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Saturday, December 31, 2016

Sensex, Nifty charts (Dec 30, 2016): cornered bulls fight back

For the third month in a row, FIIs were net sellers of equity. Their total sales crossed Rs 113 Billion during Dec '16. DIIs were net buyers of equity worth Rs 91 Billion, but their net buying exceeded FII net selling during the last week of the year.

That allowed both Sensex and Nifty charts to regain some lost ground, and form what are looking like 'double bottom' reversal patterns. On a monthly basis, Sensex closed only about 0.1% lower and Nifty closed about 0.5% lower.

The NDA government has plugged another loop-hole for 'black money' creation by 'round tripping through hawala' by amending its Double Taxation Avoidance Agreement (DTAA) with Singapore.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex bounced up after touching a slightly higher bottom of 25754 on Dec 26 and crossed above its falling 20 day EMA, but failed to overcome resistance from its falling 50 day EMA.

Has the index formed a 'double bottom' reversal pattern? The 5 weeks gap between the Nov 21 and Dec 26 bottoms indicates a 'yes'. But the lower volumes (not shown) on Dec 26 says 'no'. 

The index needs to convincingly cross above its intermediate top of 26804 - touched on Dec 9 - to technically confirm the 'double bottom'.

Daily technical indicators are turning bullish. MACD has crossed above its signal line in negative zone. ROC and RSI are in neutral zones, but showing a bit of upward momentum. Slow stochastic is rising above its 50% level.

FII activity is typically on a low key during the Christmas-New Year period. That has helped bulls. However, the zone between 26700 and 26900 has multiple resistances, viz. the falling 50 day EMA, the blue down trend line and the 200 day EMA.

In case the index is able to cross above the resistance zone - it will be a bullish trigger. If you have been waiting for much lower levels to enter, your chance may have come and gone. 

Timing exit/entry at exact tops and bottoms is always difficult. Regular and systematic investing with a long time frame works better for most investors. 

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty touched a lower bottom of 7894 in the week ending on Dec 30 '16, but bounced up sharply. Note that volumes were lower during the formation of the second (lower) bottom. But that may be attributed to lower FII activity during the year-end.

To technically confirm a 'double bottom' reversal pattern, the index needs to cross convincingly above its intermediate top of 8275 touched in the week ending on Dec 9.

Weekly technical indicators are in the process of correcting oversold conditions. ROC and Slow stochastic are showing positive divergences by not falling lower with the index.

There are multiple overhead resistances (between 8250 and 8400) that the index needs to overcome; viz. 50 week EMA, 8300 level, 20 week EMA and the blue down trend line. Expect bears to strongly defend the resistance zone.

Nifty's TTM P/E stayed below 22 throughout the month - varying between 21.16 and 21.93. Breadth indicator NSE TRIN (not shown) is falling in neutral zone - hinting at some more upside.

A strong bull rally is unlikely. With the US Dollar remaining strong against emerging market currencies, FIIs may resume selling in the New Year.   

Bottomline? Sensex and Nifty charts show that bears still have the advantage, but bulls have managed to stand their ground. Without FII buying support, any sustained rally will be difficult. Wait for Q3 (Dec '16) results before taking any major buy/sell decisions.

Friday, December 30, 2016

Ten predictions about events in 2017

(Before revealing the predictions for the New Year, I need to make a confession: I'm awful at predictions. So, treat these predictions with a generous dose of salt - as they are based purely on conjecture and imagination. If you feel offended by any of these predictions, you should visit a psychiatrist.)

1. Modi will announce his resignation on Dec 31: technically, this event will occur in 2016 (and not in 2017). Also, this is not even my prediction but that of blabbermouth Derek's - who thinks Modi will take responsibility for the demonetisation implementation fiasco and lay down office. Did I hear you mutter "Wishful thinking"?

2. Both new banknotes of Rs 2000 and Rs 500 will get demonetised: those who thought Modi was encouraging his moneyed business friends to store black money more easily by introducing the Rs 2000 notes, and Paki printing presses that are alleged to be churning out the new notes by the sackful, will get another big shock.

3. Cathouses will install PoS machines: otherwise the world's oldest profession will come to a standstill.

4. Our eastern neighbours will voluntarily change their eating habits: because of a steep drop in supply and consequent increase in prices as the flourishing multi-million Rupee cattle smuggling business of rural Bengal has been rendered inoperative.

5. Doctor's and Lawyer's fees will go up even further: already fees are up by 30-33% to take care of the tax component of hitherto undeclared cash collections.

6. Didi will suffer a serious bout of 'demonetitis': that is a completely new disease inflicting those who have been badly affected by demonetisation and have shouted themselves hoarse in protesting against it.

7. Amma's party will be split up by Chinnamma who wants to be the 'new' Amma: already members are beating up each other. Now the High Court has thrown its hat into the ring!

Enough politics. Now some predictions for sports lovers.

8. India's soccer (football) team will significantly improve its world ranking: from 135 - behind even Madagascar - to at least 133.

9. Arsenal will win the English Premier League after 12 years: after a mysterious stomach disease will prevent Chelsea players from winning a single game in the new year.

10. Rafa Nadal will win the French Open: now that he has included his friend and former French champion Carlos Moya in his coaching team, this particular prediction may actually come true!

Wednesday, December 28, 2016

Nifty chart: a midweek technical update (Dec 28 '16)

FIIs continue to remain bearish. Their net selling in equities during the first three trading days of the week was worth Rs 23.3 Billion. DIIs were net buyers of equity worth Rs 33.9 Billion, as per provisional figures.

Thanks to DII buying, Nifty has managed to bounce up after slipping below its previous (Nov 21) low of 7916 on Mon. Dec 26. Is the worst over for bulls?

The government now requires tax defaulters to first pay 49.9% tax and make a 25% (4 years, zero-interest) deposit to avail of the PMGKY scheme. Those already under scrutiny or prosecution will not be eligible for the scheme.


The daily bar chart pattern of Nifty touched a slightly lower bottom of 7894 on Boxing Day, but managed to close just above the psychological 7900 level. DII buying helped the index to recover some lost ground during the next two days.

The index appears to have formed a 'double bottom' reversal pattern, keeping bullish hopes alive. But looks can deceive. Technical confirmation of a 'double bottom' requires volumes to be higher during and after formation of the second bottom. However, volumes (not shown on chart) have actually been lower. 

Also, the index faced strong resistance from the falling 20 day EMA and the 8100 level during today's trading and closed near the day's low. In the process, Nifty formed a 'shooting star' candlestick pattern that often triggers a down move. 

The 'death cross' (marked by grey ellipse) of the 50 day EMA below the 200 day EMA has technically confirmed a bear market. The breadth indicator NSE TRIN (not shown) is moving up towards its oversold zone. Some correction or consolidation is likely.

Daily technical indicators have corrected oversold conditions, but remain in bearish zones. The 4 months long down trend is dominating the Nifty chart. There seems little respite for bulls in the near term. 

(It is possible that the entire trading from Nov 10 onwards has formed a large 'falling wedge' pattern from which a break out can occur upwards. No buying is recommended in such an event. Buy only if Nifty moves convincingly above its 200 day EMA.)

A convincing breach of the 7900 level can drop Nifty to the zone between 7500 and 7700. No need for bottom fishing now. Wait for Q3 (Dec '16) results to find out how badly India Inc's earnings have been hit by demonetisation.

If you are hell-bent on buying, choose only top quality stocks.   

Tuesday, December 27, 2016

WTI and Brent Crude Oil charts: consolidating sideways after touching new highs

WTI Crude Oil chart


The following remarks were made in the previous post on the daily bar chart pattern of WTI Crude Oil: " ... a bearish 'shooting star' candlestick pattern has been formed. Some correction and consolidation is likely to follow."

Oil's price corrected down to 50 on Dec 15 - thanks to a 25 bps interest rate hike by the US Fed - but bounced up the next day after receiving good support from its rising 20 day EMA. 

During the past week, oil's price consolidated sideways in a range between 52 and 54. All three EMAs are rising, and oil's price is trading above them in a bull market.

Volumes have tapered off - as it does every year around Christmas and New Year. Daily technical indicators are in bullish zones, but not showing any upward momentum. Some more consolidation is likely.

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

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil had formed a bearish 'shooting star' candlestick pattern on Dec 12, and was expected to undergo some correction and consolidation.

Oil's price consolidated sideways in a range between 53 and 56.50, forming 'symmetrical triangle' pattern. Such triangles tend to be unreliable, because a breakout can occur in either direction.

Oil's price is trading above its three rising EMAs in a bull market. Daily technical indicators are giving conflicting signals. MACD is in the process of correcting from its overbought zone. RSI is moving sideways above its 50% level. Slow stochastic has dropped below its 50% level.

Note that volumes have fallen considerably - which is usually the case during the year-end. Unless volumes pick up, oil's price may fall below the support level of 53.

On longer term weekly chart (not shown), oil's price has closed 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 bullish, but Slow stochastic is looking overbought.

Monday, December 26, 2016

S&P 500 and FTSE 100 charts (Dec 23 '16): bulls are in control

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 has been consolidating sideways within a small 'symmetrical triangle' pattern for the past two weeks. All three EMAs are rising, and the index is trading above them in a bull market.

Logically, the index should breakout upwards from the triangle. However, triangles tend to be unreliable patterns. A breakout can also occur downwards, or, the triangle can get negated if the price moves sideways through the apex.

Christmas holidays and the New Year has caused a slide in volumes - as it does every year. It may be a good idea to sit back and relax with the family, and wait for the price action to signal which way the index wants to move next. 

Daily technical indicators are correcting overbought conditions. MACD and Slow stochastic are still inside their respective overbought zones. RSI has slipped down from its overbought zone.

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market for the 42nd week in a row. All three weekly technical indicators are in bullish zones but looking overbought.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 has crawled up on rapidly diminishing volumes (not shown) to close with a 0.8% weekly gain. All three EMAs are rising, and the index is trading above them in a bull market.

Year-end holidays and proximity to the lifetime high (touched in Oct '16) kept trading activity on a low key. But bulls are clearly in control.

Daily technical indicators are looking bullish  and overbought. Remember that the index can remain overbought for long periods during bull markets.

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market for the 26th week in a row. Weekly technical indicators are looking bullish. 

Sunday, December 25, 2016

Sensex, Nifty charts (Dec 23, 2016): rampaging bears push bulls into a corner

As per provisional figures, FIIs were net sellers of equity worth Rs 44.8 Billion even as transaction volumes dipped by 9%. DIIs were net buyers of equity worth Rs 39.7 Billion.

On a weekly closing basis, Sensex lost 1.7% and Nifty lost 1.9%. Bulls ensured that both indices just about managed to hang on to their respective support levels (of 25900 and 8000).

The Modi Government has announced a slew of railway projects worth Rs 770 Billion for Maharashtra and road projects worth Rs 120 Billion to connect four holy shrines ('Chaar Dham') in Uttarakhand. 

In a setback to stock market participants, Modi has hinted at a possible tax on long-term capital gains in the forthcoming budget. 

BSE Sensex index chart pattern



As mentioned in last week's post, the daily bar chart pattern of Sensex broke down below the small up trend line (which turned out to be a 'rising wedge' pattern) and dropped below the support level of 25900 intra-day on Fri. Dec 23.

However, the index managed to close higher, forming a small 'reversal day' bar (lower low, higher close). The expected 'death cross' of the 50 day EMA below the 200 day EMA (marked by light blue circle) has technically confirmed a bear market.

Daily technical indicators are looking bearish. MACD has formed a small 'rounding top' pattern and crossed below its signal line in negative zone. ROC has dropped into its negative zone. RSI is below its 50% level. Slow stochastic has slipped into its oversold zone.

Any technical bounce is likely to be met with more selling, and a possible fall below the Nov 21 low of 25718.

The 4 months long down trend is going to remain in force for a while longer. FIIs may not resume buying till Q3 (Dec '16) results are announced. Neither should you.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty dropped and closed below the support level of 8000. Technically, the support has not been breached convincingly. Why? Because the index closed within the 3% 'whipsaw' limit.

It may be a small respite for bulls. The index is trading below its 20 week and 50 week EMAs and the blue down trend line. Bears remain in control, and more correction can't be ruled out.

Weekly technical indicators are bearish and looking oversold. MACD is falling deeper into negative territory. ROC and RSI are inside their respective oversold zones. Slow stochastic is at the edge of its oversold zone.

Note that the index has closed at its lowest level in 7 months. However, ROC and Slow stochastic are showing positive divergences by not falling lower with the index.

A technical bounce is a possibility. That should not be used as a buying opportunity - unless you wish to cover what you had sold earlier at higher levels.

The market breadth indicator, NSE TRIN (not shown) is rising towards its oversold zone, hinting at some correction or consolidation. Nifty's TTM P/E has remained in a range between 21 and 22 during Dec '16 - higher than its long-term average. 

Bottomline? Sensex and Nifty charts show that bears are ruling, but bulls have managed to stand their ground. The stock market has discounted the negative fallout of demonetisation. However, introduction of a long-term capital gains tax may strengthen the hand of bears. Wait for Q3 (Dec '16) results before taking any major buy/sell decisions.

(Wishing all blog visitors, followers and newsletter subscribers a Merry Christmas and a very Happy New Year.)

Friday, December 23, 2016

Five Stock Investing Pitfalls To Avoid

Before you start on any project - whether it be building a house, or travelling to New Zealand on vacation - you need to make a plan. And to make a plan, you need to gather information and consult experts (like an architect or a travel agent).

Investing in stocks to build wealth for the long term is also a 'project'. It requires a lot of effort in learning and consulting experts and planning. Otherwise buying and selling stocks become random activities with little chance of building wealth.

Even after you do your homework and have proper financial and asset allocation plans in place, you need to understand and apply fundamental and technical analysis concepts to decide which stocks to buy, which stocks to sell and appropriate times for buying and selling.

Those are the easy steps to learn and implement. Far tougher is to learn how to control your emotions. To remain impassive and do disciplined investing according to your plans when the stock market is rapidly climbing or falling steeply requires years of experience.

Successful wealth building through stock investments involves planning, regular investing, staying patient and avoiding mistakes. Here are five common pitfalls (mentioned in a recent investopedia.com article) that prevent many small investors from becoming successful:

1. 'Cheap' is not necessarily good value for money - Small investors have a tendency to avoid large-cap stocks because they are 'too expensive'. In any case, mid-cap and small-cap stocks give better returns - don't they? A stock is 'cheap' for two reasons - either the company's operating fundamentals are weak or, it has not yet caught the eye of savvy investors. The trick is to be able to distinguish between the two. Even a fundamentally strong company can trade in the stock market at low valuations for a long time. 

2. A high P/E ratio doesn't mean a stock is overvalued - P/E ratio is an important metric that is often misunderstood. A P/E ratio of 12 doesn't make a stock a better buy than one with a P/E ratio of 42. Why? Companies that require frequent capital expenditure often trade at low valuations. If the average P/E for a sector is 10, and a stock from the sector is trading at a P/E of 12 then it is 'expensive'. But if a company is continuously growing and earnings are keeping pace with growth, then a P/E of 42 can give an excellent investment opportunity.

3. Cutting your winners quickly and letting your losers run - Most small investors should do the exact opposite. Booking profits quickly in a winner and keeping a loser for a long time in the hope of getting back the 'buy' price is a ticket to disaster. Learning how to set a 'stop-loss' will prevent a small loss from becoming a big one. A 'trailing stop-loss' allows you to ride the profits in a winning stock.

4. Averaging when a stock's price is falling - Averaging down is one of the biggest pitfalls that can turn a small loss into a huge one. Why? Because theoretically, a stock's price can become zero. You can go on buying as the price falls, but it can fall even more. If you are really convinced about a company, wait for the stock price to stop falling and then average on the way up.

5. Not being aware of the broader market trend - During a bear phase, big money is made by selling first and then buying back at a lower price later. Such a strategy - called 'short selling' - is not recommended for inexperienced investors. Bear phases eventually come to an end. During bull phases, one can buy at a lower price and sell at a higher price for profit. (Many small investors in mutual funds stop their SIPs during bear phases. That is not recommended.)

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Wednesday, December 21, 2016

Nifty chart: a midweek technical update (Dec 21 '16)

FIIs have been in a strongly bearish mood, putting Nifty bulls at a severe disadvantage. Total net selling in equities by FIIs in three days of trading this week touched Rs 24 Billion. DIIs were net buyers of equity worth Rs 20.3 Billion.

Despite heavy selling by FIIs, Nifty has managed to stay above the 8000 level so far, though it has lost ground for six trading sessions in a row.

Demonetisation blues are still affecting the public at large. In another move to soften the blow, RBI has allowed depositing of demonetised notes of any amount in KYC-compliant bank accounts without asking any questions.

The Government is bringing an ordinance to amend The Payment of Wages Act, 1936 to allow businesses and industries to pay wages electronically or by cheques - with an option to pay by cash.


The following were the concluding comments in last week's mid-week update on the daily bar chart pattern of Nifty: "The balance is tilted towards bears continuing their domination for a while. The small up trend line may be the lower edge of a 'rising wedge' pattern, which has bearish implications."

On Thu. Dec 15, Nifty broke down and closed below the 'rising wedge' pattern. The next day it pulled back to the lower edge of the wedge - giving a selling opportunity. It has been gradually sliding down since then.

All three EMAs are falling and Nifty is trading below them. The imminent 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a return to a bear market. 

Daily technical indicators are looking bearish and showing downward momentum. Slow stochastic has dropped sharply into its oversold zone. Any technical bounce will provide bears another opportunity to sell.

Nifty's TTM P/E has remained between 21.16 and 21.87 in Dec '16, which is above Nifty's long-term average valuation. The breadth indicator NSE TRIN (not shown) is falling in neutral zone.

The Rupee is depreciating against the US Dollar. That means FIIs are going to remain sellers in the Indian stock market. "Now is the winter of our discontent (unlikely to be) made glorious summer ..." [with due apologies to William Shakespeare].

The down trend line continues to dominate Nifty's chart. Don't be in a rush to buy. Invest according to your asset allocation plan. 

Tuesday, December 20, 2016

Gold and Silver charts: bulls sent packing by fierce bear onslaughts

Gold chart pattern


The daily bar chart pattern of Gold shows a severe one way fall due to relentless selling by bears ever since Trump unexpectedly won the US Presidential election.

Gold's price dropped to an 11 months low of 1125 before bouncing up to close above 1140. All three EMAs are falling, and gold's price is trading well below them in a bear market.

Daily technical indicators have been in oversold zones for more than a month, and showing positive divergences by not falling lower with gold's price. Don't expect a trend reversal any time soon, as bears are selling on every rise.

Avoid bottom fishing till gold's price starts forming a bottoming out pattern.

On longer term weekly chart (not shown), all three weekly EMAs are falling, and gold’s price has closed well below them in a long-term bear market. Weekly technical indicators are inside their respective oversold zones. 

Silver chart pattern


After oscillating about its 20 day EMA for 6 trading sessions, the daily bar chart pattern of Silver dropped sharply on Thu. Dec 15, but received good support from the 16 level.

The 'death cross' of the 50 day EMA below the 200 day EMA has technically confirmed a return to a bear market. 

All three daily technical indicators are looking bearish, but showing positive divergences by not falling lower with silver's price.

A technical bounce is possible. Avoid using it as a buying opportunity, as silver's price may drop to 15.

On longer term weekly chart (not shown), silver’s price closed well below its three weekly EMAs in a long-term bear market. Weekly MACD and RSI are sliding down in bearish zones. Slow stochastic is inside its oversold zone.

Monday, December 19, 2016

S&P 500 and FTSE 100 charts (Dec 16 '16): bulls pause to catch their breath

S&P 500 index chart pattern


The following remarks appeared in last week's post on the daily bar chart pattern of S&P 500: "... all three daily technical indicators are inside their overbought zones. Another corrective move may be in the offing."

The index took a couple of steps up and then three steps down to end almost flat on a weekly closing basis. On Tue. Dec 13, the index rose to touch a new lifetime high of 2278 but slipped down to close only a point lower for the week.

Volumes surged on Fri. Dec 18, which may be a sign of selling climax. Note a similar surge in volumes on Nov 30 and Dec 1 that marked the end of a brief corrective move.

All three daily technical indicators are in the process of correcting overbought conditions. Slow stochastic is showing negative divergence by touching a lower top while the index rose higher. It has also formed a 'double top' reversal pattern inside its overbought zone.

Some more correction or consolidation is possible. But bulls are clearly in charge - as can be seen from the three rising EMAs.

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market for the 41st week in a row, but formed a 'long-legged doji' candlestick pattern. All three weekly technical indicators are in bullish zones but showing negative divergences by failing to touch new highs with the index. Expect some more correction or consolidation.

FTSE 100 index chart pattern


The following remarks appeared in last week's post on the daily bar chart pattern of FTSE 100"... At the time of writing this post, a pullback towards the down trend line is under way. If you missed buying on the break out above the down trend line, the pullback is providing another buying opportunity."

The pullback to the top of the down trend line on Mon. Dec 12 did provide a buying opportunity as the index bounced up strongly on Tue. Dec 13 and closed the week above the 7000 level after almost 2 months.

All three EMAs are moving up and the index is trading above them in a bull market. The index may touch a new high soon.

Daily technical indicators are in bullish zones. Slow stochastic is showing negative divergence by touching a lower top inside its overbought zone. A bit of correction or consolidation may follow.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 25th week in a row. Weekly technical indicators are in bullish zones. 

Sunday, December 18, 2016

Sensex, Nifty charts (Dec 16, 2016): bulls forced to yield some ground

FIIs and DIIs joined forces and turned bearish during a week when transaction volumes slipped by 3%. FIIs were net sellers of equity worth Rs 36.1 Billion, while DIIs were also net sellers of equity worth a more modest Rs 0.23 Billion.

Despite all the selling, Sensex lost only 1% on a weekly closing basis and Nifty lost 1.5%. Both indices managed to remain above their respective support levels (of 25900 and 8000).

The US Fed expectedly raised interest rate by 25 bps (0.25%), and hinted at more rate hikes during 2017 in a clear indication that the US economy is on the mend. The US Dollar strengthened against global currencies - which is not good news for emerging market economies. 

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex oscillated about its 20 day EMA during the week, closing just below it. The smaller up trend within a larger down trend remained intact as the index received good support from the up trend line.

That may only be a brief respite for bulls. The 50 day EMA is on the verge of crossing below the 200 day EMA. The imminent 'death cross' will technically confirm a bear market.

Daily technical indicators are giving conflicting signals, which often happens during periods of uncertainty and consolidation. MACD is rising above its signal line in negative zone. ROC has bounced back into positive zone, but is facing resistance from its 10 day MA.

RSI and Slow stochastic are looking bearish as both are falling towards their respective 50% levels. The index has closed below the down trend line and its three EMAs in bear territory.

A downward breach of the up trend line and a test of the Nov 21 low (of 25718) may be on the cards. In case bulls are able to muster up a rally, expect strong resistance from the merged 50 day and 200 day EMAs and the down trend line.

It may be a good idea to sit on the sidelines for a while. 

NSE Nifty index chart pattern


For the 6th week in a row, the weekly bar chart pattern of Nifty closed within the 'support-resistance zone' between 8000 and 8300. The 50 week EMA provided strong resistance during the week.

The index has closed below the blue down trend line for 15 straight weeks, but remains well above its 200 week EMA in a long-term bull market.

Weekly technical indicators are bearish and looking a bit oversold. MACD is falling below its signal line in negative zone. ROC faced resistance from its falling 10 week MA and has re-entered its oversold zone. RSI has slipped into its oversold zone. Slow stochastic is hovering just above its oversold zone.

The market breadth indicator, NSE TRIN (not shown) is moving up in neutral zone, hinting at some correction or consolidation. Nifty's TTM P/E is in a range between 21 and 22 - higher than its long-term average.

Bottomline? Sensex and Nifty charts show that bears had the upper hand last week, but bulls have not yielded too much ground. The stock market is pricing in the negative fallout of demonetisation. A strong US Dollar will keep FIIs away from the Indian market. Wait for Q3 (Dec '16) results before taking any major buy/sell decisions.

Friday, December 16, 2016

3 Things All Self-Directed Investors Should Know

There are two ways you can invest your monthly/quarterly/annual savings - the easy way and the hard way.

The easy way is to get hold of an experienced financial adviser and follow his investment advice. The hard way is to take charge of your own financial future and do the investing on your own.

Many small investors skip the easy way because they think that investing for the long term is a trivial activity, and not worth the fees a good financial adviser will charge. No wonder they end up with poor returns or losses.

Common sense suggests that you follow the easy way first. Learn the ropes and gain experience about which investment instruments carry what types of risks and give what kind of returns over different time frames.

Once you have followed the advice of a financial adviser you can trust and built up a decent investment portfolio, then you may start thinking about managing your portfolio on your own.

Before you decide to march to the steps of Tagore's well-known song "Ekla Chalo Rey" ("tread your own path"), there are three things you need to remember:

1. You can't be an expert at everything - invest in what you know, and gradually broaden your 'Circle of Competence'

2. Be patient and disciplined - Rome wasn't built in a day. A good investment portfolio requires canny selection, disciplined approach to regular investing and monitoring, and patience to hold for the long term

3. Control your emotions -  be dispassionate about the periodic ups and downs in the economy. Not investing when there is doom and gloom all around is just as bad as investing when there is euphoria and everyone is jumping into the stock market to buy.

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Wednesday, December 14, 2016

Nifty chart: a midweek technical update (Dec 14 '16)

FIIs have turned bears once again. Their net selling in equities crossed Rs 29 Billion during the first three days of trading this week. DIIs were net buyers of equity worth only Rs 1.2 Billion. Nifty has shown remarkable resilience despite strong selling by FIIs.

CPI inflation fell to a 2 years low of 3.63% in Nov '16, against 4.2% in Oct '16 - thanks to moderation in food prices after a good monsoon. WPI inflation eased to 3.15% in Nov '16 against 3.39% in Oct '16. Shortage of cash supply after demonetisation of high-value bank notes may have contributed to lowering inflation.

With a sharp drop in imports, India's current account deficit (CAD) declined to $3.4 Billion during Jul-Sep '16 quarter, against $8.5 Billion during Jul-Sep '15. However, it was much higher than CAD of $0.3 Billion during Apr-Jun '16 quarter. 


The daily bar chart pattern of Nifty clearly shows an ongoing tussle for control between bulls and bears.

For more than 3 months, a larger down trend from the Sep 7 top of 8969 has been dominating the chart. However, after touching a low of 7916 on Nov 21, the index has been in a smaller up trend.

Ever since it closed below the 200 day EMA on Nov 11, Nifty has traded below its long-term moving average in bear territory. The 20 day EMA has crossed below the 200 day EMA, but is in the process of forming a 'rounding bottom' pattern that has raised bullish hopes.

The 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a bear market. Bulls are trying their utmost to prevent that from happening.

Daily technical indicators are looking bearish. MACD is rising above its signal line, but remains well inside its negative zone. RSI is facing strong resistance from its 50% level. Slow stochastic has dropped from its overbought zone.

Nifty's TTM P/E has remained between 21.25 and 21.87 in Dec '16, which is above Nifty's long-term average valuation. The breadth indicator NSE TRIN (not shown) is falling towards its overbought zone.

The index appears to be undecided about its next move. A rise in US interest rates has already been discounted. Rising oil prices and demonetisation of high-value bank notes have curbed bullish fervour. 

The balance is tilted towards bears continuing their domination for a while. The small up trend line may be the lower edge of a 'rising wedge' pattern, which has bearish implications.

Tuesday, December 13, 2016

WTI and Brent Crude Oil charts: bulls run amok as OPEC and non-OPEC countries agree to cut crude production from Jan '17

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil had formed a 'reversal day' bar (higher high, lower close) on Nov 22. That triggered a correction below all three EMAs into bear territory.

On Nov 30, oil's price bounced up with massive volumes and nearly touched the 50 mark before retreating a bit. OPEC countries finally agreed to a production cut after giving some leeway to Iran, Libya and Nigeria.

Oil's price continued to rally and touched a high of 52.50 on Dec 5, only to correct below 50 two days later. The up move resumed once again. A decision by non-OPEC countries to also cut production saw oil's price soaring to 54.50 on Dec 12 - its highest level in 17 months - before closing below 53.

In the process, a bearish 'shooting star' candlestick pattern has been formed. Some correction and consolidation is likely to follow.

Oil's price is trading well above its three rising EMAs in a bull market. Daily technical indicators are looking overbought and showing negative divergences by failing to touch new highs with oil's price.

On longer term weekly chart (not shown), oil's price has closed above its 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 bullish, but Slow stochastic has entered its overbought zone.

Brent Crude Oil chart



Bullish technical indicators had led to the following comment in the previous post on the daily bar chart pattern of Brent Crude Oil: "Oil's price may attempt to test its Oct '16 top."

Shortly after writing the post, oil's price rose to touch the 50 level on Nov 22, but dropped back into bear territory below its three EMAs on Nov 29. The OPEC production cut deal led to a sharp bounce supported by huge volumes on Nov 30.

Oil's price easily climbed past its Oct '16 top before pulling back a little. Agreement by non-OPEC countries to also cut production from Jan '17 onwards triggered a price surge to the 58 level on Dec 12. A much lower close caused the formation of a bearish 'shooting star' candlestick pattern.

All three EMAs are rising and oil's price is trading above them in a bull market. Daily technical indicators are looking bullish and overbought. RSI and Slow stochastic are showing negative divergences by failing to touch new highs with oil's price.

Some correction and consolidation can follow before oil's price can rise to 60. Don't expect prices to rise much higher than that. Why? Because US shale oil producers may then find it profitable to re-enter the market. 

On longer term weekly chart (not shown), oil's price has closed 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 looking bullish, but Slow stochastic has entered its overbought zone.

Monday, December 12, 2016

S&P 500 and FTSE 100 charts (Dec 09 '16): bulls rule once again

S&P 500 index chart pattern



The following were the concluding comments in last week's post on the daily bar chart pattern of S&P 500: "Some more correction to test support from the rising 20 day EMA can't be ruled out. However, the index should resume its up move soon."

There was no further correction as the index resumed its up move immediately after receiving support from the 2190 level. On Fri. Dec 9, the index rose to touch a new lifetime high of 2260.

All three EMAs are rising, and the index is trading well above them in a bull market. However, all three daily technical indicators are inside their overbought zones. Another corrective move may be in the offing.

On longer term weekly chart (not shown), the index closed at a new lifetime high - well above its three weekly EMAs in a long-term bull market for the 40th week in a row. All three indicators are in bullish zones but showing negative divergences by failing to touch new highs with the index. Expect some correction or consolidation.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 shows a spirited fight back by bulls just when bears were on the verge of gaining control. ECB's decision to extend its Quantitative Easing programme till Dec '17 gave a strong impetus to bulls.

The index bounced up strongly after receiving support from the 6700 level and broke out above the down trend line that was dominating the chart for the past two months.

At the time of writing this post, a pullback towards the down trend line is under way. If you missed buying on the break out above the down trend line, the pullback is providing another buying opportunity.

All three daily technical indicators are looking bullish. Slow stochastic is well inside its overbought zone - and may have triggered the pullback.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market for the 24th week in a row. Weekly MACD and RSI are in bullish zones. Slow stochastic is still in bearish zone, but is rising towards its 50% level.

Sunday, December 11, 2016

Sensex, Nifty charts (Dec 09, 2016): bulls assert themselves but bears still on top

FIIs and DIIs were bullish during a week when volume of transactions dipped 17.5%. FIIs were net buyers of equity worth Rs 9.37 Billion; DIIs were net buyers of equity worth Rs 2.97 Billion, as per provisional figures. Both Sensex and Nifty gained about 2% on a weekly closing basis.

The IIP number for Oct '16 was -1.9% - indicating a fall in India's industrial output compared to Oct '15. The IIP number was 0.7% in Sep '16.

The cash crunch following demonetisation of high-value bank notes continues. Shrinking consumer spending may further affect factory output in the next few months.

BSE Sensex index chart pattern



For the past three weeks, the daily bar chart pattern of Sensex has been in a small up trend within a larger down trend. The index is trading in bear territory below its sliding 50 day and 200 day EMAs.

However, there are signs that bulls are beginning to assert themselves. The 20 day EMA is in the process of forming a 'rounding bottom' reversal pattern, and the index has moved above it.

Daily technical indicators are looking bullish. MACD is rising above its signal line in negative zone. ROC is above its rising 10 day MA in positive zone. RSI and Slow stochastic have climbed up to the edge of their overbought zones.

The rally from the Nov 21 low is going to face overhead resistance from the merging 50 day and 200 day EMAs, and the blue down trend line. Expect the up trend line to provide support on any subsequent corrective move.

If FIIs and DIIs continue to join forces, the down trend that started from the Sep 8 top may get reversed soon.

NSE Nifty index chart pattern



The weekly closing chart pattern of Nifty has closed five weeks in a row inside the 'support-resistance' zone between 8000 and 8300.

The battle lines are clearly drawn. A fall below 8000 will be bearish and bring the next support zone between 7500 and 7700 into play. A convincing move above 8300 can lead to a breach of the blue down trend line. 

The index is showing both bullish and bearish signals. On the bullish side, the index has rallied after forming a small 'double bottom' reversal pattern.

On the bearish side, the rally has been on sliding volumes, and is facing resistance from the 50 week EMA.

Weekly technical indicators are in bearish zones. MACD has slipped into negative zone. ROC formed a small 'double bottom' reversal pattern inside its oversold zone but is facing resistance from its falling 10 week MA. RSI and Slow stochastic are hovering near the edge of their respective oversold zones.

Bottomline? Bulls won last week's battle for domination of Sensex and Nifty charts. But bears still have the upper hand in the near term. The stock market is gradually pricing in the negative fallout of demonetisation. "Acche Din" may follow soon. Stay invested.

Friday, December 9, 2016

The Ultimate List of Painful Financial Mistakes

Warren Buffett is arguably the greatest stock investor that ever lived. He didn't become so by chance but by learning the ropes from his guru, Benjamin Graham, and by following a few basic investment rules.

Two of his most famous rules are:-

Rule No. 1: Never lose money
Rule No. 2: Never forget Rule No. 1

Does Buffett practice what he preaches? Of course he does. That is why he is the greatest. But the two rules should not be interpreted literally. If you invest in stocks, you are going to make a few wrong selections that will lead to loss of money.

In fact, 'losing money' can be a great learning experience - as long as you don't turn it into a habit. What Buffett really means by the two rules is that you need to follow a well-planned strategy that reduces the possibility of losses and increases the chances of making money in the long-term in spite of occasional losses.

Even if you make a lot of money from stocks, it can be difficult to manage and grow your portfolio unless you know how to avoid the following financial mistakes listed by Patrick Bourbon in a recent article in investopedia.com:

1. Not diversifying your wealth.
2. Not understanding the risk in your portfolio.
3. Investing in tax-inefficient portfolios.
4. Doing nothing/failing to build a customised financial plan.
5. Not saving enough or saving too late.
6. Overlooking your advisor/broker fees.
7. Failing to rebalance your portfolio.
8. Not having a sufficient emergency cash reserve.
9. Being overconfident in your own abilities.
10. Chasing past performance.
11. Investing based on news or reacting to short-term returns.
12. Emotionally buying and/or selling.
13. Trying to time the market.
14. Selecting the wrong stock/mutual fund.
15. Not taking into account the effect of inflation.
16. Buying what you don’t understand. 

Read more.

Wednesday, December 7, 2016

Nifty chart: a midweek technical update (Dec 07 '16)

FIIs were net sellers of equity on Mon. Dec 5, while DIIs were net buyers. The roles reversed during the next two days, as FIIs turned net buyers and DIIs became net sellers. For the three days, FII net buying was worth only Rs 0.38 Billion and DII net selling was worth only Rs 0.57 Billion.

Nikkei India's Manufacturing PMI for Nov '16 slipped to 52.3 from 54.4 in Oct '16, while the Services PMI for Nov '16 dropped to 46.7 from 54.5 in Oct '16 - thanks mainly to reduced activity following demonetisation of high-value bank notes. (A number below 50 indicates contraction.)

RBI Governor kept interest rates unchanged at today's policy meeting. The stock market had already priced in a 25 bps rate cut. The status quo came as a negative surprise that led to a sell-off during the last hour of trading. However, withdrawal of the 100% incremental CRR from Dec 10 will be positive for banks.



The daily bar chart pattern of Nifty continues to face resistance from its falling 20 day EMA. The index formed a 'reversal day' bar (higher high, lower close) due to a sell-off after the status quo on interest rates and a 50 bps lower GDP projection by the RBI.

All three EMAs are falling, and the index is trading below them - and well below the down trend line - in bear territory.

Daily technical indicators are giving conflicting signals. MACD and RSI remain in bearish zones and are not showing much upward momentum. However, Slow stochastic is rising above its 50% level in bullish zone.

Some more consolidation in the range between 8000 and 8300 is likely before a decisive move can occur. The fact that FIIs have been net buyers of equity during the past two days will raise bullish hopes.

Nifty's TTM P/E has varied between 21.25 and 21.56 during the first 5 trading days in Dec '16 - which is above Nifty's long-term average P/E. The breadth indicator NSE TRIN (not shown) has dropped down after briefly entering its oversold zone - suggesting some sideways consolidation.

Use the dip to slowly accumulate fundamentally strong stocks that have held their ground during the past month despite the chaos following demonetisation of high-value bank notes.