Sensex, Nifty charts (Oct 27, 2017): bulls dominating again

Both DIIs and FIIs were net buyers of equity during F&O expiry week. DIIs were net buyers on 3 days and net sellers on 2 days. Their total net buying was worth Rs 2.8 Billion, as per provisional figures. 

FIIs were net buyers worth Rs 11.8 Billion. On Wed. Oct 25, they bought equity worth a huge Rs 35.8 Billion - probably due to short-covering of PSU bank stocks - following the recapitalisation announcement by the Finance Minister. They were net sellers on the other 4 days.

Sensex gained 2.4% while Nifty gained 1.7% on weekly closing basis. Both indices touched new highs.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex had been consolidating sideways along the upper edge of the downward-sloping channel since an unconvincing upward breakout on Oct 16. 

On Wed. Oct 25, Sensex broke out with an upward 'gap' above the narrow consolidation zone on the back of heavy FII buying, and rose to touch new intra-day (33287) and closing (33157) highs on Fri. Oct 27. 

All three EMAs are rising, and the index is trading above them in a bull market. However, daily technical indicators are looking overbought, which can trigger a pullback towards the downward-sloping channel. 

Note that ROC, RSI and Slow stochastic are not only showing negative divergences by failing to touch new highs with the index, but may also be forming bearish 'double top' reversal patterns inside their respective overbought zones.

The index recently completed a 10 weeks long sideways consolidation. So, there is no reason to expect a deep correction. The economy is in the process of recovery from the stresses caused by demonetisation and GST implementation.

Nevertheless, caution is advised near a market top. If you are ready to jump in due to a 'left-out' feeling - don't. The 'low-hanging fruits' have already been picked. Stock selection skills will separate the men from the boys.

If you have savings that need to be invested, follow your asset allocation plan and a gradual accumulation process rather than buying in a lump-sum.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched new intra-week (10366) and closing (10323) highs, and continues to trade above its rising weekly EMAs in a long-term bull market.

Weekly technical indicators are in bullish zones, and looking a bit overbought. All four are showing negative divergences by failing to touch new highs with the index.

Nifty's TTM P/E has moved up to 26.67 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is trying to move up inside its overbought zone, which can limit index upside.

Q2 (Sep '17) results of India Inc. declared so far have shown some top line growth, but bottom line growth is still weak. Without earnings growth, index valuation will remain high. That is one of the main reasons why FIIs have been selling Indian equity.

Bottomline? Sensex and Nifty charts have risen to touch new highs. Bulls are dominating. Any corrections should be welcomed as buying opportunities. This is not the time to be greedy or fearful. Be sensible.

(Note for blog visitors: I intend to take a brief break from a big city to a more tranquil place, where access to the Internet will be limited. My next blog post will be next week's Sensex and Nifty update.)

Nifty chart: a midweek technical update (Oct 25 ‘17)

The Finance Minister's announcement yesterday about a recapitalisation scheme for PSU banks energised FIIs no end. Their net buying in equities touched a huge Rs 35.8 Billion today - completely overwhelming DII net selling in equities worth Rs 1.6 Billion.

Nifty formed a small upward 'gap' and touched a new intra-day high of 10341 before closing just below 10300. (Sensex - not shown - closed above 33000 for the first time ever.)

The government has collected over Rs 920 Billion as GST in Sep '17. The number of registered GST assesees have crossed 10 million but so far, less than half have paid taxes.

The daily bar chart pattern of Nifty touched lifetime intra-day and closing highs today as FIIs went on a buying spree - particularly in PSU banks.

Small investors would do well to avoid jumping on to the bull bandwagon now. Market breadth was negative today as declining stocks outnumbered advancing stocks.

Daily technical indicators are looking overbought. ROC (not shown), RSI and Slow stochastic are showing negative divergences by touching lower tops as the index rose higher. 

The index formed a bearish 'hanging man'-like candlestick pattern today. The sharp volume surge today (not shown) may be a sign of 'buying climax'.

The index is trading well above its three rising EMAs in a bull market. A bull market is supposed to climb a wall of worries. Just because an index has touched a new high doesn't mean it can't go even higher. However, buying at a market top can be a ticket to disaster.

Nifty's TTM P/E has risen to 26.63 - much higher than its long-term average. Q2 (Sep '17) results of India Inc. declared so far are not showing much improvement over Q1 (Jun '17). That means index valuation will remain high till Q3 (Dec '17).

The breadth indicator NSE TRIN (not shown) has dropped like a stone inside its overbought zone, and may limit further index upside.

FII buying may have been triggered by short-covering in PSU banks. It remains to be seen if buying momentum is sustained on F&O expiry day tomorrow (Oct 26).

Booking partial profits, and getting rid of non-performers may be a very good idea.

Gold and Silver charts: bears tighten their grips

Gold chart pattern

The following remarks appeared in the previous post on the daily bar chart pattern of Gold: "Daily technical indicators are looking bearish and oversold. A technical bounce may follow. Expect some resistance from the merged 20 day and 50 day EMAs and stronger resistance from the 'support/resistance zone'."

Gold's price bounced up with an upward 'gap' on Oct 10, but faced resistance from the merged 20 day and 50 day EMAs for a couple of days. It then moved up inside the 'support/resistance zone' - only to form a 'reversal day' bar (higher high, lower close) on Oct 16.

Bears used the opportunity to sell. Gold's price has dropped below its 20 day and 50 day EMAs but managed to stay above its 200 day EMA in bull territory.

Daily technical indicators are in bearish zones. Another test of support from the 200 day EMA seems on the cards. A possible breach of the 200 day EMA can drop gold's price to the zone between 1240 & 1250.

On longer term weekly chart (not shown), gold’s price closed below its 20 week EMA but above its 50 week and 200 week EMA in long-term bull territory.  Weekly MACD and Slow stochastic are looking bearish and showing downward momentum. RSI is in neutral zone.

Silver chart pattern

The daily bar chart pattern of Silver bounced up with an upward 'gap' and good volume support on Oct 10, and closed at its 200 day EMA.

Silver's price continued to rally and touched an intra-day high of 17.49 on Oct 16, but formed a 'reversal day' bar (higher high, lower close). It has been oscillating about its three EMAs, which have converged together. 

A sharp move is likely to follow. Odds are better for a downward move.

Daily MACD and RSI are in neutral zones. Slow stochastic is in bullish zone after falling from its overbought zone.

On longer term weekly chart (not shown), silver’s price closed at its merging 20 week and 50 week EMAs, but below its sliding 200 week EMA in a long-term bear market. Weekly MACD and RSI are in neutral zones. Slow stochastic is falling towards its neutral zone.

S&P 500 and FTSE 100 charts (Oct 20 '17): bulls continue to rule

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 formed a 5 points upward 'gap' on Fri. Oct 20, and rose to touch another new high of 2575 with good volume support.

All three EMAs are rising, and the index is trading well above them in a bull market. Daily technical indicators are inside their overbought zones. MACD and Slow stochastic are showing negative divergences by failing to touch new highs with the index.

With bulls on a rampage, the index can remain overbought for long periods. However, it may be prudent to book partial profits and reallocate assets to de-risk portfolios.
  
On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are inside their respective overbought zones, but not showing any downward momentum. 

FTSE 100 index chart pattern

The following comments were made in last week's post on the daily bar chart pattern of FTSE 100: "...the index is struggling to move above its previous (Aug 8) top of 7552 in a convincing manner - leaving the door open for another pullback towards the down trend line, or, a bit of sideways consolidation."

On Thu. Oct 19, the index pulled back to the (purple) down trend line before bouncing up to close above 7520. Such pullbacks provide buying opportunities.

On Fri. Oct 20, the index touched an intra-day high of 7560, but failed to close above the Aug 8 top of 7552. In fact, it closed near its opening level to form a 'gravestone doji'-like candlestick pattern - indicating hesitation among bulls and bears.

The index is trading above its three rising EMAs in a bull market. Daily technical indicators have corrected overbought conditions, and showing downward momentum in bullish zones. Some consolidation or correction may follow.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market. Weekly MACD and RSI are moving sideways in bullish zones. Slow stochastic is inside its overbought zone.

Sensex, Nifty charts (Oct 20, 2017): bull rallies pause after touching new highs

In a trading week shortened by Diwali holidays, FIIs were net sellers of equity worth Rs 18.1 Billion. DIIs were net buyers of equity worth Rs 20.3 Billion, as per provisional figures.

'Muhurat' trading on Thu. Oct 19 was used to lighten positions by traders before a long weekend. Sensex and Nifty closed slightly lower on a weekly basis - by 43 points and 20 points respectively.

WPI inflation in Sep '17 was 2.6% - lower than 3.24% in Aug '17 but higher than 1.36% in Sep '16 - mainly because of lower food prices.

BSE Sensex index chart pattern

The following concluding remarks were made in last week's post on the daily bar chart pattern of Sensex: "DIIs may use Diwali as an excuse to engineer a breakout above the downward-sloping channel. Investors would be wise to book some profits near a market top." 

The index broke out above the downward-sloping channel and touched a new high of 32700 on Tue. Oct 17. Profit booking triggered a pullback towards the channel.

By closing below the upper edge of the channel on Thu. Oct 19, the upward breakout may turn out to be a 'false' one - keeping the door open for more correction next week (which also happens to be F&O expiry week).

Daily technical indicators are in bullish zones, but showing signs of reversing directions. The index is trading above its three rising EMAs in a bull market - so dips can be used to buy.

Q2 (Sep '17) results declared so far have been more or less as per (reduced) expectations. Anecdotal evidence indicates Dhanteras and Diwali festivals failed to energise consumer spending - thanks to the lingering effects of demonetisation and GST.

In case Sensex falls below the downward-sloping channel, expect strong support from the zone between 30700 and 30500.

With FIIs continuing to sell, Sensex has been in 'pause mode' for the past three months. Remain cautiously optimistic instead of being gung-ho bullish or bearish.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched new high of 10252, and is trading above its three rising weekly EMAs in a long-term bull market.

Weekly technical indicators are in bullish zones and showing upward momentum. However, all three are showing negative divergences by touching lower tops while Nifty touched a new high.

Nifty's TTM P/E has slipped a little to 26.28, but is well above its long-term average. The breadth indicator NSE TRIN (not shown) has moved up sharply from its overbought zone.

Some correction or consolidation is likely. Any fall towards the support level of 9700 can be a buying opportunity. In case 9700 gets breached, expect support from 9450.

Bottomline? Sensex and Nifty charts are hesitating after touching new highs. Profit booking at new highs are to be expected. Bull markets are intact. That means corrections should be welcomed as buying opportunities. But this is not the time to be greedy.

How to Use Volume to Improve Your Trading

Most small investors I interact with are either looking for a multibagger stock that will generate quick profits, or trying to find that elusive technical indicator that can predict price movements with greater accuracy than anything known or available in the stock market.

A few experienced and knowledgeable analysts have even devised their own proprietary technical indicators, which enable them to charge higher fees from their clients.

At the end of the day, it is not the sophistication of your trading strategies or your incredible ability to take risks that will turn the tables in your favour. 

It is how well you have selected the companies you wish to trade in, and whether you can identify and capitalise on important turning points on a price chart.

One of the simplest and easiest to understand indicators that can be of immense help is the volume of trading in a stock or index. Yet, so many analysts who opine on price charts have very little understanding of how volume (or the lack of it) affects price movements.

In a recent article in investopedia.com, Cory Mitchell explains how understanding and analysing trading volumes can improve your trading. Read the article here.

(Wishing blog visitors, regular readers and newsletter subscribers a very happy and safe Diwali and a prosperous New Year.)

WTI and Brent Crude Oil charts: bulls are wresting control

WTI Crude Oil chart

The following comments were made in the previous post on the daily bar chart pattern of WTI Crude Oil: "Some more correction or consolidation is likely. Expect the zone between 48 & 49 to provide support...Bulls are likely to use any further dip to buy."

On Fri. Oct 6, oil's price dropped below its 50 day EMA to touch an intra-day low of 49.10 - testing support from the zone between 48 & 49. As expected, bulls used the dip to buy.

Oil's price bounced up above its 20 day EMA and the 'support/resistance' level of 50.50, but stopped short of its Sep 28 top of 52.86.

All three EMAs are rising, and oil's price is trading above them in a bull market. Daily technical indicators are in bullish zones, and showing upward momentum.

A likely move above 52.86 will restore the bullish pattern of 'higher tops, higher bottoms' from the Jun '17 low of 42. Oil's price may test its Apr '17 top of 54.

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 bullish zones. Slow stochastic has slipped down from its overbought zone.

Brent Crude Oil chart

The following comment appeared in the previous post on the daily bar chart pattern of Brent Crude Oil: "Any further dip will provide an opportunity to buy."

Oil's price dropped below the 'support/resistance' level of 56 and its 20 day EMA to touch an intra-day low of 55.06 on Mon. Oct 9. Bulls used the dip to buy. Oil's price touched an intra-day high of 58.48 on Mon. Oct 16 before closing just below 58.

All three EMAs are rising, and oil's price is trading above them in a bull market. Daily technical indicators are in bullish zones, and showing upward momentum.

A likely move above 59 will restore the bullish pattern of 'higher tops, higher bottoms' from the Jun '17 low of 44. 

Oil's price may face resistance from a long-term unfilled weekly downward 'gap' between 60 & 61 (formed back in Jun '15).

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

S&P 500 and FTSE 100 charts (Oct 13 '17): bulls charging ahead

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 continued to defy gravity as it rose to touch a new high of 2558 on Fri. Oct 13 before eking out a 4 point gain on a weekly closing basis.

The previous 7 days' trading appears to have formed a small bearish 'rising wedge' pattern. Volumes were strongest on Thu., which was a down day. Smart money may be moving out.

All three daily technical indicators are inside their overbought zones, and showing negative divergences by failing to touch new highs with the index. While an index can remain overbought for long periods, a correction or consolidation may be around the corner.

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in their overbought zones, but not showing any downward momentum. 

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 pulled back to the (purple) down trend line on Mon. Oct 9 before bouncing up to touch a high of 7565 on Thu. Oct 12.

However, the index is struggling to move above its previous (Aug 8) top of 7552 in a convincing manner - leaving the door open for another pullback towards the down trend line, or, a bit of sideways consolidation.

The index is trading above its three rising EMAs in a bull market. Daily technical indicators are looking overbought, and not showing much upward momentum.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market. Weekly MACD and RSI are looking bullish. Slow stochastic is inside its overbought zone, and can trigger a correction.

Sensex, Nifty charts (Oct 13, 2017): two week long rallies facing resistances

During the week, FIIs were net sellers of equity worth Rs 34.5 Billion. DIIs were net buyers of equity worth Rs 31.5 Billion, as per provisional figures.

Both Sensex and Nifty are facing resistances from trend lines connecting their Aug '17 and Sep '17 tops. While Nifty touched new intra-week (10192) and closing (10167) highs, Sensex fell short of its Sep '17 top.

There was some much-needed good news on the economy front. The IIP rose to a nine months high of 4.3% in Aug '17 against a downward revised 0.9% in Jul '17 - thanks to re-stocking after GST implementation. CPI inflation remained steady at 3.28% in Sep '17 - the same as in Aug '17 - due to a dip in food inflation.

Exports climbed 25.7% in Sep '17 while imports rose 18.1%. The trade deficit was marginally lower at $8.98 Billion against $9.07 Billion in Sep '16.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex has been consolidating sideways within a slightly downward-sloping channel for the past ten weeks - after touching a lifetime high of 32686 on Aug 2 '17.

The index is facing resistance from the upper edge of the channel for the third time in three months. In the two previous months, the index had retreated to the lower edge of the channel. Will the pattern repeat, or will the index breakout above the channel?

Daily technical indicators are in bullish zones, and showing upward momentum. ROC is showing positive divergence by moving above its Sep '17 top. But it is well inside its overbought zone. Slow stochastic is about to enter its overbought zone. 

On Fri. Oct 13, the number of declining stocks exceeded the number of advancing stocks - which is a bearish sign. So, a correction can't be ruled out.

The Dollex 30 (Sensex in US Dollars) chart - not shown - is about 125 points below its lifetime high of 4227 touched way back in Dec '07. A convincing breakout above 4227 will have serious bullish implications. With FIIs in selling mood, such a breakout appears unlikely in the near term.

DIIs may use Diwali as an excuse to engineer a breakout above the downward-sloping channel. Investors would be wise to book some profits near a market top. Any dip to the lower edge of the channel can be used to buy.

NSE Nifty index chart pattern

The following remark was made in last week's post on the weekly bar chart pattern of Nifty: "In case the index continues its rally, the 'rising wedge' will get negated, and resistance can be expected from the 10200 level."

The index faced resistance from a trend line connecting its Aug '17 and Sep '17 tops, and closed about 12 points lower than its Sep '17 top. The two weekly EMAs are rising, and the index is trading above them in a bull market.

Weekly technical indicators are in bullish zones, and showing some upward momentum. However, all four are showing negative divergences by failing to touch new highs with the index.

Similar negative divergences occurred when the index touched its Sep '17 top, which was slightly higher than its Aug '17 top. A corrective move had ensued.

Nifty's TTM P/E has moved up to 26.41 from 25.92 in the previous week, which is well above its long-term average. The breadth indicator NSE TRIN (not shown) has dived headlong into its overbought zone, and can limit further index upside.

Bottomline? Sensex and Nifty charts have reached resistance levels from where they had corrected twice before. DII buying matched by FII selling have kept both indices in sideways consolidations for 10 weeks. Await Q2 (Sep '17) results before deciding on next course of action. Be stock specific.

Avoid These 9 Traps to Become a Millionaire

For most people, becoming a millionaire (or a 'crorepati') is a pipe dream. It is never going to happen. Costs are increasing. Earnings aren't growing enough. Taxes are too high. So on, and so forth.

The real reason may be that most people never really want to become a millionaire. Warren Buffett said: "I always knew I was going to be rich. I don't think I ever doubted it for a minute."

To become rich, wishing and dreaming are never enough. You need to have a plan, and then work diligently to make a success of that plan. You also need to have a positive attitude - about life and about money.

In a recent article in investopedia.com, David Rae explained the nine most common reasons which prevent someone from becoming rich. Read the article here. 

Nifty chart: a midweek technical update (Oct 11 ‘17)

FIIs were net sellers of equity worth Rs 10.9 Billion during the first three days of trading this week. DIIs were net buyers of equity worth Rs 6.9 Billion, as per provisional figures.

Nifty is back where it was on Aug 8. Two corrective moves and two rallies gave trading opportunities, but frustrated long-term investors.

During the Apr-Sep '17 period, India's direct tax collections grew 15.8% to Rs 3.86 Trillion, thanks to healthy increase in advance tax payments.

Nifty's pullback rally from the support level of 9700 faced strong resistance from the lower edge of the 'rising wedge' pattern today, and formed a 'reversal day' bar that often marks an intermediate top.

The index is trading above its three EMAs in bull territory. Bears are selling heavily every time the index tries to move past the 10000 level.

Daily technical indicators are in bullish zones, but not showing much upward momentum. The breadth indicator NSE TRIN (not shown) is treading water in neutral zone - keeping the index range bound.

Nifty's TTM P/E is at 25.94 - much higher than its long-term average. Q2 (Sep '17) earnings season is upon us. Results of India Inc. are unlikely to improve much from Q1 (Jun '17). That means index valuation will remain high.

Inflation is showing signs of increasing, though it remains below 4%. The trade deficit is widening. The double-whammy of demonetisation and GST has taken a huge toll on GDP growth. 

DII buying due to domestic liquidity inflows has kept the index from crashing. Continuous selling by FIIs may trigger a deeper correction towards the 200 day EMA if the support at 9700 gets breached.

Stay invested, but stay cautious. 

Gold and Silver charts: strong bear onslaughts force bull retreats

Gold chart pattern

Bearish technical indicators had led to the following comments in the previous post on the daily bar chart pattern of Gold: "Gold's price is trading well above its rising 200 day EMA in a bull market. However, bears may try to assert themselves and push gold's price down towards the 200 day EMA."

A 'reversal day' bar (higher high, lower close) on Sep 26 triggered a fall below the 'support/resistance zone' between 1300 & 1310, and a test of support from the 200 day EMA.

Daily technical indicators are looking bearish and oversold. A technical bounce may follow. Expect some resistance from the merged 20 day and 50 day EMAs and stronger resistance from the 'support/resistance zone'.

Gold's price has corrected 67% of its entire 147 points rally from the Jul 10 low of 1215 to the Sep 8 top of 1362. That is more than the Fibonacci 61.8% retracement level which indicates a change of trend.

By closing above its 200 day EMA, gold's price may have been temporarily saved from falling into a bear market. But bears are not going to give up their advantage so easily.

On longer term weekly chart (not shown), gold’s price bounced up after receiving support from its merging 50 week and 200 week EMA to close in long-term bull territory. The 'golden cross' of the 50 week EMA above the 200 week EMA has not been a convincing one yet. Weekly technical indicators are looking bearish and showing downward momentum.

Silver chart pattern

The following comments appeared in the previous post on the daily bar chart pattern of Silver: "Bulls may attempt to push silver's price above the 200 day EMA into bull territory. Bears are likely to prevent any such adventure."

Silver's price climbed above 17.25 intra-day on Sep 26 but faced strong resistance from its falling 20 day EMA, and dropped to close below its three EMAs in bear territory - forming a 'reversal day' bar.

After touching an intra-day low of 16.35, silver's price bounced up with good volume support to close above 16.75 in bear territory. 

Daily technical indicators are correcting oversold conditions. A pullback to the 200 day EMA is likely. Bears may use any rise to sell again.

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

S&P 500 and FTSE 100 charts (Oct 06 '17): bulls stamp their authority

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 swept aside all bearish technical signals as it soared to close at a new lifetime high of 2552 on Thu. Oct 5. 

The index closed just below 2550 on Fri. Oct 6 - gaining 30 points (1.2%) on a weekly closing basis.

The index is trading well above its three rising EMAs in a bull market, but the last leg of the rally beyond 2510 has been accompanied by sliding volumes. Volume support is required to sustain a bull rally.

All three daily technical indicators are inside their respective overbought zones. The index looks ripe for a correction or some consolidation. The zone between 2490 & 2510 should provide good support.

Any dip towards the support zone will provide a buying opportunity.

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in their overbought zones. MACD and RSI are 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 shows that the 4 months long down trend (marked by down trend line DTL 1) from the Jun '17 top was convincingly breached on Mon. Oct 2.

The index rallied to close above 7500 on Fri. Oct 6 - gaining 150 points (2%) on a weekly closing basis. A second down trend line (marked DTL 2) connecting the Jun '17 and Aug '17 tops was also breached in the process.

FTSE is trading above its three rising EMAs in a bull market. The Aug 8 top of 7552 is the next hurdle that the bulls need to cross before they can regain full control of the chart.

Daily technical indicators are looking bullish but overbought. A pullback towards 7475 may be in the offing. The dip can be used to buy.

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 bullish, and showing upward momentum.

Sensex, Nifty charts (Oct 06, 2017): pullback towards consolidation patterns

Trading was comparatively muted in a holiday-shortened trading week. FIIs were net sellers of equity worth Rs 30.2 Billion. DIIs were net buyers of equity worth Rs 39 Billion, as per provisional figures.

Both indices pulled back towards consolidation patterns below which they had broken out in the previous week. Sensex and Nifty gained 1.7% and 1.9% respectively on a weekly closing basis.

For Sep '17, Nikkei India's Manufacturing PMI was 51.2 - remaining unchanged from Aug '17. The Services PMI for Sep '17 rose to 50.7 from 47.5 in Aug '17. The Composite PMI (Manufacturing+Services) rose to 51.1 in Sep '17 from 49 in Aug '17. (A reading above 50 shows expansion.)

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex has formed a typical 'breakout and pullback' pattern. The index had broken out below a 'flag' pattern in the previous week. A pullback rally towards the 'flag' is in progress.

After facing a bit of resistance from the merged 20 day and 50 day EMAs, the index managed to close above both on Fri. Oct 6. Is the worst over for bulls, or will bears attack again?

A pullback after a downward breakout is usually a selling opportunity. However, the index is trading well above its rising 200 day EMA in a bull market. That is why dips are being bought.

Daily technical indicators are in bearish zones, but showing upward momentum. Some more upside is possible - specially if DIIs continue with their buying.

Note that the index has formed a bearish pattern of lower tops and lower bottoms since touching a lifetime high of 32686 on Aug 2, and is trading within a downward sloping channel (not marked on chart). 

Support levels on the downside are marked on the chart. In case the index continues to rally, expect resistance from the zone between 32500 and 32800.

Why are FIIs selling? A look at the Dollex 30 (Sensex in US Dollars) chart - not shown - may provide a clue. The Dollex 30 recently tested its lifetime closing high - touched way back in Dec '07 - before correcting a little.

If you are thoroughly confused about what to do under the current circumstances, just stay away from the market for a while. Enjoy Diwali with family and friends. Check Q2 (Sep '17) results before making your next move.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty has pulled back to the lower edge of the 'rising wedge' pattern after falling below it in the previous week. Such a pullback is a selling opportunity for those who had missed selling on the downward breakout.

The index is trading above its two weekly EMAs in a bull market. So, dips are being bought - preventing the index from crashing.

Weekly technical indicators are giving conflicting signals. MACD and Slow stochastic are sliding down in bullish zones. ROC is trying to recover after falling inside bearish zone. RSI is rising in bullish zone.

Nifty's TTM P/E has moved up to 25.92 from 25.43 in the previous week - staying well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling in neutral zone.

Nifty may consolidate before making its next move. Support levels on the downside have been marked on the chart. In case the index continues its rally, the 'rising wedge' will get negated, and resistance can be expected from the 10200 level.

If Q2 (Sep '17) results are just as bad or worse than Q1 (Jun '17) results, expect FIIs to step up their selling.

Bottomline? Sensex and Nifty charts have pulled back towards consolidation patterns below which they had broken out in the previous week. DII buying has resulted in the pullback while FIIs continue to sell. Await Q2 (Sep '17) results before deciding on next course of action.

What a Swiss Pianist taught me about Contrarian Thinking

It was a pleasure and privilege to attend a solo piano concert by Swiss pianist Nik Baertsch at the Calcutta School of Music on the Saturday preceding Durga Puja (the biggest religious and cultural festival in the state of West Bengal - and now celebrated all over the world by NRIs).

A sparse and motley group - ranging from young music students to very senior citizens - were in attendance. The pianist set the tone for the evening by stating that his performance will explore the rhythmic rather than the melodic aspects of a piano.

What followed was an hour-long exploration in rhythmic sounds that can't be called music in the traditional sense of the word - because it had little harmony, almost no emotion and was not pretty to listen to.

Having heard other (mostly European) pianists, who plucked the piano strings as well as played on the keys during their mostly melodic performances, I was interested to find out what Nik Baertsch would do differently. 

He turned the grand piano into a percussion instrument - drumming up a steady beat on the keyboard with both hands; occasionally running his fingers across the strings; getting up from his seat to thump on the piano strings with both hands; using implements like sticks and mallets to strike various metal and wooden parts inside the piano; playing an almost melodic part on the keyboard. It was a dynamic and spellbinding performance, completely different from anything I have ever heard before.

Nik is obviously a very accomplished and well-trained pianist. Yet he chose a unique way to explore and expand the sonic possibilities of a piano. That got me thinking about the way people invest.

Most small investors prefer to take the easy way forward by following the herd. They buy the stocks that well-known investors or funds are buying, or the ones that are recommended by business papers or TV channels.

Developing a contrarian attitude doesn't mean doing the opposite of what others are doing. It means thinking differently and looking beyond the here and now to get an edge in the market.

For example? The recent pronouncement by Nitin Gadkari that automakers will be 'bulldozed' to replace petrol and diesel vehicles with electric vehicles by 2030 sent analysts scurrying to identify the likely winners in the electric vehicles and ancilliary space.

Not surprisingly, names like M&M, Exide and Amara Raja were being recommended. As if it was a no-brainer.

A little Google search will tell you that the largest EV maker in terms of sales is Renault-Nissan (not Tesla). Renault-Nissan is already present in India. Tesla is waiting to get in. If either or both start producing EVs in India, M&M's EV dreams will lay in tatters.

Who supplies batteries to Renault-Nissan and Tesla EVs? LG-Chem and Panasonic/Sanyo respectively. Both LG and Panasonic are present in India already. If EV sales start picking up, will batteries be supplied by Exide and Amara Raja or by LG and Panasonic?

It is this kind of thinking that will help you to catch the winners rather than the losers in the EV space. 

(If you do catch any of the EV winners, you needn't thank me. Thank Swiss pianist Nik Baertsch instead.)

Nifty chart: a midweek technical update (Oct 04 ‘17)

FIIs were net sellers of equity worth Rs 13.2 Billion during the two days of trading this week, as per provisional figures. DIIs were net buyers of equity worth Rs 21.4 Billion.

After a breakout below a 'rising wedge' pattern, Nifty received good support from the 9700 level and started a pullback rally that closed above 9900 today.

Passenger vehicles had robust sales in Sep '17. Maruti showed growth of 9.6% over Sep '16 sales, while M&M and Hyundai reported growths of 23% and 17.4%. Tata Motors and Toyota had muted growth of 5.7% and 2.2%.

As was widely expected, RBI maintained interest rate status quo at today's policy meeting announcement. Only SLR was cut by 50 bps to 19.5%.

The daily bar chart pattern of Nifty had breached the 9700 support level intra-day on Sep 28, but bounced up after touching a low of 9688 - testing its previous low of 9686 (touched on Aug 11).

That was a trigger for a pullback rally towards the 'rising wedge'. Resistance from the 20 day EMA halted the rally today. 

By touching an intra-day high of 9938, the index has retraced 50% of its recent fall from the Sep 19 top of 10179 to the Sep 28 low of 9688. However, the rally needs to continue beyond 10000 for bulls to regain some control.

Daily technical indicators are in bearish zones, but showing upward momentum. The breadth indicator NSE TRIN (not shown) is falling in neutral zone. Some more upside is possible.

Note that Nifty's TTM P/E has moved up to 25.75 - which is much higher than its long-term average. High index valuation is one of the main reasons why FIIs are selling.

Nifty is trading well above its rising 200 day EMA in a bull market. That means dips are supposed to be buying opportunities. However, with FIIs selling continuously - and they may use the pullback rally to sell more - it is better to err on the side of caution.