Are you a bull or a bear? Why not both?

Most small investors thrive in bull markets. They feel comfortable by buying low and selling high. The adventurous buy high and sell higher. The sophisticated buy more on small corrections to support levels. They make the trend their friend.

All their best laid plans go haywire when bears attack. Panic sets in as portfolio values go crashing. Stock prices fall below 'buy' prices. Some book losses and get out, promising never to come back again.

Others make a bad problem worse. They start 'averaging down' - buying more at lower prices. When the stock shows no sign of recovering, they lose heart and book huge losses.

What happened to making the trend a friend? The analytical side of the brain gets scrambled when money is rapidly going down the drain. The only thought is 'take the money and run'.

The smart ones - they become that way after losing money in bear markets - know that you can be a bull AND a bear depending on the trend. 'Buy the dips' when the trend is up. 'Sell on rise' when the trend is down.

The 'buy the dips' is the easier strategy to follow. No wonder small investors prefer it. You keep buying as a stock's price moves up. No selling is involved - till you decide to book profits when upward target is met.

'Sell on rise' is harder, and requires practice to succeed. For every sell, you need to buy back at a lower price. And then repeat the process - till the correction ends. Deciding when to buy back requires skill.

Studying long-term technical chart patterns to identify support and resistance levels can prove invaluable for identifying entry and exit points. 

Sometimes stocks get into consolidation phases that can last months. What to do then? If the consolidation range is reasonably wide - say, 40-50 points instead of 10-15 points - draw a line through the middle of the range. 'Buy the dips' below the mid-point, 'sell on rise' above the mid-point.

For longer term investors, it is better to be a crocodile or a python (both have a lot of patience) instead of a bull or a bear during consolidation phases. Just wait patiently for a price breakout in either direction.

WTI and Brent Crude Oil charts: run up against resistance zones

WTI Crude Oil chart

The daily bar chart pattern of WTI Crude Oil found support at the 60 level and rallied past its 20 day and 50 day EMAs. On Tue. Mar 20, oil's price breached the down trend line (refer previous post) with good volume support.

The rally continued but faced resistance from the lower edge of the 'resistance zone' (between 66 & 67) on Fri. Mar 23. 

On Mon. Mar 26, oil's price touched an intra-day high of 66.55 but closed lower - forming a 'reversal day' bar that often marks an intermediate top.

Daily technical indicators are in bullish zones. MACD is rising above its signal line. RSI is moving sideways. Slow stochastic is turning down inside its overbought zone, and can trigger a dip towards its rising 20 day EMA.

The number of active US oil rigs rose to a 3 yr high of 804 last week, which can keep a lid on rising oil prices.

On longer term weekly chart (not shown), oil's price closed above its three weekly EMAs in long-term bull territory, but maybe forming a 'double top' reversal pattern. Weekly technical indicators are in bullish zones but only Slow stochastic is showing upward momentum.

Brent Crude Oil chart

The daily bar chart pattern of Brent Crude Oil broke out above its 20 day and 50 day EMAs on Mar 16, and breached the down trend line (refer previous post) with good volume support.

The rally in oil's price continued the following week but ran up against resistance from the lower edge of the 'resistance zone' (between 70 & 71.30).

On Mon. Mar 26, oil's price touched an intra-day high of 70.40 but closed lower - forming a 'reversal day' bar that often marks an intermediate top. 

Daily technical indicators are in bullish zones. MACD is rising above its signal line. RSI is moving sideways. Slow stochastic is turning down inside its overbought zone, and can trigger a dip towards its 20 day EMA.

On longer term weekly chart (not shown), oil's price closed above its three weekly EMAs in long-term bull territory, but maybe forming a 'double top' reversal pattern. Weekly MACD and RSI are moving sideways in bullish zones. Slow stochastic is rising in bullish zone.

S&P 500 and FTSE 100 charts (Mar 23, 2018): bears taking charge

S&P 500 index chart pattern

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

"The index touched an intra-day low of 2741 on Thu. Mar 15, but bounced up to close just above the 2750 level on Fri. Mar 16 - forming an 'inverted hammer' candlestick. The accompanying volume surge is often a sign of trend reversal."

Fears of a trade war with China gave an extra impetus to bears. The index opened trading with a downward 'gap' on Mon. Mar 19 and dropped sharply below its 20 day and 50 day EMAs. That was a signal for bulls to run for cover.

Two days of sideways consolidation was followed by another sharp fall with a downward 'gap' on Thu. Mar 22. The index closed below its previous (Mar 2) low of 2647 - hinting that worse was to follow.

It did. On Fri. Mar 23, the index fell steeply with strong accompanying volume and closed below its rising 200 day EMA for the first time since Nov '16. The large 'symmetrical triangle' drawn last week has been modified to a more appropriate 'rising wedge' pattern.

Daily technical indicators are showing downward momentum in bearish zones, and looking oversold. A technical bounce is a possibility. However, bears are likely to adopt a 'sell on rise' approach to maintain dominance.

On longer term weekly chart (not shown), the index dropped to seek support from its 50 week EMA, and closed well above its 200 week EMA in a long-term bull market. Weekly technical indicators are looking bearish and showing downward momentum.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 is falling deeper into bear territory. The index convincingly breached the long-term 'support/resistance' level of 7100, and the small 'double bottom' pattern formed last month.

All three EMAs are falling, and the index is trading below them in a bear market. The 'death cross' (marked by blue circle) of the 50 day EMA below the 200 day EMA had technically confirmed a bear market.

Daily technical indicators are showing downward momentum in bearish zones. All three are showing positive divergences by touching higher bottoms while the index fell lower.

A technical bounce is possible. Expect bears to use it as a selling opportunity. (At the time of writing this post, the index is trying to pullback to its Aug '16 top of 6955 after closing at 6923 on Fri. Mar 23.)

On longer term weekly chart (not shown), the index bounced up a bit after receiving support from its 200 week EMA, and closed well below its 20 week and 50 week EMAs. The 20 week EMA is about to cross below the 50 week EMA after 20 months. Weekly technical indicators are looking oversold. 

Sensex, Nifty charts (Mar 23, 2018): breakout below downward-sloping channels

FIIs were net buyers of equity worth Rs 25.2 Billion during the week. The bulk of their buying occurred on Fri. Mar 23, as per provisional figures.

DIIs were also net buyers of equity, worth Rs 2.1 Billion. They were net sellers of equity on Mon. & Fri. (Mar 19 & 23).

A possible trade war between US and China can lead to shrinking global trade volume and currency volatility - both of which will affect exports from India, according to a recent report by CARE Ratings.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex consolidated sideways near the lower edge of the downward-sloping channel from Mon. to Thu. (Mar 19 to 22), giving some hope to bulls.

Fears of a trade war between USA and China triggered a breakout below the downward-sloping channel with a 243 points 'gap' (marked 'Gap 2') on Fri. Mar 23.

The index closed below its 200 day EMA for the first time in 14 months, but received support from the 32550 level (lower edge of 'Support/resistance zone 1').

All four daily technical indicators are in bearish zones, but not showing any upward momentum. Any attempt at a pullback by the index is likely to face resistance from the 200 day EMA and 'Gap 2'.

Note that the 132 points downward 'gap' (marked 'Gap 1') on Feb 5 is a 'breakaway gap', while 'Gap 2' is looking like a 'measuring gap' that occurs in the middle of a (down or up) move. 

If 'Gap 2' does turn out to be a 'measuring gap' then the index will have a downward target of about 29725. Can it fall that far? Nothing is impossible if bears run riot - and a looming trade war may be just the incentive they need.

The zone between 31400 and 30700 (marked 'Support/Resistance zone 2') should provide good support. What if 30700 gets breached? Long-term support exists at 29800 - which is close enough to the downward target of the 'measuring gap' (Gap 2).

On longer term weekly Sensex chart (not shown), the 50 week EMA (at 32380) is likely to provide near-term support. Weekly Slow stochastic has entered oversold zone, and can trigger a technical bounce.

The rising 200 week EMA is at 28130. Even if the index falls below 30000, the long-term bullish structure of the Sensex chart will remain intact.

NSE Nifty index chart pattern

Bears are wresting control as the weekly bar chart pattern of Nifty broke out below the downward-sloping channel within which it was correcting after forming a 33 points downward 'gap' on Feb 5.

The index dropped below its 50 week EMA for the first time in almost 15 months and just managed to close on it.

Weekly technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in bullish zone. RSI is falling below its 50% level. ROC and Slow stochastic have entered their respective oversold zones, and can trigger a technical bounce.

Nifty's TTM P/E has moved down further to 24.38 - but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling in neutral zone, hinting at a technical bounce. 

Bottomline? Sensex and Nifty charts have broken out below downward-sloping channels - opening the doors to deeper corrections. Several recent IPOs have diverted liquidity from the secondary market. A 'sell on rise' strategy should continue to work well in the near-term.

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The bottom is falling out of the Indian stock market; should you sell now?

The bottom seems to be falling out of the Indian stock market. Re-imposition of LTCG tax (from Apr 1 '18) has badly dented bullish sentiment. Now, imposition of import tariffs by the US President has dented bullish sentiment in global stock markets.

Some experts are suggesting that this 'discount sale' in the Indian stock market won't last long, and investors should use the correction to buy. Others are suggesting that it is not a good idea to try and 'catch a falling knife'.

Small investors are in a quandary. Portfolio values are getting depleted on a daily basis. Is it better to sell and run? Or, hold and wait out the correction?

In a recent article in investopedia.com, Andrew Beattie has advised when to sell and when to hold. Read the article here.

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When should you 'hold' and When should you 'fold' a stock?

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

FIIs were net buyers of equity during all three trading days this week. Their net buying was worth Rs 7.3 Billion, as per provisional figures.

DIIs were net sellers of equity on Mon. Mar 19, but net buyers on Tue. & Wed. (Mar 20 & 21). Their total net buying was worth Rs 7.4 Billion.

The effect of several recent IPOs opening one after another is beginning to take its toll on liquidity. The HAL IPO scraped through because LIC picked up almost 70% of the stake on offer. 

The following was the concluding remark in last week's update on the daily bar chart pattern of Nifty: "The index may revisit and possibly breach last week's low of 10142."

Thanks partly to selling by DIIs on Mon. Mar 19, the index dropped to touch an intra-day low of 10075 and closed just below its 200 day EMA.

On Tue. Mar 20, Nifty formed a 'reversal day' bar by opening the day's trading below the channel but closing just above the 200 day EMA. The index rose further today on the back of combined FII and DII buying.

Nifty has been correcting within a downward-sloping channel ever since it formed a 33 points downward 'gap' on Feb 5 '18. Note that in spite of closing below its 200 day EMA, the index received good support from the lower edge of the channel.

Unlike a support (or resistance) level, which gets weakened by each subsequent test, a trend line gets strengthened by subsequent tests. That means, the down trend within the channel is not over yet.

Daily technical indicators are in bearish zones. All three showed positive divergences by not falling lower with the index. That may have triggered the technical bounce from the lower edge of the channel.

Nifty's TTM P/E has moved down to 24.76 - which is still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling sharply in neutral zone and can limit index upside.

Nifty may try to move up further, but is expected to face resistances from the falling 20 day and 50 day EMAs. A 'sell on rise' strategy within the channel should continue to work well for short-term traders.

Long-term investors need not be in a hurry to buy as better entry points may be available soon enough. However, gradual accumulation in good large-cap shares may not be a bad idea. (Have a look at ITC - now trading at a level seen a year back.) 

Gold and Silver charts: bears remain on top

Gold chart pattern

The following remark was made in the previous post on the daily bar chart pattern of Gold: "Any attempt at a rally will induce bear selling."

Gold's price did rally above its 20 day and 50 day EMAs - touching an intra-day high of 1342 on Wed. Mar 7, but closed much lower to form a 'reversal day' bar (higher high, lower close).

That was a trigger for bears to wrest control. Gold's price consolidated sideways till Mar 15, and tested support from the 'support/resistance zone' on Fri. Mar 16. 

On Mon. Mar 19, gold's price dropped inside the 'support/resistance zone' but bounced up to close higher - forming another 'reversal day' bar (lower low, higher close), as bulls fought back.

Daily technical indicators are in bearish zones, and not showing any upward momentum. The 'support/resistance zone' has withstood three tests in the past 5 weeks, but may get breached on a subsequent test.

The US Dollar index has been consolidating sideways during Mar '18 - which may explain why gold's price has gone nowhere.

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory.  Weekly technical indicators are in bullish zones, but showing downward momentum. Some more correction or consolidation is likely. 

Silver chart pattern

The formation of a 'double bottom' reversal pattern in the previous post on the daily bar chart pattern of Silver was expected to lead to a technical bounce.

The technical bounce did occur and took silver's price all the way up to its sliding 200 day EMA, which provided strong resistance. Bears jumped in with their successful 'sell on rise' strategy.

Silver's price dropped to close below its three EMAs in bear territory, but has bounced up from the support zone between 16.10 & 16.20.

Daily technical indicators are in bearish zones and showing downward momentum. Bulls have defended the support zone well - but for how much longer?

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

S&P 500 and FTSE 100 charts (Mar 16, 2018): bulls forced to retreat

S&P 500 index chart pattern

The following remark was made in last week's post on the daily bar chart pattern of S&P 500: "It may be a bit early for bulls to start celebrating." 

The index rose past its Feb 27 top of 2789 to touch an intra-day high of 2802 on Tue. Mar 13 but closed much lower, forming a 'reversal day' bar that triggered a pullback to the top of the 'triangle'.

The index touched an intra-day low of 2741 on Thu. Mar 15, but bounced up to close just above the 2750 level on Fri. Mar 16 - forming an 'inverted hammer' candlestick. The accompanying volume surge is often a sign of trend reversal.

Daily technical indicators are in bullish zones but not showing any upward momentum. MACD is moving sideways above its signal line. RSI is trying to rise after receiving support from its 50% level. 

Slow stochastic is showing negative divergence by touching a lower top and forming a 'double top' reversal pattern inside its overbought zone. Bears may try to press home their advantage.

The index is trading well above its rising 200 day EMA in a long term bull market. However, the sharp volatility during the past 6 weeks should be treated with caution.

On longer term weekly chart (not shown), the index formed a weekly 'reversal' bar and closed above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but not showing any upward momentum.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 failed to overcome resistance from its falling 20 day EMA, and dropped below the long-term 'support/resistance' level of 7200.

The index is trading below its three EMAs in a bear market that was technically confirmed by the 'death cross' (blue circle) of the 50 day EMA below the 200 day EMA.

Daily technical indicators are showing upward momentum. However, all three are in bearish zones. (At the time of writing this post, the index is trading below 7100.)

The 'double bottom' pattern may get tested.

On longer term weekly chart (not shown), the index closed below the support level of 7200. It remains 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 inside their oversold zones. RSI is falling below its 50% level.

Sensex, Nifty charts (Mar 16, 2018): correcting within downward-sloping channels

FIIs were net buyers of equity worth Rs 62.9 Billion during the week, but all their net buying occurred on Mon. & Tue. (Mar 12 & 13). They were net sellers Wed. through Fri. as per provisional figures.

DIIs were also net buyers of equity worth Rs 2 Billion. Their net buying occurred on Tue. & Thu. (Mar 13 & 15). They were net sellers on the other three days. 

During Q3 (Dec '17), India's Current Account Deficit (CAD) widened to US $13.5 Billion (2% of GDP) from $8 Billion (1.4% of GDP) in Q3 (Dec '16). The trade deficit ballooned to $44.1 Billion from $33.3 Billion a year ago due to higher imports.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex appears to be correcting within a downward-sloping channel after forming a 132 points 'gap' on Feb 5. The index tried to rally on the back of FII buying, but faced resistance from the sliding 50 day EMA on Tue. Mar 13.

On Wed. & Thu. (Mar 14 & 15), the index hovered near the top of the 'support/resistance zone' but dropped sharply on Fri. due to combined net selling by FIIs and DIIs.

On the downside, the index is likely to receive combined support from the lower edge of the downward-sloping channel, the 200 day EMA and the 32550 level. 

Daily technical indicators are in bearish zones. MACD is about to cross below its signal line. ROC is falling below its 10 day MA. RSI and Slow stochastic are falling below their respective 50% levels.

Expect the index to churn within the downward-sloping channel till the end of the month. Thereafter, annual results will determine the fate of individual stocks, but overall bearish sentiment will linger for a while.

The long-term structure of the chart remains bullish. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty has corrected for 6 weeks within a downward-sloping channel after forming a 33 points 'gap' on Feb 5.

The index closed below its 20 week EMA for the second straight week but continues to trade above its 50 week EMA in a bull market.

Weekly technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. RSI has slipped below its 50% level in neutral zone. ROC and Slow stochastic have fallen towards their respective oversold zones for the first time in 14 months.

Nifty's TTM P/E has moved down to 24.87 - but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling in neutral zone. A brief technical bounce is possible. 

Bottomline? Sensex and Nifty charts are in the midst of bull market corrections. Downward breakouts below downward-sloping channels can lead to deeper corrections. Several IPOs have opened for subscription. More are lined up till March-end. That will divert liquidity from the secondary market. Use a 'sell on rise' strategy in the near-term.

Should you 'average' down during a correction?

Interactions with small investors over the years throw up the same questions repeatedly. Here is a recent example:

"I bought 100 shares at 60. Bought 100 more at 80. The stock moved up to 100, but I didn't book profit. Now it has breached the stop-loss at 75 and fallen to 65. I am still holding. Can I 'average' now?"

Two mistakes have already been made: (1) not booking partial profits at 100; (2) not selling when the stop-loss was breached. Now the investor wants to 'correct' the two mistakes by committing a third - trying to buy a stock on the way down.

When a stock is correcting from a top, one needs to make an assessment of both the short term and long term trends. If the short term and long term trends are down, there is nothing to be gained and much to lose by 'averaging'.

There are no supports that can hold when bears go on the rampage. Better to take it on the chin and book a loss quickly instead of waiting for the stock to regain your 'buy' price. (Remember that the stock doesn't know or care about your 'buy' price.)

If the short term trend is down but the long term trend is up - in other words, a correction in a long term bull market - then 'averaging' can make some sense. 

However, the smart move will be to wait for the correction to be over and buy when the stock resumes its up move. This is easier said than done.

One has to be very savvy about support and resistance levels to decide when the correction is over and whether the resumption of the up move will be followed by another down leg or not.

That was the long answer to the question.

The short answer is: Never 'average' down. 'Averaging' on the way up is a better strategy.

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

FIIs and DIIs were net buyers of equity during the first three days of trading this week. FII net buying was worth a whopping Rs 71.4 Billion. DII net buying was worth Rs 7.2 Billion, as per provisional figures.

FIIs were net buyers on Mon. Mar 12 & Tue. Mar 13 but net sellers today. DIIs were net sellers on Mon. & today but net buyers on Tue. TCS share divestment may have caused Tuesday's large buying by FIIs and DIIs.

There was some good news on the macroeconomic front. IIP grew 7.5% in Jan '18 against 7.1% in Dec '17. Cumulative IIP growth during Apr '17 to Jan '18 was 4.1%.

CPI inflation eased to 4.4% in Feb '18 from 5.07% in Jan '18 on lower food prices. WPI inflation dropped to a 7 months low of 2.48% in Feb '18 from 2.84% in Jan '18.  

Oversold technical indicators had hinted at a technical bounce in last week's update on the daily bar chart pattern of Nifty. Thanks to FII buying, the technical bounce on Thu. & Fri. (Mar 8 & 9) turned into a bit of a rally on Mon. & Tue. (Mar 13 & 14).

Resistances from the falling 20 day EMA (on a closing basis) and the 50 day EMA appears to have stalled the rally.

The 33 points downward 'gap' - formed on Feb 5 '18 - is looming like a dark cloud on bullish aspirations. The index has formed a bearish pattern of 'lower tops and lower bottoms' below the 'gap'.

Daily technical indicators are looking mildly bullish. MACD has crossed above its signal line, but remains in bearish zone. RSI is again facing resistance from its 50% level. Slow stochastic has managed to move above its 50% level.

Nifty's TTM P/E has moved up to 25.41 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has dropped sharply from its oversold zone, keeping bullish hopes alive.

Despite strong buying by FIIs three days in a row (on Mar 9, 12, 13), Nifty failed to make much headway. Reintroduction of LTCG tax in the budget, followed by a series of frauds and scams in PSU banks have turned market sentiment bearish.

BJP's election reverses in recent by-polls in UP and Bihar will further dampen market sentiment. The index may revisit and possibly breach last week's low of 10142.

WTI and Brent Crude Oil charts: in bull market down trends

WTI Crude Oil chart

After forming a small 'double bottom' at 58 last month and rallying to 64 (refer previous post), the daily bar chart pattern of WTI Crude Oil faced strong resistance from the (purple) down trend line.

Since then, oil's price has been oscillating about its 20 day and 50 day EMAs - forming a bearish pattern of 'lower tops, lower bottoms'. The Feb '18 low of 58 has not been tested yet - keeping bullish hopes alive.

Oil's price closed below its 20 day and 50 day EMAs, but well above its rising 200 day EMA in a bull market. Daily technical indicators are in bearish zones - hinting at some more downside.

Surging US output on the back of onshore shale oil production is keeping a lid on oil's price.

On longer term weekly chart (not shown), oil's price closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators are in bullish zones but showing downward momentum. 

Brent Crude Oil chart

The daily bar chart pattern of Brent Crude Oil had formed a small 'double bottom' reversal pattern at 61.76 last month and rallied to 67.90, only to face strong resistance from the (purple) down trend line.

Oil's price has dropped below its entangled 20 day and 50 day EMAs, but is trading well above its rising 200 day EMA in a bull market.

Daily technical indicators are in bearish zones, and not showing any upward momentum. Some more correction or consolidation below the down trend line is likely.

On longer term weekly chart (not shown), oil's price closed above its three weekly EMAs in long-term bull territory. Weekly MACD and RSI are showing downward momentum in bullish zones. Slow stochastic is in bearish zone.

S&P 500 and FTSE 100 charts (Mar 09, 2018): bulls fighting back

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 rallied above its 20 day and 50 day EMAs after forming a 'reversal day' bar (lower low, higher close) on Mar 2.

On Fri. Mar 9, the index formed an upward 'gap' of 11 points and rose to close at the highest point of the day (2786.57). In the process, the index appears to have broken out above a large 'triangle' pattern.

It may be a bit early for bulls to start celebrating. Last week's rally was accompanied by sliding volumes. Also, the index needs to move convincingly above the Feb 27 top of 2789 for bulls to regain control.

Daily technical indicators are looking bullish. MACD has entered positive territory above its signal line. RSI has moved above its 50% level. Slow stochastic has bounced up from its 50% level.

Trump's import tariff on steel and aluminium may evolve into a global trade war, as the EU has threatened to retaliate. That will not be a desirable outcome for the global economy and stock markets.

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 in bullish zones. MACD is below its signal line. RSI and Slow stochastic are showing upward momentum.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 shows bulls are fighting back. By touching a slightly lower intra-day low of 7062 on Mar 5 and forming a 'reversal day' bar (lower low, higher close), the index appears to have formed a 'double bottom' reversal pattern.

The subsequent rally took the index above the long-term 'support/resistance' level of 7200, where the falling 20 day EMA is providing resistance. 

The 'death cross' of the 50 day EMA below the 200 day EMA has technically confirmed a bear market. Bulls have a lot of work left to regain any control. 

The Feb 27 top of 7326 is the first hurdle that needs to be crossed. Only then will the 'double bottom' pattern receive technical confirmation.

Daily technical indicators are turning bullish. MACD has crossed above its signal line in bearish zone. RSI is trying to move up in bearish zone.  Slow stochastic has crossed above its 50% level to enter bullish zone. 

On longer term weekly chart (not shown), the index appears to have formed a 'double bottom' reversal pattern and closed above 7200. It remains 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 sliding down inside their oversold zones. RSI is falling below its 50% level.

Sensex, Nifty charts (Mar 09, 2018): weak pullbacks after breakout below triangles

During the week, FIIs were net sellers of equity worth Rs 2.8 Billion as per provisional figures. However, they were net buyers of equity on Tue. Mar 6 and Fri. Mar 9.

DIIs were net buyers of equity worth Rs 1.3 Billion for the week, but they were net sellers of equity on Mon. Mar 5, Tue. and Fri. Sensex and Nifty lost about 2.2% each on a weekly closing basis.

Loan disbursals to India Inc. are taking a hit at this crucial time of fiscal year end as banks have turned defensive in the aftermath of the Punjab National Bank fraud.

BSE Sensex index chart pattern

The following comment was made in last week's post on the daily bar chart pattern of Sensex: "Since the 'triangle' has formed after a correction from the Jan 29 top, the likelihood of a downward breakout is higher."

After receiving support from the lower edge of the 'triangle' on Mon. Mar 5, the index broke out below it the next day and touched an intra-day low of 32991 on Wed. Mar 7 - correcting 9.5% from the Jan 29 lifetime high of 36444.

As often happens after a breakout below a consolidation zone, there was a pullback towards the lower edge of the 'triangle'. But the pullback effort was weak. 

Formation of a 'reversal day' bar (higher high, lower close) on Fri. Mar 9 has given bears another opportunity to sell. A test of support from the 200 day EMA and the lower boundary of the 'support/resistance zone' seems imminent.

Daily technical indicators are in bearish zones. MACD is falling below its signal line. ROC is moving sideways below its 10 day MA. RSI has bounced up from the edge of its oversold zone. Slow stochastic is inside its oversold zone.

Note that ROC and RSI touched higher bottoms while the index dropped lower on Wed. Mar 7. The positive divergences probably triggered the pullback. There was no divergence confirmation from MACD or Slow stochastic - which may explain the weak pullback.

Bulls can be expected to defend the 200 day EMA strongly, which in turn can lead to some sideways consolidation within the 'support/resistance zone'. Unless FIIs start buying in a big way, the index is likely to fall below its 200 day EMA. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty broke out sharply below the 'symmetrical triangle' pattern within which it was consolidating for 4 weeks. The index closed below its 20 week EMA for the first time in 14 months.

The 50 week EMA is still rising, and the index is trading above it in a bull market. However, a test of support from the 50 week EMA - and a possible breach - seems on the cards.

Weekly technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. ROC is falling rapidly in bearish zone. Slow stochastic is sliding down in bearish zone. RSI is meandering sideways in neutral zone. 

The 50 week EMA (at 10000) is looking vulnerable. Bulls can put up a fight to defend it - leading to some sideways consolidation below the 'triangle'.

Nifty's TTM P/E has moved down to 24.97 - but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone, and can limit index downside. 

Bottomline? Sensex and Nifty charts are undergoing bull market corrections. Downward breakouts below 'symmetrical triangle' patterns can lead to deeper corrections. Several IPOs lined up till March-end will divert liquidity from the secondary market. Use a 'sell on rise' strategy in the near-term.

Strategies to Volatility-Proof Your Portfolio

Stock markets worldwide have become quite volatile of late. The first sign of correction has sent many small investors scampering towards the exit door, thinking worse is to follow.

Others have jumped into the market in search of bargains, thinking that markets can't fall much further and the time to buy is now.

Investors who have experienced previous corrective moves and have longer-term views are probably using the market upheaval to rebalance their portfolios. 

A recent article in investopedia.com has suggested strategies for making your portfolio volatility-proof. Read it here.

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

FIIs and DIIs were both net sellers of equity during the first four trading days of Mar '18. FIIs were buyers and sellers on alternate days. DIIs were net sellers on the first three days and net buyers today.

The upshot of all the buying and selling? FIIs were net sellers of equity worth Rs 2.2 Billion. DIIs were net sellers worth Rs 4.8 Billion. Nifty broke out below a 'triangle' pattern within which it had been consolidating since forming a 33 points downward 'gap' on Feb 5.

Nikkei India's Services PMI fell to 47.8 in Feb '18 from 51.7 in Jan '18. (A figure below 50 indicates economic contraction.) The Manufacturing PMI was 52.1 in Feb '18 against 52.4 in Jan '18. The Composite index (Services + Manufacturing) dropped to 49.7 in Feb '18 against 52.5 in Jan '18.

The following comments were made in the previous midweek technical update on the daily bar chart pattern of Nifty: "..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."

Note that the 20 day EMA has already crossed below the 50 day EMA, and both EMAs are falling. The index moved down to test support from the 200 day EMA and touched an intra-day low of 10142 today before closing just above the 10150 level.

Daily technical indicators are showing strong downward momentum in bearish zones. MACD and RSI are on the verge of entering their respective oversold zones. Slow stochastic has entered its oversold zone. 

A technical bounce/pullback towards the lower edge of the triangle is possible. Such a pullback may be used by bears to sell again.

Nifty's TTM P/E has moved down to 24.79 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply towards its oversold zone, and can limit near-term index downside.

Will Nifty breach the 200 day EMA and fall into bear territory? With FIIs and DIIs in selling mode, the probability is very high. Where will be the next likely supports? See the 2 years closing chart of Nifty below:

The 'support/resistance zone' between 9700 & 9500 should provide strong support. Expect some value buying to emerge in the zone between 10000 & 9700. What if the index falls below 9500?

There is some support around 9300, and much stronger support at 9000. [Note that 9050 is the 50% Fibonacci retracement level of the entire bull rally from the Feb '16 closing low to the Jan '18 closing high.]

Can the index fall below 9000? It doesn't seem likely at this stage, but nothing is impossible when bears go on the rampage. If 9000 gets breached, a bear market will begin. Though the probability is low, one needs to know the worst case scenario.

Gold and Silver charts: face strong bear attacks

Gold chart pattern

Note the following comments from the previous post on the daily bar chart pattern of Gold: "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."

The second technical confirmation was received when gold's price touched an intra-day low of 1303.60 on Mar 1, and closed at 1305.20. The downward target of the 'double top' pattern is 1255. Will gold's price fall there?

The possibility can't be ruled out. The US Dollar index has bounced up after forming a 'double bottom' at 88.50 (on a closing basis). If the Dollar index continues to recover, gold's price should move down.

Note that the 'support/resistance zone' between 1300 & 1310 provided good support, helping gold's price to bounce up. The rising 200 day EMA will be defended strongly by bulls in case gold's price falls below 1300.

Daily technical indicators are in bearish zones, and not showing much upward momentum. Any attempt at a rally will induce bear selling.

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory, but has formed a 'double top' reversal pattern.  Weekly technical indicators are in bullish zones, but showing downward momentum. Some more correction is possible. 

Silver chart pattern

The following comment was made in the previous post on the daily bar chart pattern of Silver: "Expect bears to 'sell on rise'." 

So they did. Silver's price faced strong resistance from its falling 50 day EMA and closed below its three EMAs in bear territory.

However, by touching a low of 16.10 on Mar 1, silver's price has formed a 'double bottom' reversal pattern which can lead to a technical bounce.

Daily technical indicators are in bearish zones, but showing neither upward nor downward momentum. Some sideways consolidation is likely before bears take complete control.

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 sliding down in bearish zones.