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Wednesday, August 30, 2017

Nifty chart: a midweek technical update (Aug 30 ‘17)

FIIs were net sellers of equity worth Rs 16 Billion during the first three days of trading this week. DIIs were net buyers of equity worth Rs 21.6 Billion.

Nifty made a couple of futile attempts to breach the (purple) down trend line on Mon. & Wed. (Aug 28 & 30). On Tue. Aug 29, it dropped to seek support from its 50 day EMA.

GST collection for the month of Jul '17 was Rs 922 Billion - exceeding the government's target of Rs 910 Billion - despite only 3.8 million of the 5.8 million GST registered entities paying up so far.

RBI has drawn up a second list of 40 bank loan defaulters against whom proceedings may be initiated under the Insolvency and Bankruptcy code. The cleaning up process of the NPA problem in the banking system continues.


The daily bar chart pattern of Nifty had corrected below its 20 day and 50 day EMAs to the 'support-resistance' level of 9700 on Aug 11.

Since then, the index has been consolidating sideways - alternatively moving above its 20 day EMA and falling below its 50 day EMA.

The entire trading for the month has occurred below the (purple) down trend line and the 9700 level - forming a 'descending triangle' like pattern.

A breakout above the down trend line will negate the 'descending triangle', but may not give bulls the upper hand because the 10000 level is likely to provide strong resistance. (The technical reason for the resistance at 10000 was explained in an earlier post.) 

A fall below 9700 may lead to a fall towards 9300, and a test of support from the rising 200 day EMA. Note that the index is trading well above its 200 day EMA in a bull market. 

Technical indicators are giving conflicting signals, which is often the case during periods of consolidation. MACD is in bearish zone - moving sideways below its falling signal line. RSI and Slow stochastic are facing resistances from their respective 50% levels.

Nifty's TTM P/E is at 25.54 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is in neutral zone. The index can continue to consolidate for a while - may be till Q2 (Sep '17) results of India Inc. show earnings improvement.

North Korea's regular missile launches - undoubtedly at the behest of China, which is its closest ally - has kept FIIs in 'risk-off' mode. Unless they resume buying, Nifty is not going to move much higher.

Tuesday, August 29, 2017

Gold and Silver charts: bulls win tough battles; will they win the war?

Gold chart pattern



The following remarks appeared in the previous post on the daily bar chart pattern of Gold: "The resistance level of 1300 has been tested twice. A resistance (or support) level gets weakened by each subsequent test. Expect bears to defend the 1300 level strongly."

Gold's price dropped to its rising 20 day EMA, only to bounce up and breach the 1300 level on Fri. Aug 18 by touching an intra-day high of 1306.90, but profit booking led to a close at 1291.60.

During the following week (Aug 21-25), bulls tried their best to breach the 1300 level, but bears defended strongly. Gold's price again dropped to seek support from its rising 20 day EMA on Fri. Aug 25, but closed just below the 1300 level.

The 1300 level got 'weakened' by the frequent tests of resistance. Bulls just needed a trigger to extend the rally from the Jul '17 low. 

North Korea fired a missile that flew over Japan on Mon. Aug 28. The US Dollar index fell sharply. Gold's price easily broke out above the 1300 level, and is trading well above its three rising daily EMAs in a bull market.

Expect bulls to press home their near-term advantage and propel gold's price to the 1330-1340 zone. Note that daily technical indicators are looking overbought and showing negative divergences by failing to touch new highs with gold's price.

A pullback towards 1300 can occur at any time. That will be a buying opportunity for those who missed buying on Monday's breakout.

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators are in bullish zones and showing upward momentum. Slow stochastic is well inside its overbought zone and can induce profit booking.

Silver chart pattern


The daily bar chart pattern of Silver shows a fierce battle near the 200 day EMA. Bears did their level best to defend the long-term moving average to prevent the rally from the Jul '17 low from extending any further.

Bulls defended the 16.90 level (the 'neckline' of an 'inverse head and shoulders' pattern) with equal fervour. (Please refer the previous post .) Bulls eventually won the battle as silver's price broke out above the 200 day EMA on Mon. Aug 28. 

Daily technical indicators are in bullish zones but looking a bit overbought. Note that RSI and Slow stochastic are showing negative divergences by failing to rise to new highs with silver's price.

Any further rally towards 17.75-18 may invite bear selling and a pullback towards the 200 day EMA.

On longer term weekly chart (not shown), silver’s price closed above its 20 week and 50 week EMAs, but below its 200 week EMA in a long-term bear marketWeekly MACD has crossed above its signal line in bearish zone. RSI is rising above its 50% level. Slow stochastic has entered its overbought zone and can trigger a pullback towards the 50 week EMA.

Monday, August 28, 2017

S&P 500 and FTSE 100 charts (Aug 25 '17): bears tighten their grips

S&P 500 index chart pattern


The following comments from last week's post on the daily bar chart pattern of S&P 500 are worth noting: 

"RSI and Slow stochastic are showing positive divergences by not falling lower with the index. Friday's trading has formed another 'doji' candlestick. A technical bounce towards the 'support/resistance zone' is likely. Expect bears to use such a bounce to sell."

On Mon. Aug 21, the index touched an intra-day low of 2417 but bounced up to close just below the 'GAP' formed on Jul 12 (see chart) - forming a 'reversal day' bar (lower low, higher close).

The next day, the index rose above its 50 day EMA but faced strong resistance from the falling 20 day EMA inside the 'Support/Resistance zone' between 2450 & 2460. During Wed. & Thu. (Aug 23 & 24), the index traded between the 'Support/Resistance zone' and the Jul 12 'GAP'.

On Fri. Aug 25, the index crossed above its falling 20 day EMA intra-day but faced twin resistances from the (purple) down trend line and the 'Support/Resistance zone'. It closed below its 20 day and 50 day EMAs, but gained 17 points (0.7%) on a weekly closing basis.

Daily technical indicators are in bearish zones and showing downward momentum. Some more correction is likely. 

The index is trading well above its rising 200 day EMA in a longer-term bull market. However in the near-term, the index is in a down trend since touching a lifetime high of 2491 on Aug 8, and has formed a bearish pattern of 'lower tops, lower bottoms'.

As per theory of trend lines, the down trend will remain in force till the trend line gets breached convincingly. Higher volumes on recent down-days indicate that bears may not release their grip in a hurry.

On longer term weekly chart (not shown), the index received support from its 20 week EMA for the second week in a row, and closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but are showing negative divergences by falling below their respective Apr '17 lows.

FTSE 100 index chart pattern


Please note the following comments from last week's post on the daily bar chart pattern of FTSE 100: "The entire trading during the past three months or so have occurred within a bearish 'descending triangle' pattern - barring a 'false' breakout in early-Aug '17."

The index spent another week consolidating within the 'descending triangle'. It bounced up after receiving support from the 7300 level and rose above its 20 day and 50 day EMAs, but faced strong resistance from the (purple) down trend line.

None of the three daily technical indicators are showing much upward momentum. MACD and Slow stochastic are in bearish zones. RSI is in neutral zone. Expect the index to correct towards 7300 again.

The index continues to trade above its rising 200 day EMA in a bull market. As and when the 7300 level gets breached, the index can fall to 7000.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market. Weekly technical indicators are looking neutral to bearish. RSI is receiving support from its 50% level. MACD is falling below its signal line in bullish zone. Slow stochastic has dropped inside its oversold zone. MACD and Slow stochastic are showing negative divergences by falling below their Apr '17 lows.

Sunday, August 27, 2017

Sensex, Nifty charts (Aug 24, 2017): bulls fight back but bears remain on top

FIIs were net sellers of equity on all four days of a holiday-curtailed trading week. Their net selling was worth Rs 46.2 Billion. DIIs were net buyers of equity on all four days - their net buying was worth Rs 28.8 Billion.

Sensex and Nifty gained marginally (0.22% and 0.2% respectively) on a weekly closing basis but remained in down trends for the third week in a row.

The government has approved 9 FDI proposals worth Rs 50 Billion, including one from Amazon. Nandan Nilekani's return as Infosys CEO has brought renewed hope for investors.

BSE Sensex index chart pattern




The daily bar chart pattern of Sensex is in a down trend that started after the index hit a lifetime high of 32686 on Aug 2. 

The index made an attempt to breakout above the (blue) down trend line on Fri. Aug 25, but failed to do so after facing strong resistance from its 20 day EMA.

A small 'double bottom' reversal pattern appears to have formed just below the 50 day EMA. Similar patterns have also formed inside oversold zones of ROC, RSI and Slow stochastic. That may enthuse bulls to attempt another breakout.

Note that all four technical indicators are showing negative divergences by falling lower than their Jun '17 lows while the index touched a higher (double?) bottom. That should keep bears interested.

Technical indicators are in bearish zones. MACD is moving sideways below its falling signal line. ROC has crossed above its falling 10 day MA. RSI and Slow stochastic are trying to emerge from their respective oversold zones.

With FIIs continuing to sell, some more correction can't be ruled out. Expect stronger support from the 'Support zone' between 29220 and 30040. The 200 day EMA is just below 30000, and should also support the index.

Stay invested. Use any further correction to add to existing holdings.

NSE Nifty index chart pattern




For the third week in a row, the weekly bar chart pattern of Nifty traded below the (blue) down trend line. The 9700 level has provided good support so far. The index managed to close above 9850 after failing to do so in the previous week.

Weekly technical indicators have corrected overbought conditions. MACD has crossed below its signal line in overbought zone. ROC is moving up towards its 10 week MA after falling to its neutral zone. RSI is moving sideways below its overbought zone. Slow stochastic is falling towards its neutral zone.

The index is trading above its two rising weekly EMAs in a bull market. However, some more correction is possible. Note that ROC, RSI and Slow stochastic are showing negative divergences by falling lower than their Jun '17 lows while Nifty has remained higher.

Expect strong support from the 'Support zone' between 9015 and 9285. The 50 week EMA is inside the 'Support zone' and should help to support the index. Use the likely index dip to add to existing holdings.

Nifty's TTM P/E has moved up to 25.47, which is much above its long-term average. The breadth indicator NSE TRIN (not shown) is just below its oversold zone, and may limit index downside.

Bottomline? Sensex and Nifty charts are in down trends for the past three weeks. FIIs have been selling heavily. DII buying has protected the downside. Expect their tussle to last a while longer. Both indices are trading in bull markets. So, dips can be used to add.

Tuesday, August 22, 2017

WTI and Brent Crude Oil charts: bears have the upper hand as bulls fail to extend pullback rallies

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil attempted a breakout above a sideways consolidation zone between the 200 day EMA and the 50 level, and touched a lower top of 50.22 on Thu. Aug 10.

Formation of a 'reversal day' bar (higher high, lower close) accompanied by a volume surge put paid to bullish hopes of extending the pullback rally any further.

Oil's price corrected below its three EMAs into bear territory and touched a low of 46.46 on Thu. Aug 17. Formation of another 'reversal day' bar (lower low, higher close) led to a technical bounce above the three EMAs on Fri. Aug 18.

Bear selling on Mon. Aug 21 has dropped oil's price below its three EMAs into bear territory once again. The bearish pattern of 'lower tops, lower bottoms' - which has dominated the chart for the past 6 months - continues.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. RSI has slipped below its 50% level. Slow stochastic has emerged from its oversold zone, and can trigger a technical bounce. Bears may use such a bounce to sell again.

On longer term weekly chart (not shown), oil's price closed below its 20 week and 50 week EMAs and well below its falling 200 week EMA in a long-term bear market. Weekly MACD and RSI are in neutral zones. Slow stochastic is showing downward momentum in bullish zone.

Brent Crude Oil chart


The following comments appeared in the previous post on the daily bar chart pattern of Brent Crude Oil: "Bulls may make an attempt to push oil's price above the May 25 top of 54.67 to breakout of the bearish pattern of 'lower tops, lower bottoms'. Strong volumes on recent down days mean bears will resist any such attempt." 

Oil's price touched an intra-day high of 53.64 on Thu. Aug 10, but formed a 'reversal day' bar (higher high, lower close) and corrected below its three EMAs into bear territory.

Good support from the 50 level triggered a technical bounce back into bull territory. Resistance from the 53 level prevented the rally from extending any further.

Daily MACD and RSI are in bullish zones but showing slight downward momentum. Slow stochastic has risen from its oversold zone but is facing resistance from its 50% level.

The bearish pattern of 'lower tops, lower bottoms' is now 6 months old. The 'golden cross' of the 50 day EMA above the 200 day EMA, which will technically confirm a return to a bull market, is still awaited. 

On longer term weekly chart (not shown), oil's price closed above its 20 week and 50 week EMAs but well below its falling 200 week EMA in a long-term bear market. Weekly MACD and RSI are in neutral zones. Slow stochastic is facing resistance from its overbought zone.

Monday, August 21, 2017

S&P 500 and FTSE 100 charts (Aug 18 '17): bears trying to wrest control

S&P 500 index chart pattern


The following remarks appeared in the previous post on the daily bar chart pattern of S&P 500:

"On Fri. Aug 11, the index formed a 'doji' candlestick, which indicates indecision among bulls and bears that can potentially lead to a technical bounce towards the 'support/resistance zone'.
Some more correction or consolidation is possible. RSI and Slow stochastic are showing negative divergences by falling lower than their Jul '17 lows." 

On Mon. Aug 14, the index formed an upward 'gap' and bounced up above the 'support/resistance zone' (between 2450 & 2460) and the 20 day EMA. After touching a lower top of 2475, the index formed another 'doji' candlestick on Wed. Aug 16.

A sharp sell-off followed on Thu. Aug 17 and Fri. Aug 18. The index dropped below the 'support/resistance zone' and its 20 day and 50 day EMAs for the second week in a row.

In the process, the index closed the two upward 'gaps' - formed on Aug 14 and an earlier one (marked on chart) on Jul 12. Since the index is trading well above its rising 200 day EMA in a bull market, closure of an upward 'gap' should be followed by a resumption of the up move.

However, by touching a lower top on Aug 16 and then falling to a low of 2421 on Aug 18, the index has confirmed a down trend, and formed a bearish pattern of 'lower tops, lower bottoms'. 

Daily technical indicators are bearish and showing downward momentum. RSI and Slow stochastic are showing positive divergences by not falling lower with the index. Friday's trading has formed another 'doji' candlestick. 

A technical bounce towards the 'support/resistance zone' is likely. Expect bears to use such a bounce to sell. A fall to the 2390-2400 zone is possible. 

On longer term weekly chart (not shown), the index received support from its 20 week EMA, and closed well above its rising 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing downward momentum.

FTSE 100 index chart pattern


The following comment appeared in last week's post on the daily bar chart pattern of FTSE 100: "Expect some short covering by bears, which can lead to a technical bounce."

As expected, there was a technical bounce that led to a close above the 20 day and 50 day EMAs on Wed. Aug 16. However, the resistance from the (purple) down trend line - which has dominated the chart since Jun '17 - proved too strong.

The index dropped to seek support from the 7300 level for the second week in a row, but managed to eke out a 19 points gain on a weekly closing basis.

Daily technical indicators are bearish and showing downward momentum. The entire trading during the past three months or so have occurred within a bearish 'descending triangle' pattern - barring a 'false' breakout in early-Aug '17.

A fall below 7300 and the rising 200 day EMA appears on the cards.

On longer term weekly chart (not shown), the index closed below its 20 week EMA for the second week in a row but is trading above its rising 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are looking bearish. Slow stochastic has dropped well inside its oversold zone, and can trigger a technical bounce.

Sunday, August 20, 2017

Sensex, Nifty charts (Aug 18, 2017): Infosys CEO exit give bears another chance to sell

FIIs were net sellers of equity on all four days of a holiday-curtailed trading week. Their net selling was worth Rs 58.9 Billion. DIIs were net buyers of equity on all four days - their net buying was worth Rs 43.7 Billion.

However, both Sensex and Nifty gained (1% and 1.3% respectively) on a weekly closing basis despite being in down trends since touching lifetime highs in the first week of this month.

Both indices were in the midst of pullback rallies after the previous week's sharp corrections. The unexpected news of Infosys CEO Vishal Sikka's resignation on Fri. Aug 18 sent bulls running for cover.

BSE Sensex index chart pattern



Note the following comments from last week's post on the daily bar chart pattern of Sensex:

"The selling appears a bit overdone. A technical bounce can occur at any time. However, some more correction or consolidation can't be ruled out...It is possible that a technical bounce from current level will face resistance from the falling 20 day or 50 day EMA, and the index will then correct towards the support zone." 

The technical bounce occurred as expected. Sensex received strong resistance from its 20 day EMA and the (blue) down trend line (drawn through Aug 2 & Aug 8 tops) on Thu. Aug 17. Friday's heavy selling by FIIs triggered a close below the 50 day EMA for the 2nd week in a row.

Daily technical indicators are suggesting that some more correction or consolidation is likely. MACD is falling below its signal line in bearish zone. ROC, RSI and Slow stochastic emerged from their respective oversold zones, but are showing downward momentum.

The index is trading well above its rising 200 day EMA in a bull market. Any fall towards the 'support zone' between 29220-30040 (refer last week's post) will provide an adding opportunity.

With FIIs booking profits, a reversal of the down trend may take some time. Be very selective about what you buy. Companies with good fundamentals that faced top line and margin pressure due to de-stocking before GST implementation should be on the top of 'buy lists'.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty bounced up after receiving support from the 9700 level, but failed to cross above 9950 and closed below 9850 for the week.

Weekly technical indicators have corrected overbought conditions, but remain in bullish zones. MACD is about to close below its signal line. It did so in Sep '16 and triggered a 1000 points correction. 

RSI and Slow stochastic had corrected down from their respective overbought zones in Sep '16 as well. So, odds of a correction below the 20 week EMA towards the 'support zone' between 9015-9285 are getting better.

Nifty's TTM P/E has moved up to 25.1 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling sharply in neutral zone, and can limit index upside.

Nifty is trading above its rising 20 week and 50 week EMAs in a bull market. A deeper correction towards the 'support zone' will be a good adding opportunity.

Bottomline? Sensex and Nifty charts are in down trends for the past two weeks. FIIs first got spooked by nuclear war rhetoric of North Korea and then by the sudden departure of Infosys CEO. DIIs are still buying, and providing downside protection to both indices. This is a bull market correction, hence an opportunity to add. Be very selective.

Saturday, August 19, 2017

Three Country ETFs in Strong Up Trends

"Country exchange-traded funds (ETFs) are used to invest in a specific foreign country. The ETF, while traded in the U.S., may be comprised solely of foreign stocks, or it may include alternative investments, such as commodities or foreign currency. It is a simple way to trade and gain exposure to foreign equities.

Three country ETFs have been in strong up trends, and a recent pullback could provide an opportunity to get in before the next wave to the upside begins. Of course, this assumes that the uptrend will continue, but with little signs of weakness so far, the technicals still favor the bulls."


Read more here.

Friday, August 18, 2017

How Stock Market returns are affected by GDP growth and Inflation

"For stock market investors, annual growth in the GDP is vital. If overall economic output is declining or merely holding steady, most companies will not be able to increase their profits, which is the primary driver of stock performance.

However, too much GDP growth is also dangerous, as it will most likely come with an increase in inflation, which erodes stock market gains by making our money (and future corporate profits) less valuable."

In a recent article in investopedia.com, Ryan Barnes explains the importance of GDP and inflation for investors. Read the article here.

Wednesday, August 16, 2017

Nifty chart: a midweek technical update (Aug 16 ‘17)

FIIs were net sellers of equity worth Rs 27.3 Billion on Mon. Aug 14 & Wed. Aug 16. The intervening Independence Day holiday on Aug 15 made no difference to their determination to book profits.

DIIs more than matched them. Their net buying in equities was worth Rs 29.6 Billion. Nifty recovered more than 200 points from last week's low, but is facing resistance from its 20 day EMA and the 9900 level.

Inflationary pressure is back after GST roll-out. CPI inflation rose to 2.36% in Jul '17 from the record low of 1.5% in Jun '17. WPI inflation doubled to 1.88% in Jul '17 against 0.9% in Jun '17.


The following comments were made in last week's update on the daily bar chart pattern of Nifty: "Some more correction is possible. Expect support from the 50 day EMA (at 9780), and stronger support from the 9700 level. A fall below 9700 seems unlikely as both FIIs and DIIs are buying."

The index received brief support from its 50 day EMA on Thu. Aug 10 and bounced up after getting much stronger support from the 'support-resistance' level of 9700 on Fri. Aug 11 - even though FIIs had turned sellers.

So, is the correction over? Technical indicators are hinting at some more upside.
Nifty's TTM P/E is at 25.28 - much higher than its long-term average, but that didn't prevent Nifty from moving higher during Jul '17. The breadth indicator NSE TRIN (not shown) is falling in its neutral zone (it usually moves in a direction opposite to the index).

MACD is below its signal line, but has stopped falling. RSI is in neutral zone, and showing upward momentum. Slow stochastic has emerged from its oversold zone. (The last time Slow stochastic emerged from its oversold zone was in end-Jun '17. A month-long rally had followed. Will the pattern repeat?)

The formation of a small 'diamond' pattern (which is like a head-and-shoulders pattern with a bent neckline) at the index top may prevent such a rally. The breakdown below the 'diamond' can lead to a deeper correction.

How will we know for sure? The index had corrected 452 points from its Aug 2 top of 10138. It has already retraced 48% of the fall (which is close to the 50% Fibonacci retracement level) by touching a high of 9904 today.

A 61.8% Fibonacci retracement will take Nifty to 9965. So, a convincing move above 9965 should send the bears packing, right? 

Here comes the catch about the 'diamond' pattern. The breakdown point from the 'diamond' is at about 10000 - which is likely to act as a resistance level to future up moves.

In other words, only a convincing index move above 10000 will negate the 'diamond' and bring bulls back to the fore. 

Remember that technical analysis is not a science. It only gives indications based on past investor behaviour following formation of different patterns. If FIIs decide to resume buying, the flood of liquidity can change all the analysis.

What should small investors do? Watch the 9700 and 10000 levels closely. A fall below 9700 will lead to a deeper correction. A move above 10000 should lead to new highs.

The index may just consolidate sideways between 9700 and 10000 for a while. May be till Diwali - by which time Q2 (Sep '17) results will give a better idea about the corporate health of India Inc.

Tuesday, August 15, 2017

Gold and Silver charts: bull rallies hit the pause button

Gold chart pattern


The following remarks appeared in the previous post on the daily bar chart pattern of Gold: "The pullback rally is probably on its last legs. Profit booking can begin at any time."

Gold's price rose to 1280.30 on Tue. Aug 1. Profit booking started from the next day. Gold's price dropped to its rising 20 day EMA on Tue. Aug 8.

The falling US Dollar index and nuclear war rhetoric from North Korea gave a boost to gold bulls. Gold's price bounced up to touch a slightly lower top of 1298.10 on Fri. Aug 11 - testing but failing to overcome the strong resistance level of 1300.

Daily technical indicators are in bullish zones, but looking overbought. RSI and Slow stochastic are showing negative divergences by failing to rise higher with gold's price.

The US Dollar index has subsequently risen to its highest level since Jul 27. Bears have taken the opportunity to sell. At the time of writing this post, gold futures are trading lower around 1281.

The resistance level of 1300 has been tested twice. A resistance (or support) level gets weakened by each subsequent test. Expect bears to defend the 1300 level strongly.

Any fall below the Jul 10 low of 1204 will be very bearish because it will turn the Apr, Jun and Aug '17 tops into a 'triple top' reversal pattern. So, the battle lines between bulls and bears are clearly drawn.

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators are in bullish zones, but their upward momentum is reducing.

Silver chart pattern


The daily bar chart pattern of Silver appears to have formed a bullish 'inverse head and shoulders' pattern with a 'neckline' at 16.90.

Note that silver's price broke out above the 'neckline' and its 200 day EMA with good volume support - which technically validates the breakout .

However, silver's price has failed to rise higher after touching a high of 17.24 on Thu. Aug 10. Daily technical indicators are looking bullish, but Slow stochastic is showing negative divergence by touching a lower top while silver's price rose higher.

Bears are using the opportunity to sell. At the time of writing this post, silver futures are trading lower at 16.85 - below its 200 day EMA, and testing support from the 'neckline' at 16.90.

A deeper fall below its 20 day and 50 day EMAs will negate the 'inverse head and shoulders' pattern - giving back control of the chart to bears. Bulls may defend the 16.90 level to try and prevent a deeper fall.

On longer term weekly chart (not shown), silver’s price closed above its 20 week and 50 week EMAs, but below its 200 week EMA in a long-term bear marketWeekly MACD has crossed above its signal line in bearish zone. RSI is in neutral zone. Slow stochastic is rising towards its overbought zone and showing upward momentum.

Monday, August 14, 2017

S&P 500 and FTSE 100 charts (Aug 11 '17): bears strike as bulls get spooked by North Korea's war rhetoric

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 rose to a new high of 2491 on Tue. Aug 8 but closed lower than the previous day's close - forming a 'reversal day' bar that often marks an intermediate top.

War rhetoric from North Korea spooked bulls. Bears used the opportunity to attack. The index dropped sharply below its 20 day and 50 day EMAs, and easily breached the 'support zone' between 2450 and 2460.

The 'support zone' may turn into a 'resistance zone' for some time. (Regular readers were given adequate warning in last week's post - particularly the 'sell' signal given by MACD.)

Daily technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in bullish zone. RSI has fallen into its bearish zone. Slow stochastic has entered its oversold zone.

On Fri. Aug 11, the index formed a 'doji' candlestick, which indicates indecision among bulls and bears that can potentially lead to a technical bounce towards the 'support/resistance zone'.

Some more correction or consolidation is possible. RSI and Slow stochastic are showing negative divergences by falling lower than their Jul '17 lows. 

Note that the index is trading well above its rising 200 day EMA in a bull market. Bulls may use any further dips to buy.

On longer term weekly chart (not shown), the index formed a large 'reversal week' bar (higher high, lower close), but closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are correcting overbought conditions and showing downward momentum, but remain in bullish zones.

FTSE 100 index chart pattern



The following comments from last week's post on the daily bar chart pattern of FTSE 100 are worth noting: "The breakout above the down trend line was not accompanied by any significant increase in volumes (not shown). That can lead to a pullback towards the down trend line before the index can rise to a new high."

The index rose to touch a lower top of 7552 on Tue. Aug 8. Bears struck the next day as war rhetoric from North Korea created concern in global stock markets. The index pulled back towards the down trend line on Wed. Aug 9 and then fell sharply down to the 'support/resistance level' of 7300.

Daily technical indicators are looking bearish and showing downward momentum. MACD has crossed below its signal line in bullish zone. RSI and Slow stochastic have fallen below their respective 50% levels.

Some more correction or consolidation around current levels is possible. Note that the index is trading above its rising 200 day EMA in a bull market. Also, all three technical indicators are showing positive divergences by touching higher bottoms than their Jul '17 lows. Expect some short covering by bears, which can lead to a technical bounce.

On longer term weekly chart (not shown), the index formed a large 'reversal week' bar (higher high, lower close), and closed below its 20 week EMA but is trading above its rising 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are looking bearish and showing downward momentum.

Sunday, August 13, 2017

Sensex, Nifty charts (Aug 11, 2017): bears use North Korea's war threats as an excuse to sell

FIIs were net buyers of equity on Tue. Aug 8 but net sellers on the other four days of the week. Their total net selling was worth Rs 26.2 Billion. DIIs were net buyers of equity on all five days - their total net buying was worth Rs 45 Billion.

However, bears ruled the roost - in global and local stock markets. Sensex lost more than 1100 points (3.4%) and Nifty lost more than 350 points (3.5%) on a weekly closing basis.

Three reasons can be cited for the sharp sell-off: (1) geopolitical tensions between US/North Korea and China/India; (2) SEBI restrictions on 331 'shell' companies; (3) disappointing Q1 (Jun '17) results.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex had already started correcting after touching a lifetime high of 32686 on Aug 2 (refer last week's post). 

Technically overbought conditions, negative divergences on three of the four technical indicators, and index valuation well above its long-term average had combined to trigger the correction.

FIIs got spooked by the heightened war rhetoric from USA and North Korea and decided to book profits in global markets.

The index has fallen below its 20 day and 50 day EMAs, but is trading above its rising 200 day EMA in a bull market. The overdue correction will improve the technical 'health' of the chart. 

Daily technical indicators are showing strong downward momentum and looking oversold. MACD is falling below its signal line and about to drop into bearish zone. ROC, RSI and Slow stochastic have entered their respective oversold zones.

The selling appears a bit overdone. A technical bounce can occur at any time. However, some more correction or consolidation can't be ruled out. 

If the index falls more, expect support from the zone between 29220 and 30040 (which happen to be the 50% and 38.2% Fibonacci retracement levels of the entire rally of 6932 points from the Dec 26 '16 low to the Aug 2 '17 top). Note that the 200 day EMA is inside the support zone between 29220-30040.

It is possible that a technical bounce from current level will face resistance from the falling 20 day or 50 day EMA, and the index will then correct towards the support zone.

So, don't be in a tearing hurry to buy. Let the correction play out.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty corrected sharply during the week, but found support at the 9700 level (which had acted as a resistance level during Jun '17).

The index is trading above its two weekly EMAs in a bull market. So, dips can be used to add/buy.

Weekly technical indicators have started to correct overbought conditions, and are showing downward momentum in bullish zones. Some more correction or consolidation is likely. If the 9700 level gets breached, the rising 20 week EMA may provide support. 

Expect stronger support from the zone between 9015 and 9285 (which happen to be the 50% and 38.2% Fibonacci retracement levels of the entire rally of 2244 points from the low touched in the week ending Dec 30 '16 to the high touched in the week ending on Aug 4 '17). Note that the 50 week EMA is inside the support zone between 9015-9285.

Nifty's TTM P/E has come down to 24.8 - still much above its long-term average. The breadth indicator NSE TRIN (not shown) has moved up sharply inside its neutral zone, and is likely to limit index downside.

Bottomline? Along with global stock indices, Sensex and Nifty charts faced sharp corrections as FIIs got spooked by the war rhetoric of USA and North Korea. DIIs are continuing to buy, so the correction may not be too deep. This is a bull market correction, which means it is providing an opportunity to buy. Be selective.

Friday, August 11, 2017

Technical updates – Tata Chemicals and Tata Steel

The Tata Group hasn't been the quite the same after Ratan Tata decided to hang-up his boots. Cyrus Mistry ruffled feathers of the Tata Sons board, and his short tenure ended in litigation and acrimony. N. Chandrasekaran's tenure has started off more cautiously.

Low inflation and oil prices, and a stronger Rupee has helped keep India's current account deficit in control. Demonetisation and GST implementation led to a slowdown in growth. 

A slew of reforms introduced by the NDA government is likely to bring economic growth back on track from FY 2018-19. The stock market has been rallying in anticipation. The stock prices of Tata Chemicals and Tata Steel have benefitted from the rally.

Tata Chemicals


The stock price of Tata Chemicals touched a 2 yr low in Feb '16 and has been in an up trend since then. The 'golden cross' (of the 50 day EMA above the 200 day EMA) in May '16 technically confirmed a return to a bull market.

Note the consolidation within 'Rectangle 1' during Aug-Nov '16. A 'rectangle' is usually a continuation pattern - so the eventual breakout should have been upwards.

Negative divergences (marked by blue arrows) visible on all four technical indicators led to a breakdown below the 'rectangle'. However, the up trend resumed thereafter.

A breakdown below 'Rectangle 2' has now occurred - triggered by weak Q1 (Jun '17) results. Note that the stock had already corrected below its 20 day and 50 day EMAs following negative divergences visible on three of the four technical indicators. 

All four indicators are looking oversold. The up move is likely to resume after some consolidation around current levels.

Tata Steel


Tata Steel's stock was trading in a bear market below its falling 200 day EMA till
Feb '16. The 'golden cross' (of the 50 day EMA above the 200 day EMA) in Mar '16 technically confirmed a return to a bull market.

The stock price has tested support from, but not fallen below, its rising 200 day EMA since then. The company is gradually extricating itself from the leveraged mess created by its Corus acquisition back in 2008.

Daily technical indicators are looking overbought. The stock can correct some more. The dip is providing an adding opportunity. The stock may have 20-25% more upside left in the current rally.

Wednesday, August 9, 2017

Nifty chart: a midweek technical update (Aug 09 ‘17)

FIIs were net sellers of equity on Mon. & Wed., but their net buying on Tue. exceeded their net selling by Rs 5 Billion. DIIs were net buyers of equity on all three days - worth Rs 16.6 Billion.

Despite all the buying, Nifty corrected 245 points (2.4%) from its Aug 2 top of 10138 before managing to close just above the 9900 level.

After a strong bull rally in Jul '17, the index became technically overbought and was poised for a correction. SEBI's strictures on 331 'shell' companies provided just the trigger bears wanted.


The following remark was made in last week's update on the daily bar chart pattern of Nifty: "Aug '17 may well turn out to be a month of correction or consolidation." 

The index has dropped and closed below its 20 day EMA after 5 weeks, but is trading well above its rising 200 day EMA in a bull market.

Daily technical indicators are showing downward momentum after correcting overbought conditions. MACD is falling below its signal line in bullish zone. RSI and Slow stochastic have slipped into their respective bearish zones.

Nifty's TTM P/E has reduced a bit to 25.31, but remains much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is about to emerge from its overbought zone.

Some more correction is possible. Expect support from the 50 day EMA (at 9780), and stronger support from the 9700 level. A fall below 9700 seems unlikely as both FIIs and DIIs are buying.

Remain cautious. No need to jump into the market yet. Keep a watch on good mid-cap and small-cap stocks, which tend to correct more than the index during corrections. Some value-buys may become available. 

Tuesday, August 8, 2017

WTI and Brent Crude Oil charts: bears forced to yield ground

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil soared past its 50 day and 200 day EMAs with good volume support, and closed above 50 (on Jul 31) after 10 weeks.

Bears decided that they had yielded enough ground. On Aug 1, oil's price touched a slightly higher top, but pulled back to its 200 day EMA before bouncing up to close just above 49.

The 'reversal day' bar (higher high, lower close) with a spurt in volumes led to a sideways consolidation between the 50 level and the 200 day EMA.

Oil's price is back in bull territory above its three EMAs, but the bearish pattern of 'lower tops, lower bottoms' from the small 'double top' at 55 (formed back in Feb '17) remains intact. A convincing move above the May 25 top of 52 is required to release the strong bear grip.

Daily technical indicators are in bullish zones after correcting overbought conditions, and showing positive divergences by touching higher tops while oil's price touched a lower top (than the one in May '17).

Bulls may make an attempt to cross above 52. Strong volumes on two down days last week indicate bears will try to prevent it. A recovery in output at Libya's largest oil field may encourage bears to sell.

On longer term weekly chart (not shown), oil's price closed above its 20 week and 50 week EMAs but below its falling 200 week EMA in a long-term bear market. Weekly MACD and RSI are in neutral zones. Slow stochastic is showing upward momentum, but looking overbought.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil continued to move in lock-step with WTI Crude oil's chart. After bouncing up above its 50 day and 200 day EMAs, oil's price closed just a little below 53 on Jul 31.

The next day, a large 'reversal day' bar (slightly higher high, lower close) was formed - triggering a sideways consolidation between 51 and 53.

The 20 day EMA is about to cross above the 200 day EMA. The 50 day EMA has formed a bullish 'rounding bottom' pattern. The 'golden cross' of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market.

Daily MACD and Slow stochastic are inside their overbought zones and not showing much upward momentum. RSI is moving sideways below its overbought zone.

Bulls may make an attempt to push oil's price above the May 25 top of 54.67 to breakout of the bearish pattern of 'lower tops, lower bottoms'. Strong volumes on recent down days mean bears will resist any such attempt. 

On longer term weekly chart (not shown), oil's price closed above its 20 week and 50 week EMAs but below its falling 200 week EMA in a long-term bear market. Weekly MACD and RSI are in neutral zones. Slow stochastic is about to enter its overbought zone.