Tuesday, February 27, 2018

WTI and Brent Crude Oil charts: pullback rallies facing trend line resistances

WTI Crude Oil chart


A pullback towards the 50 day EMA was expected in the previous post on the daily bar chart pattern of WTI Crude Oil due to oversold technical indicators and formation of an 'inverted hammer' candlestick.

Oil's price formed a small 'double bottom' reversal pattern at 58 that turned the expected pullback into a rally. Oil's price rose above its 50 day and 20 day EMAs to the 64 level in bull territory.

Daily technical indicators have turned bullish. MACD has crossed above its signal line and entered bullish zone. RSI has crossed above its 50% level. Slow stochastic is rising towards its overbought zone.

A convincing move above the (purple) down trend line is required if bulls wish to regain control of the chart. However, in a recent forbes.com article, Art Berman has given logical explanations why oil prices are at a crossroads and can settle in the 55-65 range.

On longer term weekly chart (not shown), oil's price closed above its three weekly EMAs in long-term bull territoryWeekly technical indicators are in bullish zones after correcting overbought conditions. Only Slow stochastic is showing upward momentum. Some more upside is likely.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil touched an intra-day low of 61.76 on Feb 13 - forming a small 'double bottom' reversal pattern that triggered a pullback towards the converging 20 day and 50 day EMAs. 

The pullback turned into a rally. Oil's price climbed into bull territory above its three EMAs, and managed to close above the (purple) down trend line. However, sliding volumes do not augur well for sustainability of the rally.

Daily technical indicators are looking bullish. MACD has crossed above its signal line in bearish zone. RSI has moved above its 50% level. Slow stochastic is rising towards its overbought zone, and can limit further upside.

On longer term weekly chart (not shown), oil's price closed above its three weekly EMAs in long-term bull territoryWeekly technical indicators have corrected overbought conditions. Only Slow stochastic is showing some upward momentum. 

Monday, February 26, 2018

S&P 500 and FTSE 100 charts (Feb 23, 2018): bull rallies face resistances

S&P 500 index chart pattern


The following remarks were made in last week's post on the daily bar chart pattern of S&P 500: "The rally may be losing steam. That will be just the incentive bears need to go on the offensive once again."

The rally did lose steam, as the index consolidated sideways within a 50 points range in a holiday-curtailed trading week. Bulls managed to keep bears at bay by fighting back after two days of correction.

The index faced resistance from the 2750 level but closed above its three EMAs in bull territory, with a weekly gain of 15 points (0.55%). However, falling volumes on Thu. & Fri. may be hinting that the up move may not resume in a hurry.

Daily technical indicators are looking bullish. MACD has crossed above its signal line in bearish zone. RSI has moved above its 50% level. Slow stochastic is rising towards its overbought zone.

The 13 points downward 'gap' formed on Jan 30 has remained unfilled so far. It will be interesting to see if and when bulls can make an attempt to fill the 'gap'.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market. Weekly technical indicators have corrected extremely overbought conditions. MACD has crossed below its signal line in bullish zone. RSI has bounced up after receiving support from its 50% level. Slow stochastic is seeking support from its 50% level.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 failed to overcome strong resistance from the 7300 level. The index consolidated sideways with a downward bias, receiving good support from the 7200 level (marked by purple horizontal line).

Daily technical indicators are turning bullish. MACD has crossed above its signal line in bearish zone. RSI is rising towards its 50% level. Slow stochastic is about to cross above its 50% level.

Bears will retain the upper hand as long as the index remains below its falling 50 day and 200 day EMAs. (At the time of writing this post, FTSE is trading 20 points higher.)

On longer term weekly chart (not shown), the index closed below its 20 week and 50 week EMAs but above its 200 week EMA in a long-term bull market. Weekly MACD and Slow stochastic are in bearish zones. RSI is seeking support from its 50% level.

Sunday, February 25, 2018

Sensex, Nifty charts (Feb 23, 2018): bulls protecting the down side

FIIs were net sellers of equity worth a huge Rs 57.8 Billion during the week gone by. DIIs more than matched them with their net buying worth Rs 59.7 Billion, as per provisional figures.

For the third straight week, Sensex and Nifty traded below the downward 'gaps' formed on Feb 5, but bulls worked hard to protect the downside. Both indices gained about 0.4% on a weekly closing basis.

The amount of fraud at PNB is expected to climb from the estimated Rs 114 Billion. Another fraud estimated at Rs 4 Billion has been unearthed at Oriental Bank. As Buffett once said: There's never just one cockroach in the kitchen.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex continued to consolidate sideways below the 132 points downward 'gap' formed on Feb 5. The index may be forming a 'symmetrical triangle' pattern from which the likely breakout will be downwards.

The index dropped inside the 'support/resistance zone' between 32250 and 33800 during the first four trading days of the week, but bounced up on short covering to close with a weekly gain on Fri. Feb 23.

The sliding 20 day and 50 day EMAs are merging and can provide overhead resistance to any follow-up buying next week.

Daily technical indicators are correcting oversold conditions, but remain in bearish zones. MACD is below its signal line but showing signs of turning up. ROC has crossed above its 10 day MA and moving up towards neutral zone. RSI and Slow stochastic have emerged from their oversold zones.

Any attempt by the index to pullback towards the 'gap' may induce more bear selling. There is unlikely to be any respite for bulls in the near term, as investors will resort to 'sell on rise' to take advantage of zero LTCG tax till Mar 31 '18.

The long-term trend remains bullish, as the index is trading above its rising 200 day EMA. But the near-term bearish sentiment is not going away in a hurry.

Earnings growth of India Inc. in Q3 (Dec '17) has failed to set the bourses on fire. Bullish optimism about Q4 (Mar '18) results are fading by the day. 

Expect the index to limp along and correct some more. At some point, valuations will start looking reasonably attractive again. Be very selective, and enter quality large-caps slowly. They will withstand the downside better.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty spent another week below the 33 points downward 'gap' formed on Feb 5. The index closed above its two weekly EMAs in a bull market.

The weekly bar closed exactly at the 'support/resistance' level of 10490 and formed a 'dragonfly doji' candlestick, which can lead to a pullback towards the 'gap'.

Weekly technical indicators have corrected overbought conditions, but only RSI is showing some upward momentum by bouncing up from its 50% level. MACD is falling below its signal line in bullish zone. ROC is falling below its 10 week MA in bullish zone. Slow stochastic has dropped inside bearish zone.

Nifty's TTM P/E has moved up to 25.75 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is plummeting towards its overbought zone, and may limit index upside. 

Bottomline? Sensex and Nifty charts are undergoing month-long corrections after 13 months long bull rallies. The downward 'gaps' formed on Mon. Feb 5 have acted as resistance zones. Any pullbacks towards the 'gaps' may trigger more selling and likely lower levels in both indices. Use a 'sell on rise' strategy in the near-term.

Friday, February 23, 2018

Wednesday, February 21, 2018

Nifty chart: a midweek technical update (Feb 21, 2018)

FIIs were net sellers of equity worth Rs 29.6 Billion during the first three trading days this week. DIIs were net buyers of equity worth Rs 34 Billion, as per provisional figures.

The 33 points downward 'gap' formed on Feb 5 is looming like a dark cloud over bullish hopes of a quick index recovery - threatening more rain (i.e. selling).

India's trade deficit widened to a 56 months high of US $16.3 Billion in Jan '18 compared to $14.9 Billion in Dec '17 and $9.91 Billion in Jan '17. The deficit increased to $131.14 Billion during Apr '17-Jan '18 period against $114.9 Billion during Apr '16-Jan '17.


The daily bar chart pattern of Nifty has been consolidating sideways after falling below its 50 day EMA to an intra-day low of 10276 on Feb 6. The sliding 50 day EMA has provided strong overhead resistance since then.

The Feb 6 panic low was tested on Feb 19 without getting breached. The index bounced up a bit today on short-covering. The index continues to trade above its rising 200 day EMA, so all is not lost yet for bulls.

However, the 20 day EMA is about to cross below the 50 day EMA after staying above it for almost 13 months. A test of support from the 200 day EMA may occur sooner than later.

Can the index fall below the 200 day EMA? The possibility can't be ruled out, as FIIs are selling large-cap stocks. Will that indicate the beginning of a bear market? Not quite.

A 20% correction from the top - i.e. to 8940 - will be treated technically as start of a bear market. That is a long way down from the current level. 9700 is a strong support level. Buying should emerge in the zone between 10000 & 9700.

Daily technical indicators are in bearish zones. MACD is showing negative divergence by falling below its Dec '17 low. RSI is moving sideways. Slow stochastic has entered its oversold zone and can trigger a technical bounce.

Nifty's TTM P/E has slipped to 25.18 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has dropped sharply from its oversold zone. The index may pullback towards its 50 day EMA. 

The long-term bullish structure of the chart remains intact. In the near term, 'sell on rise' may be a better option to get rid of non-performers from one's portfolio.

Tuesday, February 20, 2018

Gold and Silver charts: facing resistances after pullback rallies

Gold chart pattern


The daily bar chart pattern of Gold corrected below its 20 day and 50 day EMAs, but received good support from the 'support/resistance' zone between 1300 & 1310.

The overbought Slow stochastic indicator triggered a sharp pullback rally that touched a slightly lower top of 1364.40 on Fri. Feb 16. Formation of a long-legged doji candlestick pattern indicates hesitation among bulls and bears.

Gold's price appears to have formed a 'double top' reversal pattern inside the resistance zone between 1360 & 1380. The first technical confirmation of a 'double top' - lower volumes during formation of the second top - has been received.

The second technical confirmation - a fall below the 'valley' low of 1309 touched on Feb 8 - is awaited. (At the time of writing this post, gold's price has slipped down to 1340.)

Daily technical indicators are in bullish zones. MACD has crossed above its signal line. Slow stochastic has risen well inside its overbought zone. RSI is showing negative divergence by sliding down as gold's price rose higher on Feb 16.

Another fall towards the 'support/resistance' zone between 1300 & 1310 is possible. Gold's price is trading above its three EMAs in a bull market. Bulls are likely to 'buy the dip' again.

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory, but may have formed a 'double top' reversal pattern.  Weekly technical indicators are in bullish zones, but not showing much upward momentum. Slow stochastic has dropped from its overbought zone. 

Silver chart pattern


The daily bar chart pattern of Silver corrected to an intra-day low of 16.13 on Feb 9. Overbought Slow stochastic and a small 'double bottom' reversal pattern on RSI led to a pullback rally.

The rally failed to overcome strong resistance from the 200 day EMA. Silver's price closed below its three EMAs in bear territory.

Daily technical indicators are looking neutral to bearish. MACD has moved up towards its signal line in bearish zone but has not been able to cross above it. RSI and Slow stochastic are facing resistances from their respective 50% levels.

Expect bears to 'sell on rise'. (At the time of writing this post, silver's price has slipped down to 16.44.)

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

Monday, February 19, 2018

S&P 500 and FTSE 100 charts (Feb 16, 2018): bulls fighting back

S&P 500 index chart pattern


The following comments were made in last week's post on the daily bar chart pattern of S&P 500: "...the index has fallen like a stone from its Jan 26 top. Such a steep fall can't be sustained. Expect some pullback and consolidation on short-covering and bottom fishing. That will provide an exit opportunity from a short-term perspective."

The expected pullback turned into a sharp rally as bulls fought back and propelled the index above its three EMAs into bull territory. Is the correction over?

The index has retraced 65% of its 340 points fall from the Jan 26 top (2873) to the Feb 9 low (2533). That is more than the 61.8% Fibonacci retracement level that is considered by technical traders as a trend reversal level.

However, on a closing basis the (292 points) correction has been retraced 52% - a bit more than the 50% Fibonacci retracement level. Also, by closing near the opening and intra-day low level on Fri. Feb 16, the index formed a 'shooting star' candlestick that has bearish implications.

Daily technical indicators have corrected oversold conditions, but MACD is still in bearish zone and RSI is in neutral zone. Slow stochastic has entered bullish zone above its 50% level.

Note that last week's steep rally was on sliding volumes. The rally may be losing steam. That will be just the incentive bears need to go on the offensive once again.

On longer term weekly chart (not shown), the index bounced up after receiving good support from its 50 week EMA, and closed above its three weekly EMAs in a long-term bull market. Weekly technical indicators have corrected extremely overbought conditions. MACD has crossed below its signal line in bullish zone. RSI has bounced up after receiving support from its 50% level. Slow stochastic is seeking support from its 50% level.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 had formed a small 'double bottom' reversal pattern by touching an intra-day low of 7073 on Fri. Feb 9. Technical indicators were looking bearish and oversold, which had hinted at a technical bounce towards the 200 day EMA.

The technical bounce occurred as expected, but stopped well short of the 200 day EMA due to strong resistance from the 7300 level. (At the time of writing this post, the index is hovering near the 7300 level - marked by purple horizontal line.)

Daily technical indicators have corrected oversold conditions, but remain in bearish zones. MACD is about to cross above its signal line. RSI has bounced up after receiving support from the edge of its oversold zone. Slow stochastic has started to move up after forming an 'inverse head-and-shoulders' reversal pattern inside its oversold zone.

The 50 day EMA is falling towards its 200 day EMA. Both will provide resistance to the index if it tries to rally further. Despite last week's pullback, bears have retained their advantage.

On longer term weekly chart (not shown), the index closed below its 20 week EMA and 50 week EMAs but above its 200 week EMA in a long-term bull market. Weekly MACD and Slow stochastic are in bearish zones. RSI is showing downward momentum in bullish zone.

Sunday, February 18, 2018

Sensex, Nifty charts (Feb 16, 2018): bears remain on top

In a holiday-curtailed trading week, FIIs were net sellers of equity worth Rs 28.5 Billion, as per provisional figures. DIIs were net buyers of equity worth Rs 23.7 Billion.

For the second week in a row, Sensex and Nifty traded below the downward 'gaps' formed on Feb 5, but didn't lose much ground on a weekly closing basis.

India's wholesale inflation rose slower than expected in Jan '18. WPI eased to 2.84% YoY compared to 3.58% in Dec '17 due to lower food prices.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex consolidated sideways during the week. The failure to close above the 50 day EMA despite intra-day breaches three days in a row was a sign that bears are continuing to 'sell on rise'.

The fact that Sensex didn't fall inside the 'support/resistance zone' between 32550 and 33800 may provide some solace to bulls, but not for long.

Market sentiment shifted from extremely bullish to bearish due to re-introduction of LTCG tax. FIIs have voted with their feet. The PNB scam has further exacerbated bearish sentiment.

Technically, the 132 points 'gap' will be a tough resistance to overcome in the near-term. Even if the 'gap' gets filled (partly or fully), the down move should resume thereafter.

Support from the 33800 level has been tested twice already. A support (or resistance) level gets weakened by each subsequent test. That increases the probability of a fall inside the 'support/resistance zone' and a test of support from the 200 day EMA.

Daily technical indicators are looking bearish and a bit oversold. But don't expect any significant recovery before Apr '18, as investors are going to book profits till Mar 31 '18 to lock-in tax-free LTCG.

There are technical reasons for not being bullish in the near-term. The sideways consolidation during the past two weeks (below the 'gap') appears to be forming either a 'triangle' or a 'rectangle' pattern. Both patterns are typically continuation patterns. So, the more likely breakout is downwards.

Also, the huge Rs 128 Billion Tata Steel rights issue - at a discount to CMP - will remain open from Feb 14 to 28. That will squeeze out a lot of cash from the secondary market.

The long-term trend remains bullish, as the 200 day EMA is still rising and the index is trading above it. The correction is providing an opportunity for booking profits in small/mid-cap stocks and selectively entering large-caps. 

NSE Nifty index chart pattern



For the second straight week, the weekly bar chart pattern of Nifty traded below the 33 points downward 'gap' formed on Feb 5, and closed below the support level of 10490.

While that clearly shows bear domination, the index managed to close just above its 20 week EMA and well above its rising 50 week EMA in a long-term bull market.

Despite strong bearish sentiment and heavy selling by FIIs, the index has managed to hold ground because of steady inflows into domestic mutual funds.

Weekly technical indicators are beginning to turn bearish. MACD has crossed below its signal line and fallen from its overbought zone. ROC has crossed below its 10 week MA and is poised to enter bearish zone. RSI and Slow stochastic are seeking support from their respective 50% levels.

A fall below the 20 week EMA and a possible test of support from the 50 week EMA seems likely. Any attempt by the index to rally and close the 'gap' will bring bears to the fore.

Nifty's TTM P/E is at 25.32 - well above its long-term average. The breadth indicator NSE TRIN (not shown) is oscillating about the edge of its oversold zone, as bulls and bears have battled each other to a temporary stalemate. 

Bottomline? Sensex and Nifty charts are undergoing corrections after 13 months long bull rallies. The downward 'gaps' formed on Mon. Feb 5 are acting as resistance zones. Any pullbacks towards the 'gaps' may induce more selling and likely lower levels in both indices. Avoid bottom fishing.

Friday, February 16, 2018

Nifty Q3 Earnings Report Card: More Hits Than Misses

Nearly three-fourths of the Indian blue-chip companies in the country’s benchmark NSE Nifty 50 index reported financial results that matched or surpassed analyst estimates in the third quarter (ending Dec '17).
The Big Picture
  • Beat Estimates: 12
  • In line: 24
  • Miss Estimates: 13
Ambuja Cements Ltd. yet to report earnings.
Read more at:

Wednesday, February 14, 2018

Nifty chart: a midweek technical update (Feb 14, 2018)

FIIs were net sellers of equity worth Rs 15.4 Billion during Mon. Feb 12 and Wed. Feb 14 (Feb 13 was a holiday). DIIs were net buyers of equity worth Rs 11.9 Billion, as per provisional figures, but were net sellers today.

The Index of Industrial Production (IIP) at 7.1% showed good growth in Dec '17, but was lower than 8.8% in Nov '17. Low base effect was partly responsible for the growth. However, IIP was only 3.7% during Apr-Dec '17, compared to 5.1% during Apr-Dec '16.

India's retail (CPI) inflation fell a little to 5.07% in Jan '18 against 5.21% in Dec '17, as food inflation softened.


The following comments appeared in the previous midweek technical update on Nifty: "The 33 points downward 'gap' formed on Mon. Feb 5 can act as a resistance zone for future up moves. Also, any attempt to rally by the index will induce profit-booking by investors wishing to lock-in tax-free LTCG till Mar 31 '18."

The 'gap' is looming like a dark cloud for bulls. The 6 days of trading - after formation of the 33 points downward 'gap' on Feb 5 - has not only occurred below the 'gap' but also below the sliding 50 day EMA.

The falling 20 day EMA has slipped below the 'gap' today, and can also act as a resistance to any near-term rally. A re-test, and possible breach, of the Feb 6 intra-day low of 10276 seems quite likely.

Daily technical indicators are in bearish zones. MACD is showing downward momentum. RSI and Slow stochastic are moving sideways - hinting at more index consolidation below the 50 day EMA.

Nifty's TTM P/E has inched up to 25.37 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is oscillating at the edge of its oversold zone - hinting at some more consolidation or correction. 

Near-term bearish sentiment is increasing by the day as misfortunes keep befalling the market. First came the shock of the 10% LTCG tax. Then, news of Indian exchanges stopping data services to overseas stock exchanges in a misguided effort to tie down FIIs from fleeing.

Today's news of a Rs 110 Billion fraud involving at least four banks may be the proverbial straw that will break the camel's (FIIs?) back. [Warren Buffett had once commented: "There's never just one cockroach in the kitchen" about a scandal in Wells Fargo bank].

Small investors need not panic. Don't stop your SIPs. But refrain from bottom fishing because Nifty is nowhere near bottoming out yet.

Tuesday, February 13, 2018

WTI and Brent Crude Oil charts: prices tumble on rise in US output

WTI Crude Oil chart


Some consolidation or correction was expected in the previous post on the daily bar chart pattern of WTI Crude Oil, due to overbought technical indicators which were showing negative divergences.

Oil's price initially corrected to an intra-day low of 63.67 on Jan 31; bounced up after receiving support from its 20 day EMA, and closed higher - forming a 'reversal day' bar (lower low, higher close). 

By touching a lower top of 66.30 on Feb 2 and closing lower, oil's price formed a 'reversal day' bar (slightly higher high, lower close) and a small 'double top' reversal pattern.

That was a trigger for bears to go on the rampage. Oil's price dropped vertically below its 20 day and 50 day EMAs, with strong volumes, to an intra-day low of 58 on Fri. Feb 9 - falling nearly 12.5% in a week.

Daily technical indicators are looking bearish and a bit oversold. That led to a technical bounce on Mon. Feb 12, and the formation of an 'inverted hammer' candlestick pattern, which can cause a pullback towards the 50 day EMA.

Iran announced plans to boost production and US crude output hit record highs, adding to concerns about a sharp rise in global supplies.

On longer term weekly chart (not shown), oil's price pulled back sharply to its 200 week EMA and bounced up a little after receiving supportWeekly technical indicators are correcting overbought conditions and showing downward momentum. Some more correction is likely.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil closed just below its 20 day EMA on Jan 30, but formed a 'reversal day' bar (lower low, higher close) on Jan 31 and bounced up to touch an intra-day high of 70 on Feb 2.

Formation of another 'reversal day' bar (slightly higher high, much lower close) triggered a sharp correction below the 20 day and 50 day EMAs to an intra-day low of 61.77 - a fall of 13.3% from the Jan 25 high of 71.28.

Daily technical indicators are looking bearish and oversold. Oil's price formed an 'inverted hammer' candlestick pattern on Mon. Feb 12. A technical bounce is a possibility. 

Bears are likely to 'sell on rise'. A test of support from the 200 day EMA may be on the cards.

On longer term weekly chart (not shown), oil's price has pulled back sharply to its 200 week EMAWeekly technical indicators have corrected overbought conditions and are showing downward momentum - hinting at more correction. 

Monday, February 12, 2018

S&P 500 and FTSE 100 charts (Feb 09, 2018): bears wrest control

S&P 500 index chart pattern


Note the following remark from last week's post on the daily bar chart pattern of S&P 500: "...formation of two downward 'gaps' and strong volumes on down-days should be of real concern for bulls."

On Mon. Feb 5, the index fell sharply below its 50 day EMA to an intra-day low of 2638, and then bounced up a bit to close just below the expected support zone between 2650 & 2700. 

Next day's pullback on short-covering and value buying took the index to the upper edge of the support zone. On Wed. Feb 7, the index touched an intra-day high of 2728 but formed a 'reversal day' bar (higher high, lower close) and closed within the support zone.

The index closed 100 points lower on Thu. Feb 8 after another strong bear attack. On Fri. Feb 9, the index opened trading with an upward gap, only to drop below its 200 day EMA intra-day - for the first time since Nov '16.

The index recovered to close above 2600, forming another 'reversal day' bar (lower low, higher close) with strong volume support that can trigger a technical bounce.

Daily technical indicators are looking bearish and oversold. MACD is falling inside its oversold zone. RSI and Slow stochastic are trying to find support from the edges of their respective oversold zones.

From its Jan 26 top of 2873, the index lost nearly 12% by touching an intra-day low of 2533 on Feb 9. A 20% correction from the top is technically considered the start of a bear market.

Can the index fall more and enter a bear market? The probability appears quite high. However, the index has fallen like a stone from its Jan 26 top. Such a steep fall can't be sustained. 

Expect some pullback and consolidation on short-covering and bottom fishing. That will provide an exit opportunity from a short-term perspective. Long-term investors can start adding to existing large-cap holdings.

On longer term weekly chart (not shown), the index bounced up after receiving good support from its 50 week EMA, and closed well above its 200 week EMA in a long-term bull market. Weekly technical indicators have corrected overbought conditions and showing downward momentum.

FTSE 100 index chart pattern



The following remarks appeared in last week's post on the daily bar chart pattern of FTSE 100: "Daily technical indicators are looking bearish and showing downward momentum. More downside and a drop below the 200 day EMA into bear territory is likely."

The index fell vertically below its 200 day EMA to touch an intra-day low of 7079 on Tue. Feb 6. After a brief recovery during the next two days, the index fell slightly lower to an intra-day low of 7073 on Fri. Feb 9 - forming a small 'double bottom' reversal pattern.

By closing at 7092, the index lost 4.7% on a weekly basis and is more than 300 points below its 200 day EMA. Bulls may take solace from the fact that the index found support at a long-term support level (marked by purple horizontal line).

Technical indicators are looking bearish and oversold, hinting at a technical bounce towards the 200 day EMA. (At the time of writing this post, a pullback is in progress with the index trading more than 80 points higher.)

Bears are likely to use any pullback to sell again - as BrExit concerns and a global equity sell-off have coincided to turn the sentiment quite bearish.

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

Sunday, February 11, 2018

Sensex, Nifty charts (Feb 09, 2018): bears take control

FIIs were net buyers of equity during the first two trading days in Feb '18, but turned net sellers in the week gone by. Their total net selling - worth a whopping Rs 82.6 Billion, as per provisional figures - triggered sharp corrections in Sensex and Nifty.

Domestic mutual funds received large inflows during Jan '18, and has used the corrections to deploy the funds. Their net buying - worth a huge Rs 62.9 Billion - was not enough to stem the slide in both indices.

India's foreign exchange reserves rose by US $4.1 Billion to a new high of US $421.9 Billion in the week ending on Feb 2 '18 from $417.8 Billion in the week ending on Jan 26 '18. 

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex formed a 132 points downward 'gap' on Mon. Feb 5, and traded below the 'gap' for the rest of the week. It closed below its 50 day EMA with a loss of 3% on a weekly closing basis.

On Tue. Feb 6, the index fell sharply below its 50 day EMA into the 'support/resistance zone' between 32550 and 33800, but bounced up on bargain buying. On the next couple of days, Sensex attempted to close above its 50 day EMA but failed.

On Fri. Feb 9, the index dropped towards the 'support/resistance zone' but managed to close above it. It formed a 'doji' candlestick pattern that indicates hesitancy among bulls and bears.

Daily technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line, and is poised to enter negative zone. RSI and Slow stochastic are at the edges of their respective oversold zones. ROC has entered its oversold zone, and can trigger a pullback towards the 'gap'.

As per 'theory of gaps', the correction should resume even if the 'gap' gets filled partly or completely. So, don't be in a rush to buy if the Sensex shows some recovery next week. 

A better option would be to get rid of non-performers in your portfolio instead of hoping to get back your 'buy price' if you entered at higher levels. Gradually deploy the proceeds into good large-cap stocks.

This correction is far from over. Expect investors to 'sell on rise' till Mar 31 '18 to lock-in tax free LTCG. A fall towards the lower edge of the 'support/resistance zone' and a test of support from the still rising 200 day EMA seems on the cards.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty formed a 33 points downward 'gap' on Mon. Feb 5, and dropped below its 20 week EMA and the support level of 10490 to an intra-week low of 10276 the next day.

The index recovered somewhat by closing just above its 20 week EMA at 10455 by the end of the week, but lost 2.8% for the week. 

The combination of a downward 'gap', which often acts as a resistance zone for future up moves, and a close below the support level of 10490 should be of some concern for bulls. 

The index can attempt a pullback towards the 'gap' on bargain buying and short covering. Even if the 'gap' gets filled - partly or fully - the correction is likely to resume thereafter.

Despite defending re-introduction of LTCG tax from Apr 1 '18 by Finance Minister in Parliament, investors are surely going to book profits till Mar 31 '18 to avail of the current zero LTCG tax regime. That ought to keep the index depressed.

Weekly technical indicators are correcting overbought conditions. MACD, ROC, Slow stochastic are in bullish zones but showing downward momentum. RSI is seeking support from its 50% level. Some more correction/consolidation is likely.

Nifty's TTM P/E has decreased to 25.27, but is well above its long-term average. The breadth indicator NSE TRIN (not shown) has started to move down from its oversold zone, and can trigger an upward bounce towards the 'gap'. 

Bottomline? Sensex and Nifty charts are undergoing decent corrections - thanks to strong selling by FIIs. The downward 'gaps' formed on Mon. Feb 5 can act as resistance zones. Any pullbacks towards the 'gaps' may induce more selling and likely lower levels in both indices. That will provide better buying opportunities.

Saturday, February 10, 2018

Emerging Market Funds May Have Topped Out

Emerging markets have rocketed higher since Donald Trump's election in 2016, with many benchmarks gaining more than 50%.

The US Dollar's steady decline has driven the upside, raising the relative value of the Chinese Renminbi, Indian Rupee and other emerging currencies.


However, this week's mini crash may have been a game changer, marking the first stage of a long-term top for emerging markets and a bottom for the greenback.


Read more: 

https://www.investopedia.com/news/emerging-market-funds-may-have-topped-out/#ixzz56gGhadC8 

Friday, February 9, 2018

Is the Sensex going through a Correction or a Trend Reversal?

That is a question asked most often by small investors whenever there is a correction after Sensex touches a new high (or low). Like, now. 

The short answer is: probably a correction. 

Why not a trend reversal? We need to look at a long-term Sensex chart to try and find an answer to the question.



The weekly Sensex bar chart has two bear phases (in 2015 and second half of 2016) and two bull phases (first half of 2016 and 2017).

The first (year-long) bear phase started after the formation of a 'diamond' reversal pattern during Q4 (Mar '15). The reversal pattern gave a trend-change signal from bullish to bearish.

The index dropped below its 200 week EMA into long-term bear territory, but formed a 'double bottom' reversal pattern during Q4 (Mar '16). Again, the reversal pattern gave a trend-change signal - from bearish to bullish.

The first (two quarters long) bull phase topped out without forming any reversal pattern in Q2 (Sep '16). That gave a hint that a correction (2nd bear phase) and not a trend reversal was to follow.

The index touched a higher bottom and formed a 'double bottom' reversal pattern in Q3 (Dec '16), indicating the start of the second bull phase.

What happened in Jan '18? Sensex topped out after a 13 months long bull phase without forming a reversal pattern, but did form a large weekly 'reversal' bar (higher high, lower close).

Is it necessary that a reversal pattern has to form to indicate a trend-change? Usually, yes. Can a large weekly 'reversal' bar trigger a trend reversal? Also, yes.

So, why am I voting for a correction, and not a trend reversal? Let's put it down to an educated guess.

A raging bull phase can be compared to a large ocean liner moving at a good speed in mid-sea. Changing direction can't happen suddenly. It takes a while for the strong hands to liquidate and weak hands to give up completely.

Can the correction turn into a trend reversal? Yes, if FIIs continue their selling. (Finance ministry officials are in denial by opining that the 10% LTCG will have very little effect on FII inflows because Indian economy is growing.)

When will the correction turn into a trend reversal? A 20% correction from the Jan '18 top (shaded) will be regarded as the start of a bear market. For Sensex, that level is around 29150.

The Sep '16 Sensex top (shaded) was 29077. So, the zone between 29100-29150 is likely to be defended strongly by bulls. Any breach of that support zone would mean all bullish bets should be off.

What should small investors do? Don't be in a hurry to buy. No use trying to catch a falling knife. Weekly technical indicators are showing downward momentum and hinting at more correction. Wait for signs of bottom formation.

Wednesday, February 7, 2018

Nifty chart: a midweek technical update (Feb 07, 2018)

FIIs have turned bears during the first three days of trading this week. Their net selling in equities crossed a huge Rs 46.1 Billion, as per provisional figures. DIIs were net buyers of equity worth Rs 33.2 Billion.

All gains made by Nifty since mid-Dec '17 got wiped out in the first 4 trading sessions in Feb '18. Such can be the severity of bull market corrections.

As was expected by market analysts, RBI Governor maintained interest rate status quo in the bi-monthly policy meeting today. Bears 'sold on news'. 


The daily bar chart pattern of Nifty had started correcting after touching a lifetime high of 11172 on Jan 29. Overbought technical indicators and rumours of re-introduction of long-term Capital Gains tax (LTCG) in the budget led to nervousness and profit-booking.

The rumours turned out to be true when FM announced a 10% LTCG on gains effective Apr 1 '18 on budget day (Feb 1). Strong selling followed by a sharp recovery caused only an 11 points drop.

Worse was to come on Fri. Feb 2, as Nifty succumbed to a global sell-off in stocks. On Mon. Feb 5, the index opened with a downward 'gap' of 33 points but recovered from the day's low.

On Tue. Feb 6, the index opened with a huge downward 'gap' below 10300 but recovered well on bargain-hunting to close the 'gap' during intra-day trading.

Today, the index opened with an upward 'gap' above 10600, but faced strong resistance from the 50 day EMA, and closed near the day's low as follow-up buying petered-off.

The index is trading more than 400 points above its rising 200 day EMA in a bull market. By touching an intra-day low of 10276 on Feb 6, the index has corrected 8% from its Jan 29 top. So, is this a good time to start buying?

Well, yes and no. Yes, if you have a long-term investment perspective of 3-5 years (in which case, you will be in a very small minority). No, for most others who have shorter-term perspective. Why?

Daily technical indicators are looking bearish, but not oversold. MACD is falling in bullish zone. RSI and Slow stochastic are falling in bearish zones, with Slow stochastic at the edge of its oversold zone. 

The 33 points downward 'gap' formed on Mon. Feb 5 can act as a resistance zone for future up moves. Also, any attempt to rally by the index will induce profit-booking by investors wishing to lock-in tax-free LTCG till Mar 31 '18.

A bull market correction can easily shave-off 10-15% from the top. A 15% correction - should it occur - can drop the index to 9500. A re-test of the Feb 6 low, or a test of support from the 200 day EMA may be more likely.

Nifty's TTM P/E has slipped down to 25.32 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply inside its oversold zone - and can limit index downside. 

With FIIs in sell-mode, expect Nifty to correct/consolidate till the end of FY 17-18. A little patience may get rewarded with better entry points.