Tuesday, January 30, 2018

WTI and Brent Crude Oil charts: bull rallies take a breather

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil rose to touch a new high of 66.66 on Thu. Jan 25, but formed a 'reversal day' bar (higher high, lower close) that temporarily stalled the bull rally.

A fall in the US Dollar index below 90 appears to have aided the rally. All three EMAs are rising, and oil's price is trading above them in a bull market.

Daily technical indicators are looking overbought and showing negative divergences by failing to touch new highs with oil's price. MACD and RSI have formed 'double top' reversal patterns inside their overbought zones. Slow stochastic touched a lower top.

Some more consolidation or correction is likely. Simultaneous economic growth in several large countries is driving demand and keeping prices high.

On longer term weekly chart (not shown), oil's price closed well above its three weekly EMAs in long term bull territoryWeekly technical indicators are looking overbought. RSI and Slow stochastic are showing negative divergences by failing to touch new highs with oil's price. 

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil rose to touch a new high of 71.28 on Thu. Jan 25, but formed a 'reversal day' bar (higher high, lower close) that triggered a correction which tested support from the 20 day EMA.

Oil's price is trading well above its rising 50 day and 200 day EMAs in a bull market. Daily technical indicators showed negative divergences by failing to touch new highs with oil's price, and have started correcting overbought conditions.

Some more correction or consolidation is possible. Expect support from the zone between 66 & 68. 

On longer term weekly chart (not shown), oil's price closed well above its three weekly EMAs in long-term bull territoryWeekly technical indicators are starting to correct overbought conditions. 

Monday, January 29, 2018

S&P 500 and FTSE 100 charts (Jan 26, 2018): bulls rule one, bears rule the other

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 defied gravity as it continued its parabolic rise to a new intra-day and closing high. The rise during Jan '18 has been almost vertical with bulls using the briefest of corrections to buy.

Daily technical indicators are looking extremely overbought. Slow stochastic is showing negative divergence by failing to rise higher with the index.

Remember that an index can remain overbought for long periods - particularly when fuelled by liquidity and earnings growth. However, the widening distance (nearly 250 points) between the 20 day EMA and the 200 day EMA is technically 'unhealthy'.

A sharp fall towards the 50 day EMA can occur at any time. Booking partial profits, and/or holding with a tight trailing stop-loss will protect profits. Strong volumes on the few recent down days indicate bears are active.

On longer term weekly chart (not shown), the index closed at another new high - way above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are looking very overbought. The index seems poised for a sharp correction. 

FTSE 100 index chart pattern


Bears tried to tighten their grip on the daily bar chart pattern of FTSE 100. The index had bounced up after receiving good support from its 20 day EMA, but fell sharply to its 50 day EMA on Thu. Jan 25.

The index recovered on Fri. Jan 26, but ended the week with a loss of 0.8% on a weekly closing basis.

Daily technical indicators are looking neutral to bearish. MACD is falling below its signal line in bullish zone. RSI has turned up to its neutral zone after falling below its 50% level. Slow stochastic has entered its oversold zone, and can trigger a technical bounce.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market despite correcting for the past two weeks. Weekly technical indicators are in bullish zones but showing downward momentum.

Saturday, January 27, 2018

Sensex, Nifty charts (Jan 25, 2018): FIIs go on a buying spree

Volumes were expected to be low due to F&O expiry on Jan 25 and Republic Day holiday on Jan 26. That didn't deter FIIs from buying. Their net buying in equities was worth Rs 45.1 Billion during the week.

DIIs were net sellers of equity worth Rs 14.5 Billion, as per provisional figures. Sensex (36268) and Nifty (11110) touched new highs during the week before retreating a bit due to profit booking.

GST collection reversed trend by rising to Rs 867 Billion in Dec '17. Collections had slipped to Rs 808 Billion in Nov '17 from more than Rs 830 Billion in Oct '17. Measures to raise compliance are beginning to show results, as per government officials.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex touched new intra-day and closing highs on Wed. Jan 24, but formed a 'doji' candlestick pattern (which indicates indecision among bulls and bears).

There was profit booking on Thu. Jan 25 before the long weekend. Bulls had built up a good head of steam after breaking out above a 'rectangle' consolidation pattern on Jan 8. Some correction will improve the technical 'health' of the chart.

Daily technical indicators are well inside their overbought zones. Remember that an index (or a stock) can remain overbought for long periods. Corrections - if and when they happen - should be treated as adding opportunities.

There is no point in waiting for a correction, or selling in a panic. Neither should one jump in feet first near an index top. Stay calm, be selective, look for quality and take a long-term view.

Q3 (Dec '17) results declared by India Inc. so far have been encouraging. However, the concern about a jobless growth remains. The government is trying to make business in India easier for foreign entities. Uncontrolled hooliganism by fringe saffron groups is putting a spanner in the works.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty touched a new high for the 8th week in a row. Since 8 is a number in the Fibonacci series, technical traders may use it as an excuse to book profits next week.

The index is trading well above its rising weekly EMAs in a bull market. Weekly technical indicators are inside their respective overbought zones. Any correction can be used to add to existing holdings.

Nifty's TTM P/E has increased to 27.61 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is emerging from its overbought zone, and can limit index upside

Bottomline? Sensex and Nifty charts have closed at new highs once more. Q3 (Dec '17) results of India Inc. are showing better-then-expected earnings improvements thanks to a lower base effect due to demonetisation in Q3 (Dec '16). Follow a 'buy the dips' strategy.

Wednesday, January 24, 2018

Why a rising Stock Market isn't Risky (as long as earnings continue to grow)

The New Year has started off in a sensational note for Indian stock market bulls. Both Sensex and Nifty indices have surged upwards - touching new highs on a regular basis.

Most market experts had predicted more moderate stock portfolio returns in 2018 after huge gains made in 2017 on the back of strong liquidity flows into domestic mutual funds.

Instead, bulls have jumped off the block, and been on a buying spree as if there will be no tomorrow. What has caused the sharp parabolic rise in both stock market indices? 

In a post last week, a probable technical reason why FIIs have turned bulls after 5 straight months of net selling in Indian equities was put forth.

There is a fundamental reason as well. After several quarters of muted earnings growth, India Inc. appear to have hit the fast forward button in Q3 (Dec '17) - albeit on a lower base due to the disastrous demonetisation exercise in Nov '16.

Have the bulls over-reacted to the improved Q3 corporate results announced so far? Is the market getting riskier by the day?

In a recent article in investopedia.com, Michael Kramer has argued that a rising stock market isn't risky as long as corporate earnings continue to grow.

Stock market players have a habit of looking ahead. Index P/E can look expensive based on last year's earnings, but may not look so expensive based on projected one year forward earnings.

Read the full article here. 

Tuesday, January 23, 2018

Gold and Silver charts: bulls try their level best to keep bears at bay

Gold chart pattern


The following remarks were made in the previous post on the daily bar chart pattern of Gold: "Gold's price may seek support from the zone between 1300-1310. But the support is likely to fail because the US Dollar index is recovering." 

Gold's price did seek support from the zone between 1300-1310. The support held. Gold's price bounced up to touch a high of 1345 on Jan 16 before retreating a little. 

The support was expected to fail. What happened? No prizes for guessing. The US Dollar index plunged to the 90 level, where it is currently hovering.

A bit of caution is advised for gold bulls. Daily technical indicators are in the process of correcting overbought conditions. Note that Slow stochastic showed negative divergence by touching a lower top inside its overbought zone.

All three EMAs are rising, and gold's price is trading above them in a bull market. Strong volumes on recent down-days indicate that bears are active. 

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory, but formed a 'reversal' bar (higher high, lower close).  Weekly MACD and RSI are in bullish zones. Slow stochastic is inside its overbought zone. Only MACD is showing slight upward momentum.

Silver chart pattern


The following remarks appeared in the previous post on the daily bar chart pattern of Silver: "A pullback towards the 200 day EMA has started...Silver's price may drop back inside bear territory soon."

Despite a couple of intra-day falls below the 200 day EMA into bear territory, bulls managed to defend the 200 day EMA well. Bears ensured that the 'golden cross' of the 50 day EMA above the 200 day EMA, which technically confirms a return to a bull market, remained elusive.

Daily technical indicators are showing downward momentum. MACD and RSI are still in bullish zones, but Slow stochastic has dropped inside bearish zone. A slide in silver's price appears likely.

On longer term weekly chart (not shown), silver’s price closed just above its 20 week and 50 week EMAs, but below its sliding 200 week EMA in a long-term bear marketWeekly MACD and RSI are in neutral zones. Slow stochastic has slipped down from its overbought zone.

Monday, January 22, 2018

S&P 500 and FTSE 100 charts (Jan 19, 2018): bulls continue to rule

S&P 500 index chart pattern


The following comment was made in last week's post on the daily bar chart pattern of S&P 500: "It may be prudent to be fearful when everyone else seems greedy and take some profits off the table."

Quite a few investors did decide to be prudent, and booked profits. The index formed a large 'reversal day' bar (higher high, lower close) with strong volumes on Tue. Jan 16, when trading resumed after a long weekend.

Bulls refused to be deterred and bought the dip. After a brief halt on Thu. Jan 18, the index rose to another new high (2810) on Fri. Jan 19. All three EMAs are rising, and the index is trading above them in a bull market.

Daily technical indicators are well inside their respective overbought zones. Last week's trading has occurred within a bearish 'rising wedge' pattern - so caution is advised.

On longer term weekly chart (not shown), the index closed at another new high - way above its three rising weekly EMAs in a long-term bull market - but formed a bearish 'hanging man' candlestick pattern. Weekly technical indicators are looking very overbought. Don't be surprised if there is a sudden sharp correction. 

FTSE 100 index chart pattern


The following comments were made in last week's post on the daily bar chart pattern of FTSE 100: "Daily technical indicators are looking overbought and can trigger some consolidation or correction. Partial profit booking may be a good idea for conservative investors."

The index started correcting from Mon. Jan 15 and dropped below the 7700 level by Thu. Jan 18. Next day, the index bounced up after receiving support from its rising 20 day EMA, but lost 0.6% on a weekly closing basis.

At the time of writing this post, the index is trading 5 points higher, and above its three rising EMAs in a bull market. Daily technical indicators have corrected overbought conditions, but remain in bullish zones.

The correction provided an adding opportunity, and improved the technical 'health' of the chart. The index should move up to new highs.

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

Sunday, January 21, 2018

Sunday musings: Lessons for small investors from Vishwamitra's dalliance with Menaka

Once upon a time, King Kaushika was touring his kingdom with a large army when he chanced upon the ashrama (hermitage) of Rishi (Sage) Vashishtha near a forest.

The Rishi greeted the King and offered his hospitality. Kaushika declined the offer because he thought it will be a great financial strain for Vashishtha to feed such a large army.

Vashishtha insisted and said it would not be a problem as he owned a wish-fulfilling (kamadhenu) cow, Sabala. Sure enough, Sabala arranged a grand feast which greatly pleased the King.

But a King won't be a King unless he coveted the possession of others. Kaushika felt that Sabala will be of more use to a King than a Sage. So, he offered ample monetary rewards to Vashishtha in exchange for Sabala.

The Sage politely refused the offer, which angered the King. He ordered his army to forcibly seize Sabala, at which point Sabala mournfully requested Vashishtha not to part with her.

Vashishtha suggested that Sabala raise an army of her own and defeat King Kaushika's soldiers - which she promptly did.

Kaushika decided to perform spiritual penance for 12 years. That pleased Lord Shiva, who granted him a wish. Being a King, who was humiliated by a humble Sage, Kaushika wanted the best weaponry that Lord Shiva could offer.

An emboldened Kaushika went on the attack and hurled his newly acquired divine weaponry at Vashishtha. But to no avail. Vashishtha's superior spiritual (yogic) powers repelled the attack easily.

Kaushika realised that physical powers were no match for spiritual powers. This time he went ahead with a more serious effort at penance to become the spiritual equal of Vashishtha.

In the process, he became Sage Vishwamitra. Lord Indra, King of Heaven, was disturbed by the severity of Vishwamitra's meditation and the yogic powers he might attain, and sent the beautiful apsara (celestial nymph) Menaka to seduce him.

Menaka did as she was instructed. Vishwamitra's spiritual resolve was overcome by the sheer beauty of Menaka. Their dalliance resulted in the birth of a daughter. 

Unfortunately, Menaka revealed to Vishwamitra the real reason why she had descended from Heaven. Vishwamitra was enraged by Lord Indra's devious move. He banished Menaka, abandoned their daughter and returned to his meditations.

[The daughter - named Shakuntala - was raised in Sage Kanva's hermitage. She later married King Dushyanta. Their child was called Bharata, after whom India was originally named.]

Moral of the story? There are two:

1. Thou shalt not covet others' possessions - which can be paraphrased as 'Keeping up with the Joneses'. It is a futile activity. Be happy with what you own. Greed isn't always good - particularly near a stock market top.
2. Dalliances should be avoided - regardless of the attractiveness of the opportunity.

The second moral is of particular importance to small investors. Remain steadfast in your discipline of maintaining a financial plan and following an asset allocation plan. Financial powers will follow inevitably albeit gradually.

Let not the Menaka's of the investment world - penny stocks, F&O trading, commodities trading, forex trading - lure you. Behind these Menaka's are the devious moves of the Lords (i.e. Professional Traders) of the stock/commodities/forex markets - designed to test your financial resolve.

Saturday, January 20, 2018

Sensex, Nifty charts (Jan 19, 2018): rising higher on the back of FII buying

FIIs have turned bulls again. (This post may explain why.) Their net buying in equities was worth Rs 42.3 Billion, as per provisional figures. DIIs were net sellers of equity worth Rs 7 Billion during the week, but were net buyers on Fri. Jan 19.

Sensex (35511) and Nifty (10895) closed the week at lifetime highs. Nifty crossed the 10900 level intra-week for the first time ever.

India's forex reserves rose by US $2.7 Billion to touch a lifetime high of $413.8 Billion in the week ending on Jan 12 '18.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex rose to touch new intra-day and closing highs on the back of strong buying by FIIs. DIIs joined the bull party on Wed. & Fri. (Jan 17 & 19), but were sellers on the other three days.

All three EMAs are rising, and the index is trading above them in a bull market. Sensex closed more than 3500 points above its 200 day EMA, and is looking quite overbought.

All four daily technical indicators are well inside their respective overbought zones. Slow stochastic is showing negative divergence by failing to move higher with the index.

The index looks ripe for a correction. If and when it occurs - it usually does when you least expect it - the technical 'health' of the chart will improve, enabling it to move higher.

Don't get too encouraged by India Inc. declaring good results for Q3 (Dec '17) because the growth is occurring from a lower base due to the adverse effect of demonetisation in Nov '16.

Look for companies declaring disappointing Q3 results. Those are the ones to trim from portfolios. Tata Steel has announced a large Rs 128 Billion rights issue in Feb '18, which will suck out a lot of cash from the secondary market.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty climbed to a new high on Fri. Jan 19 on the back of combined buying by FIIs and DIIs.

The index is trading well above its rising weekly EMAs in a bull market. Weekly technical indicators are inside their respective overbought zones. RSI and Slow stochastic are showing negative divergence by moving sideways.

Note the sliding volume bars during the past two weeks. That doesn't augur well for bulls. Don't sell in a panic. But some partial profit booking can be a good idea.

Nifty's TTM P/E has increased to 27.44 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is bouncing around inside its overbought zone, and can limit index upside

Bottomline? Sensex and Nifty charts have closed at new highs once again. Q3 (Dec '17) results of India Inc. are showing earnings improvement mainly due to lower base effect. Avoid aggressive buying at a market top.

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Thursday, January 18, 2018

To know why FIIs are buying, look at the Dollex-30 chart

After five straight months of net selling in equity shares (from Aug '17 to Dec '17), FIIs have turned net buyers in Jan '18.

They have been net buyers in 10 of the 14 trading days this month. Today's net buying was worth Rs 18.9 Billion.

What made them change their bearish stance? Anticipation of better Q3 (Dec '17) results of India Inc.? Overbought US and UK stock markets?

May be a bit of both. For a technical reason, take a look at the long-term Dollex-30 monthly chart (courtesy:investing.com) below:



For the uninitiated, Dollex-30 is the BSE Sensex chart in US Dollar terms. The blue horizontal line has been used to mark the Jan '08 top, which acted as a resistance level in Dec '17.

While Sensex has been conquering new highs on a regular basis, the Dollex-30 has just managed to cross above its Jan '08 top after 10 long years.

Remember that when a long-term resistance level gets breached, it usually turns into a support level for future corrections.

Wednesday, January 17, 2018

Nifty chart: a midweek technical update (Jan 17, 2018)

During the first three days of trading this week, FIIs turned bulls once again. Their net buying in equities touched Rs 13.5 Billion. DIIs were net sellers of equity worth Rs 2.5 Billion, as per provisional figures.

WPI inflation was lower than anticipated at 3.6% in Dec '17 compared to 3.9% in Nov '17. Falling fruit and vegetable prices were main reasons for the lower number.

India's trade deficit was at its widest in 3 years in Dec '17, as a surge in gold and oil imports offset rising exports. Imports increased by 21.1% to $41.9 Billion. Exports increased 12.4% to $27 Billion. 


The daily bar chart pattern of Nifty had formed a 23 points upward 'GAP' on Jan 8. Some bullish and bearish technical possibilities were discussed in last week's post, with the scales tipping towards the bearish side.

Support from the 'GAP' was successfully tested twice last week - on Wed. Jan 10 and Fri. Jan 12. On Mon. Jan 15, the index opened with another upward 'gap' that was quickly filled during Tuesday's correction.

Bulls went on a rampage today. What changed the bearish outlook? News that the govt. will borrow an additional Rs 200 Billion this financial year (ending Mar '18) instead of Rs 500 Billion planned earlier may have acted as a catalyst.

FIIs and DIIs combined forces to buy equity shares today. However, the total number of advancing shares was matched by the total number of declining shares. That means bears are refusing to give up.

Nifty crossed the 10800 level intra-day for the first time ever, and is trading well above its three rising EMAs in a bull market. Daily technical indicators are in their overbought zones. MACD is showing upward momentum. Slow stochastic is showing negative divergence by touching lower tops as the index has moved higher.

Nifty's TTM P/E is at 27.18 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling rapidly inside its overbought zone - and can limit index upside. 

Hind. Unilever declared excellent Q3 (Dec '17) results after trading hours today. That may boost bullish fervour tomorrow.

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Tuesday, January 16, 2018

WTI and Brent Crude Oil charts: soar up, up and away on increasing global demand

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil has continued its bullish fervour in the New Year. Draw down in US inventories and increasing global demand propelled oil's price to new highs. 

All three EMAs are rising, and oil's price is trading above them in a bull market. Increasing volumes have reinforced the bull rally.

Daily technical indicators are looking overbought. MACD and RSI are showing upward momentum, but Slow stochastic is moving sideways and showing negative divergence by not moving up with oil's price.

Some consolidation can be expected before the next leg of the rally. US rig count is increasing, and can put a cap on further rise in prices.

On longer term weekly chart (not shown), oil's price moved convincingly above its 200 week EMA and closed at a 3 year highWeekly technical indicators are looking overbought and may trigger a pullback towards the 200 week EMA.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil briefly touched the $70 level intra-day on Jan 11 - a level last seen in May '15 - before closing a tad lower.

All three EMAs are rising, and oil's price is trading above them in a bull market. The rally from the last week of Dec '17 has been accompanied by rising volumes, which augurs well for bulls.

Daily technical indicators are inside their overbought zones. While MACD and RSI are showing upward momentum, Slow stochastic is moving sideways and showing negative divergence by failing to move up with oil's price.

On longer term weekly chart (not shown), oil's price closed well above its 200 week EMA in long-term bull territoryWeekly technical indicators are looking overbought. Some correction or consolidation is possible.

Monday, January 15, 2018

S&P 500 and FTSE 100 charts (Jan 12, 2018): soaring skywards

S&P 500 index chart pattern


After a day's indecision on Tue. Jan 9 (by forming a 'doji' candlestick pattern) and the briefest of corrections on Wed. Jan 10, the daily bar chart pattern of S&P 500 rose to touch a new high (2788) on Fri. Jan 12.

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

Note that an index can remain overbought for long periods. That doesn't mean one needs to jump in and buy. It may be prudent to be fearful when everyone else seems greedy and take some profits off the table.

On longer term weekly chart (not shown), the index closed at a new high - way above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are looking very overbought. Slow stochastic continues to show negative divergence by failing to rise higher. 

FTSE 100 index chart pattern


After a day's correction on Mon. Jan 8, the daily bar chart pattern of FTSE 100 soared to touch a new high (7792) on Fri. Jan 12. Bulls are buying at every dip.

All three EMAs are rising, and the index is trading above them in a bull market. Daily technical indicators are looking overbought and can trigger some consolidation or correction. (At the time of writing this post, FTSE is trading 5 points lower.)

Partial profit booking may be a good idea for conservative investors. Bravehearts can ride the bull wave with a trailing stop-loss.

On longer term weekly chart (not shown), the index touched a new high and closed above its three rising weekly EMAs in a long-term bull market. Weekly MACD and RSI are in bullish zones and showing upward momentum. Slow stochastic is looking quite overbought and can trigger a correction.

Saturday, January 13, 2018

Sensex, Nifty charts (Jan 12, 2018): touch new highs again despite selling by FIIs

FIIs have gone back to their bearish ways. Their net selling in equities during the week was worth Rs 9.6 Billion. DIIs' net buying in equities was much higher at Rs 23.8 Billion, as per provisional figures. Sensex and Nifty touched new highs once again.

The Index of Industrial Production (IIP) rose to 8.4% in Nov '17 against 2.2% in Oct '17 - thanks to a lower base effect. The cumulative Apr-Nov '17 YoY growth figure was 3.2%.

Retail (CPI) inflation accelerated to 5.2% in Dec '17 against 4.9% in Nov '17. Rising food and fuel prices can lead to an interest rate hike by RBI. That will not be good news for the stock market.

BSE Sensex index chart pattern


Combined net buying in equities by FIIs and DIIs on Mon. Jan 8 buoyed the daily bar chart pattern of Sensex to a smart breakout above the small 'rectangle' within which it was consolidating for the previous three weeks.

Though FIIs turned net sellers of equity for the rest of the week, heavy buying by DIIs propelled the Sensex to new intra-day (34638) and closing (34592) highs on Fri. Jan 12. 

Note that the index formed a 'dragonfly doji' candlestick pattern on Fri., indicating hesitation among bulls and bears.

Daily technical indicators are in bullish zones, but only MACD is showing upward momentum. All four indicators failed to touch new highs with the index. The negative divergences can lead to some consolidation or correction.

Sensex is trading above its three rising EMAs in a bull market. That means dips can be used to add to existing holdings. Aggressive buying should be avoided because the index is at an all-time high and Q3 (Dec '17) results season has just begun.

NSE Nifty index chart pattern


After breaking out above a 'flag' pattern, the weekly bar chart pattern of Nifty had pulled back towards the top of the 'flag' before recovering to close above 10490 (its Nov '17 top) in the previous week.

Bulls took the opportunity to take charge. The index opened with a 23 points upward 'gap' on Mon. Jan 8, and then rose to touch intra-week (10690) and closing (10681) highs on Fri. Jan 12.

Weekly technical indicators are in bullish zones but not showing much upward momentum. MACD has crossed above its signal line to enter its overbought zone. ROC is moving sideways below its 10 week MA. RSI and Slow stochastic are also moving sideways inside their respective overbought zones.

Nifty's TTM P/E has increased to 27.28 - well above its long-term average. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone, and is rising inside neutral zone - hinting at a correction or consolidation. 

Bottomline? Sensex and Nifty charts have closed at new highs again. Bulls are expecting Q3 (Dec '17) results to show earnings improvement due to lower base effect. Use dips to add to existing holdings, but avoid aggressive buying close to a market top.

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Friday, January 12, 2018

Stock Chart Pattern - 3i Infotech Ltd (An Update)

The following concluding comments were made in the previous technical update to the stock chart pattern of 3i Infotech: "Top line is sliding and bottom line is red. Over-leveraging in a bid to grow fast has ruined the balance sheet. Stay away. If you are stuck from higher levels, use any rally to exit."

That update had been posted more than 5 years back. The only thing of note the stock did since then was rise from a low of 6 (touched on May 7 '14) to a high of 13.60 (on Jun 13 '14) - a quick gain of 125% in 5 weeks that gave stuck investors an opportunity to exit.


In less than 2 months, the stock slid down below 10 and dropped all the way to a lifetime low of 2.20 on May 25 '15. Investors got a roller-coaster ride, as the stock rose to 6.80 on Jun 25 '15, and then dropped to 2.70 on Aug 20 '15.

The stock price closed in the range between 2.70 and 6.80 during the next 28 months before suddenly breaking out in Dec '17. What was the trigger? There were two. First, CRISIL upgraded the company's credit rating from 'D' to 'BB' (stable).

Then came news of the company pre-paying three instalments of its debt (worth Rs 195 Million) which were due in Oct '18, Nov '18 and Dec '18. How did a loss-making company pre-pay its debt? 

The reason may be found in the cash flow statement. 3i Infotech has generated positive cash flows from operations in 4 of the past 5 years. Bulls must have felt encouraged by the positive news. 

The stock has shot up to test its previous closing high of 9.10 touched three years back. Daily technical indicators are inside their overbought zones. The stock can consolidate or correct a bit before trying to move higher.

Q3 (Dec '17) results will be announced on Jan 30 '18. Consider entry if there are definite signs of a turnaround in business. (Turnaround stories can generate good profits. Note that the equity capital is bloated, so don't expect a rise from 10 to 100 in 6 months.)

Wednesday, January 10, 2018

Nifty chart: a midweek technical update (Jan 10, 2018)

During the first three days of trading this week, FIIs were net sellers of equity worth Rs 1.8 Billion. (They were net buyers during the previous week.) DIIs were net buyers of equity worth Rs 9.2 Billion, as per provisional figures.

Nifty touched new intra-day (10659) and closing (10637) highs on Tue. Jan 9 before facing some profit booking today.

India has “enormous growth potential” compared to other emerging economies, the World Bank said today, as it projected country’s (GDP) growth rate to 7.3% in 2018 and 7.5% for the next two years. 


The daily bar chart pattern of Nifty had broken out above a large 'flag' pattern (FLAG 1) on Dec 18 '17, only to consolidate within a smaller 'flag' pattern (FLAG 2).

The index broke out above 'FLAG 2' on Fri. Jan 5 '18 with a 7 point 'gap'. On Mon. Jan 8, Nifty formed a 23 points upward 'GAP' - which has thrown up some interesting bullish and bearish possibilities.

Since the index is trading well above its three rising EMAs in a bull market, let us look at the bullish possibilities first.

The breakout above 'FLAG 2' with a 7 points 'gap' on Jan 5 is a bullish sign. The index rose to touch new highs three days in a row, which is another bullish sign. Daily technical indicators are in bullish zones - though they are looking overbought.

Now, some bearish possibilities. The wider 'GAP' on Jan 8 has to be looked at with suspicion, since it has formed so close to a new high. It can turn out to be a bearish 'exhaustion gap'.

Today's trade formed a bearish 'hanging man' candlestick pattern that tested support from the 'GAP'. In case Thursday's (Jan 11) trade opens and stays below the 'GAP', a bearish 'island reversal' pattern can get formed.

Note that daily technical indicators are showing negative divergences by failing to touch new highs with the index on Tue. Jan 9. Slow stochastic is showing downward momentum after forming a 'double top' like reversal pattern inside its overbought zone.

Nifty's TTM P/E has moved up to 27.18 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is moving up inside its overbought zone - hinting at some more correction.

After being net buyers during the first 6 trading days in the New Year, FIIs have turned bears during the past 2 days.

On balance, the bearish possibilities are outweighing the bullish ones. Some more correction appears to be the likely outcome.  

No need to sell in a panic. A low base effect should lead to earnings growth for India Inc. in Q3 (Dec '17). That will add fuel to the bullish fire.

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Tuesday, January 9, 2018

Gold and Silver charts: pullback rallies halted

Gold chart pattern


The following comments had appeared in the previous post on the daily bar chart pattern of Gold"The pullback rally has been accompanied by receding volumes. The rally may not last long. Another bear onslaught can occur at any time."

A sliding US Dollar index ensured that the rally continued till the first week of the New Year. It was good while it lasted. But all good things must come to an end.

Daily technical indicators are beginning to correct overbought conditions. Gold's price may seek support from the zone between 1300-1310. But the support is likely to fail because the US Dollar index is recovering.  

On longer term weekly chart (not shown), gold’s price closed well above its three weekly EMAs in long-term bull territory.  Weekly MACD and RSI are in bullish zones. Slow stochastic is inside its overbought zone, and can trigger a correction.

Silver chart pattern


The daily bar chart pattern of Silver followed in the footsteps of the yellow metal - rallying smartly above its three daily EMAs into bull territory.

Bears have jumped back into the fray after silver's price failed to close above the 17.30 level despite a couple of attempts. A pullback towards the 200 day EMA has started.

Daily technical indicators have started correcting overbought conditions. Silver's price may drop back inside bear territory soon.

On longer term weekly chart (not shown), silver’s price closed above its 20 week and 50 week EMAs, but below its sliding 200 week EMA in a long-term bear marketWeekly MACD is still in bearish zone. RSI has started moving down after crossing above its 50% level. Slow stochastic has entered its overbought zone, and can trigger a correction.

Monday, January 8, 2018

S&P 500 and FTSE 100 charts (Jan 05, 2018): touch lifetime highs

S&P 500 index chart pattern


The following comment was made in the previous post on the daily bar chart pattern of S&P 500: "Since the index is trading above its three rising EMAs in a bull market, an upward breakout from the 'flag' is the most logical outcome."

Bulls literally jumped out of the blocks in the New Year. The index broke out above the 'flag' pattern on Jan 2 and then soared to a new high (2743) on Jan 5.

All three EMAs are rising, and the index is trading way above them in a bull market. Daily technical indicators are well inside their overbought zones, and can trigger a pullback towards the top of the 'flag'.

Can the index go on rising in 2018? It would help bulls technically if there is a decent 5-10% correction first. On long-term weekly and monthly charts, RSI has reached overbought levels not seen in 20 years, as per this article

On longer term weekly chart (not shown), the index closed at a lifetime high - way above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are well inside their overbought zones. Slow stochastic is showing negative divergence by failing to touch a new high. 

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 faced just a day of profit booking when trading began in the New Year on Jan 2. Bulls jumped in to 'buy the dip'. The index rose to touch new intra-day (7728) and closing (7724) highs on Jan 5.

The index is trading well above its three rising EMAs in a bull market. Daily technical indicators are looking overbought. RSI and Slow stochastic are showing negative divergences by failing to touch new highs with the index.

Some correction or consolidation is likely. Stay invested, but control the urge to buy when the index is at a lifetime high. (At the time of writing this post, FTSE is trading 8 points lower.)

On longer term weekly chart (not shown), the index touched a new high and closed above its three rising weekly EMAs in a long-term bull market. Weekly MACD and RSI are in bullish zones but showing negative divergences by failing to touch new highs with the index. Slow stochastic is well inside its overbought zone and can trigger a correction.