day EMA and the support level of 49. That triggered a sharp correction below the 50 day EMA, the lower edge of a large 'rising wedge' pattern and the 200 day EMA - back into bear territory.

All three daily technical indicators are looking oversold. A pullback towards the 200 day EMA and the lower edge of the 'rising wedge' may have started. Bears will probably use the opportunity to sell again.

Speculative buying on hopes of a production freeze by OPEC nations had caused the price rally during Sep-Oct '16. Those hopes have begun to fade as the long feud between Iran and Saudi Arabia is rearing its ugly head again.

On longer term weekly chart (not shown), oil's price has closed below its entangled 20 week and 50 week EMAs, and well below its sliding 200 week EMA in a long-term bear market. Weekly technical indicators are looking bearish and showing downward momentum.

Brent Crude Oil chart



The following comment appeared in the previous post on the daily bar chart pattern of Brent Crude Oil: "There is a possibility that the downward channel may turn out to be a 'flag' or a 'falling wedge' - both of which have bullish implications." 

What had looked like a small 'flag' turned out to be the early stage of a sharp correction below a large 'rising wedge' pattern, which dropped oil's price below its three EMAs into bear territory.

Daily technical indicators are looking oversold, but showing some signs of a recovery. A pullback towards the 200 day EMA and the lower edge of the 'rising wedge' is likely.

On longer term weekly chart (not shown), oil's price has closed below its entangled 20 week and 50 week EMAs, and well below its sliding 200 week EMA in a long-term bear market. Weekly technical indicators have turned bearish and showing downward momentum.