WTI and Brent Crude Oil charts: bears trying to keep bulls under control

WTI Crude Oil chart

After breaking out below a 'diamond' reversal pattern, the daily bar chart pattern of WTI Crude Oil has been consolidating sideways within a 'symmetrical triangle' pattern. The 50 day EMA is bisecting the 'triangle'.

A 'triangle' is usually a continuation pattern. So, the likely breakout should be below the pattern. However, a 'triangle' is also an unreliable pattern. Since the pattern has formed above the rising 200 day EMA in a bull market, an upward breakout can't be ruled out.

It may be prudent to wait for the breakout before initiating any buy/sell action.

Daily MACD and RSI are in neutral zones, and not showing upward momentum. Stochastic is rising above its 50% level. (At the time of writing this post, oil's price has retreated a bit after facing resistance from the upper edge of the 'triangle'.)

On longer term weekly chart (not shown), oil's price received support from its 20 week EMA, and closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators have corrected overbought conditions, and are showing downward momentum in bullish zones. A bit more consolidation is possible before a breakout from the 'triangle'.

Brent Crude Oil chart

The following comment appeared in the previous post on the daily bar chart pattern of Brent Crude Oil: "Slow stochastic is seeking support from the edge of its oversold zone, and can trigger a technical bounce."

The expected technical bounce turned into a 2 weeks long rally that has formed a bearish 'flag' pattern, from which the likely breakout is downwards.

Oil's price is trading above its rising 200 day EMA in a bull market. A downward breakout from the 'flag' may not lead to a deep correction.

Daily technical indicators are turning bullish. MACD has formed a bullish 'rounding bottom' pattern, and crossed above its signal line in bearish zone. RSI has moved up to its neutral zone. Stochastic has entered its overbought zone, and can trigger a correction.

On longer term weekly chart (not shown), oil's price closed above its three weekly EMAs in long-term bull territory. Weekly MACD is falling below its signal line in bullish zone. RSI has bounced up after receiving support from its 50% level. Stochastic has bounced up after receiving support from the edge of its oversold zone.

S&P 500 and FTSE 100 charts (Jul 27, 2018): bulls on top but bears still fighting

S&P 500 index chart pattern

It took almost 6 months but bulls finally managed to fill the downward 'gap' formed on Jan 30 on the daily bar chart pattern of S&P 500. By touching an intra-day high of 2848 and closing 2 points lower on Jul 25, the 'gap' between 2838 and 2851 (refer last week's post) was almost completely filled.

Bears expectedly put up a fight to defend the 'gap'. The index dropped and closed below the 'gap' on Jul 26. That was a trigger for bears to go on the offensive. On Fri. Jul 27, the index dropped sharply below 2820 before recovering to close at 2819.

Daily technical indicators are showing downward momentum in bullish zones. MACD has started to fall towards its rising signal line. RSI is falling after facing resistance from the edge of its overbought zone. Slow stochastic has dropped sharply from its overbought zone.

The index is trading above its three EMAs in a bull market. However, some more correction or consolidation is likely before the index can move up to a new high.

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 rising in bullish zones. Slow stochastic is showing negative divergence by starting to correct inside its overbought zone. 

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 touched a lifetime high of 7903.50 on May 22 '18. Since then, it has been consolidating sideways, and may be forming a 'saucer' or a 'cup and handle' pattern. Both are bullish continuation patterns.

Daily technical indicators are giving mixed signals, which is often the case during periods of sideways consolidation. MACD is moving sideways with slight upward bias, and is above its signal line in bullish zone. RSI is moving sideways just above its neutral zone. Slow stochastic is oscillating below its overbought zone.

Expect the consolidation to continue till the index can move above the 7800 level. (At the time of writing this post, the index is trading above 7680.)

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but giving conflicting signals. MACD is moving sideways. RSI is rising gradually. Slow stochastic is sliding down.

Sensex, Nifty charts (Jul 27, 2018): bulls finally on top after 6 months

FIIs decided to join the bull bandwagon, and were net buyers of equity on four out of five trading days last week. Their total net buying was worth Rs 23.6 Billion. DIIs were also net buyers of equity on four out of five trading days. But their net selling on Thu. Jul 26 exceeded their total net buying by Rs 15.7 Billion, as per provisional figures.

India's gold imports, which has an adverse impact on Current Account Deficit (CAD), increased 22.3% to US $33.65 Billion in FY 2017-18 against US $27.51 Billion in FY 2016-17 and US $31.7 Billion in FY 2015-16. 

FDI in the food processing sector rose 24% to US $0.9 Billion in FY 2017-18 against US $0.73 Billion in FY 2016-17 and US $0.5 Billion in FY 2015-16.

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 combined FII and DII buying. Though led by large-cap stocks, there were signs of beaten up mid-cap and small-cap stocks joining the rally.

The up trend line drawn through Mar '18 and Jun '18 lows should act as near-term support for the index rally. All three EMAs are rising, and Sensex is trading above them in a bull market.

Bears have been routed, and it is time for bulls to celebrate. However, daily technical indicators are looking overbought. ROC is showing negative divergence by touching a lower top.

An index can remain overbought for long periods. That doesn't mean investors should throw caution to the wind and jump in with both feet. Euphoria at an all-time high can cause wealth destruction if stocks are not picked very carefully.

Large-cap stocks that have led the rally so far may undergo rotation. (TCS and HUL stocks have been correcting of late.) Mid-cap and small-cap stocks will attempt to play catch-up, but are likely to face profit booking from those stuck at higher levels.

NSE Nifty index chart pattern

After struggling for 6 months, Nifty has finally managed to move above its previous top of 11172 and closed at 11278. An up trend line drawn through the Mar '18 and Jun '18 lows should act as near-term support to Nifty's rally.

The index is trading above its two weekly EMAs in a long-term bull market, and should rise higher. Don't expect a one-way rally, as profit booking is inevitable at a new high.

Weekly technical indicators are looking overbought and showing upward momentum. MACD is rising above its signal line in bullish zone. ROC, RSI and Slow stochastic are inside their respective overbought zones. RSI is showing negative divergence by not rising higher with the index. 

Remember that an index can remain overbought for long periods. If you have missed the rally by not holding large-cap stocks in your portfolio, don't go 'all in' now. Enter in SIP mode, or wait for dips to enter/add. 

Nifty's TTM P/E is 28.02 - which is well above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone, and can limit near-term index upside.

Bottomline? Bulls have finally broken out of bear grips on Sensex and Nifty charts. Some profit booking can be expected at new highs. Bear markets in Midcap and Smallcap indices remain worrying signs.

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Nifty chart: a midweek technical update (Jul 25, 2018)

FIIs were net buyers of equity during the first two trading days this week, but net sellers today. Their total net selling was worth Rs 8.3 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 7.4 Billion, as per provisional figures.

Nifty had 'lost' 1220 points from its lifetime high of 11172 (touched on Jan 29 '18) to its low of 9952 (touched on Mar 23 '18). By touching a high of 11157 today, 1205 of the 'lost' 1220 points have been regained - but the index has taken more than twice the amount of time to do so.

German agro-chemical major Bayer, International Finance Corporation, Netafim and Swiss Re Corporate Solutions launched the 'Better Life Farming' alliance to provide innovative solutions for smallholder farmers in developing economies to help them raise their incomes. The global alliance has now roped in local partners - Yara Fertilisers, DeHaat and Big Basket in India - to scale up its operations. 

The following remark was made in last week's technical update on the daily bar chart pattern of Nifty: "... expect the index to cross above the 'resistance zone' to a new lifetime high sooner than later."

The index crossed above the 'resistance zone' on Tue. Jul 24, and pulled back to the top of the 'resistance zone' today. It should make an attempt to touch a new high any time.

All three EMAs are rising, and the index is trading well above them - and the (purple) up trend line - in a bull market. 

Daily technical indicators are in bullish zones, and looking overbought. MACD is rising above its signal line. RSI is facing resistance from the edge of its overbought zone. Slow stochastic is showing negative divergence by failing to rise higher with the index, and may be forming a 'double top' reversal pattern inside its overbought zone. 

Nifty's TTM P/E has moved up to 27.66 - which is much higher than its long-term average and in overbought zone. The breadth indicator NSE TRIN (not shown) has bounced up from the edge of its overbought zone. Expect some index consolidation or correction.

A handful of large-cap stocks have propelled the index higher while mid-caps and small-caps have been battered out of shape. Many small investors who are facing deep cuts in their portfolio value should avoid the tendency to 'average down' - it may increase losses.

Benjamin Graham had suggested that an equity portfolio should have 75% or more in large-cap stalwart stocks and not more than 25% in mid-cap/small-cap stocks. At times like these, one appreciates the wisdom behind such an asset allocation plan. 

Gold and Silver charts: in strong bear grips

Gold chart pattern

The daily bar chart pattern of Gold faced strong resistance from its falling 20 day EMA after a short pullback rally, and resumed its correction from the Apr '18 top of 1370.

'Support/Resistance zone 2' (between 1237 & 1248) provided only a few days' support before gold's price plunged down to touch an intra-day low of 1212 on Jul 19th. A brief technical bounce faced resistance from 1237 level and closed lower.

Daily technical indicators are looking bearish and oversold. RSI and Slow stochastic showed positive divergences by touching higher bottoms while gold's price dropped lower. The subsequent technical bounce was weak.

Gold's price is trading below its three falling EMAs in a bear market.

On longer term weekly chart (not shown), gold’s price closed well below its three weekly EMAs in long-term bear territory.  Weekly technical indicators are looking bearish and oversold. The 50 week EMA has formed a bearish 'rounding top' pattern and is falling towards the 200 week EMA.

Silver chart pattern

Bears were expected to sell on every rise on the daily bar chart pattern of Silver, and so they did. A brief pullback rally from the 'Support/Resistance zone' (between 15.60 & 15.80) faced strong resistance from the falling 20 day EMA.

Silver's price received the briefest of supports from the 'Support/Resistance zone' before plunging to an intra-day low of 15.14 on Jul 19th. The subsequent technical bounce faced resistance from 15.60 level and closed lower.

Daily technical indicators are looking bearish and oversold. Slow stochastic showed positive divergence by not falling lower with silver's price, but triggered only a weak pullback.

Silver's price is trading well below its three falling EMAs in a bear market.

On longer term weekly chart (not shown), silver’s price closed below its three falling weekly EMAs in a long-term bear market. Weekly technical indicators are falling in bearish zones. Slow stochastic has dropped inside its oversold zone.

S&P 500 and FTSE 100 charts (Jul 20, 2018): bulls regaining control but still facing bear resistance

S&P 500 index chart pattern

Note the following comment from last week's post on the daily bar chart pattern of S&P 500: "A convincing move above 2800 is likely to face resistance from the 'downward gap' formed back in Jan '18."

The index touched an intra-day high of 2817 on Wed. Jul 18 - well short of the 'GAP' (formed back in Jan '18) - and dropped back towards 2800 to close absolutely flat on a weekly basis.

Strong volumes on Thu. & Fri. (Jul 19 & 20) - both down-days - show bears are not ready to yield ground without a fight. All three EMAs are rising, and the index is trading above them in a bull market.

Daily MACD and RSI are in bullish zones, but not showing any upward momentum. Slow stochastic is inside its overbought zone and beginning to correct. All three indicators are showing negative divergences by failing to rise higher with the index.

Some more correction or consolidation is likely before the index makes another attempt to close the 'GAP'. Trump's trade war with China may lead to a currency war, which is making bulls hesitant.

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market, but formed a 'doji' candlestick. Weekly MACD and RSI are in bullish zones. Slow stochastic is rising inside its overbought zone. RSI is showing negative divergence by not rising higher with the index.

FTSE 100 index chart pattern

After touching a lifetime high of 7903.50 on May 22 '18, the daily bar chart pattern of FTSE 100 has been consolidating sideways, and appears to be forming a 'saucer' or a 'cup and handle' pattern. Both are bullish continuation patterns.

Daily technical indicators are giving mixed signals, which is often the case during periods of sideways consolidation. MACD is moving sideways above its signal line in bullish zone. RSI and Slow stochastic are in neutral zones and showing downward momentum.

Expect the consolidation to continue for a while. (At the time of writing this post, the index is trading a little below 7650.)

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

Sensex, Nifty charts (Jul 20, 2018): bull rallies pause after upward breakouts

FIIs were net sellers of equity on three out of five trading days last week. Their total net selling was worth Rs 12.1 Billion. DIIs were net buyers of equity on three out of five trading days. Their total net buying was worth Rs 13 Billion, as per provisional figures.

The GST Council has given a monsoon bonanza to consumers by reducing tax rates on items like washing machines, refrigerators, vacuum cleaners, water coolers, water heaters, small TVs, electric irons, paints, varnish, handicraft items.

Trade issues and higher US interest rate could create outward capital flow pressure for India, but risks this year are more moderate compared with 2013, according to S&P Global Ratings. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex touched a new intra-day high of 36748 on Wed. Jul 18, but closed much lower - forming a 'reversal day' bar (higher high, lower close). The index traded within a 490 points range during the week, and lost 46 points on a weekly closing basis.

Daily technical indicators are in bullish zones, but looking overbought and not showing much upward momentum. Next week is F&O expiry week, so trading activity may remain muted.

All three EMAs are rising, and the index is trading above them in a bull market. However, a pullback towards the recently-breached down trend line remains a possibility.

The following comment was made in last week's post: "The broader market - particularly mid-cap and small-cap stocks - have not participated in the rally so far."

Actually, they have done much worse. (Thanks to reader Abhishek for pointing this out.) Take a look at almost identical BSE Midcap and BSE Smallcap chart patterns below:

BSE Midcap index & BSE Smallcap index chart patterns 

Both Midcap and Smallcap indices have touched lower tops and lower bottoms since their Jan '18 peaks, and have dropped into bear markets. All three EMAs are falling, and the indices are trading below them. 

The 'death cross'es (marked by light blue ovals of 50 day EMAs crossing below 200 day EMAs on both charts) have technically confirmed bear markets.

Daily technical indicators are in bearish zones, and not showing much upward momentum - but showing positive divergences by not falling lower with the indices. Some consolidation or technical bounces are possibilities.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty failed to make much progress after breaching the down trend line a week ago. The weekly bar formed a 'doji' candlestick that indicates indecision among bulls and bears. The index lost 9 points on a weekly closing basis.

Both weekly EMAs are rising, and the index is trading above them in a bull market. However, higher volumes on recent down-weeks are hinting at a pullback towards the down trend line.

Weekly technical indicators are in bullish zones but not showing much upward momentum. RSI and Slow stochastic are looking overbought. ROC has started correcting.

Nifty's TTM P/E is 27.36 - which is well above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) has dropped towards its overbought zone, and can limit near-term index upside.

Bottomline? Bulls are taking a breather after triggering breakouts above down trend lines on Sensex and Nifty charts. Some more consolidation or correction will enable both indices to move higher. Bear markets in Midcap and Smallcap indices are worrying signs.

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Nifty chart: a midweek technical update (Jul 18, 2018)

FIIs were net sellers of equity during the first two trading days this week, but net buyers today. Their total net selling was worth Rs 12 Billion. DIIs were net sellers on Mon. Jul 16 but net buyers on the next two days. Their total net buying was worth Rs 7.7 Billion, as per provisional figures.

India's WPI inflation touched 5.8% in Jun '18, compared with 4.4% in May '18 and an upwardly revised 3.6% in Apr '18. It was the highest level touched by WPI since Dec '13 (5.9%). Higher crude oil, cotton, vegetable prices and electricity tariffs were the main culprits.

In a classic case of 'sell on news', HUL stock dropped by more than 100 points after announcing good Q1 (Jun '18) results. Good numbers were also declared by Federal Bank, Bandhan Bank, ICICI Lombard, Zee Entertainment. Jindal Stainless, Cyient, Hindustan Media Ventures, GM Breweries came out with disappointing numbers.

In last week's technical update on the daily bar chart pattern of Nifty, a few technical reasons were cited to warn bulls. The index subsequently crossed above 11050 on intra-day basis three occasions, but failed to close above 11025.

The 'resistance zone' between 10950 and 11120 is being used by bears to make a last stand. The index is trading well above its three rising EMAs and the (purple) up trend line in a bull market. So, expect the index to cross above the 'resistance zone' to a new lifetime high sooner than later.

Daily technical indicators are in bullish zones, but not showing much upward momentum. MACD is moving sideways above its signal line. RSI is moving sideways above its 50% level. Slow stochastic is about to fall from its overbought zone. 

Nifty's TTM P/E has moved up to 27.28 - which is much higher than its long-term average and in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating in neutral zone, hinting at some index consolidation or correction.

Oil's price has moderated a bit. But rising inflation may force RBI to raise interest rates during its Aug '18 monetary policy meeting. Manufacturing activity is not showing any significant uptick. The macroeconomic environment is not conducive to growth.

Investors should be cautiously optimistic and remain stock and sector specific in their buying, because the rally from the Mar '18 low has not been broad-based. 

(Note: Thinking of buying quality mid-cap and small-cap stocks but not sure which ones to pick? Subscribe to my Monthly Investment Newsletter. Paid subscriptions are being offered to blog visitors, followers and subscribers for three more days only - till Jul 21, 2018. Contact me at mobugobu@yahoo.com for details.)

WTI and Brent Crude Oil charts: bears fight back as supply worries ease

WTI Crude Oil chart

The following comments were made in the previous post on the daily bar chart pattern of WTI Crude Oil: "The speculative nature of oil's price rise last week is visible on the sliding volume bars and the sharp price rise above the three daily EMAs. Such sudden price spikes are unsustainable."

Oil's price formed a 'diamond' reversal pattern that tends to mark a price top - from which a sharp downward breakout occurred on Wed. Jul 11. After a brief upward bounce from the 50 day EMA, oil's price had another sharp fall towards the 'support-resistance zone' (between 66 and 67).

Daily technical indicators have corrected overbought conditions, and are showing downward momentum. MACD is falling below its signal line in bullish zone. RSI and Slow stochastic are falling below their respective 50% levels. 

The rising 200 day EMA suggests that the bull market is alive. However, some more correction is likely.

Evidence is mounting that Saudi Arabia is heeding US President Donald Trump's call for OPEC to keep the oil market amply supplied and rein in prices.

On longer term weekly chart (not shown), oil's price received support from its 20 week EMA, and closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators have corrected overbought conditions, and are showing downward momentum in bullish zones. Some more correction is possible.

Brent Crude Oil chart

The daily bar chart pattern of Brent Crude Oil had formed a small 'double top' reversal pattern in May '18, followed by a correction within a 'flag' pattern. An upward breakout from the 'flag' in Jun '18 was followed by the formation of a second 'double top' reversal pattern.

A sharp downward breakout occurred from the second 'double top' on Wed. Jul 11, which dropped oil's price to the 73 level. A brief upward bounce faced resistance from the 50 day EMA. 

Another sharp fall towards the 'support-resistance zone' (between 70 and 71.30) on Mon. Jul 16 has put bulls on the back foot. However, oil's price continues to trade above its rising 200 day EMA in a bull market.

Daily technical indicators are in bearish zones, and showing downward momentum. Slow stochastic is seeking support from the edge of its oversold zone, and can trigger a technical bounce.

On longer term weekly chart (not shown), oil's price closed below its 20 week EMA, but above its 50 week and 200 week EMAs in long-term bull territory. Weekly technical indicators are turning bearish. MACD is falling below its signal line in bullish zone. RSI and Slow stochastic are seeking support from their respective 50% levels.

S&P 500 and FTSE 100 charts (Jul 13, 2018): bulls wresting control but bears still resisting

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: "A convincing breakout above the 'triangle' and a move above the 2800 level will put bulls back on track to regain control of the chart. Bears will try to make their progress as difficult as possible."

The index broke out above the down trend line of the large 'symmetrical triangle' on Mon. Jul 9, but without a significant increase in volumes that would have technically validated the breakout.

Though the index rose higher on Tue. Jul 10, it failed to reach the 2800 level. A pullback to the down trend line on Wed. Jul 11 was followed by an upward bounce that just about managed to close above 2800.

Daily technical indicators are in bullish zones. MACD is rising above its signal line. RSI and Slow stochastic are moving sideways. All three are showing negative divergences by failing to rise higher with the index.

Some consolidation or correction is possible. The index is trading above its three rising EMAs in a bull market. A convincing move above 2800 is likely to face resistance from the 'downward gap' formed back in Jan '18.

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing negative divergences by not rising higher with the index.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 had touched a lifetime high of 7903.50 on May 22 '18. Since then, it had been trading within a downward sloping channel (also called a 'flag').

By not dropping to the lower edge of the 'flag', the index was expected to breakout above the 'flag'. It did so on Mon. Jul 9, only to pull back inside the 'flag' on Wed. Jul 11 - where it received support from its 50 day EMA.

The subsequent upward bounce was again not accompanied by a surge in volumes (not shown) that would have technically validated the upward breakout. (At the time of writing this post, the index has pulled back to the top of the 'flag'.)

What had looked like a bullish 'flag' pattern is now beginning to look more like a 'saucer' or a 'cup and handle' pattern. Both patterns - if they get formed - have bullish implications. The index is trading above its three EMAs in a bull market.

Daily technical indicators are looking neutral to bullish. MACD and RSI are moving sideways in neutral zones. Slow stochastic is in bullish zone, but not showing much upward momentum.

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

Sensex, Nifty charts (Jul 13, 2018): bulls overcome bear resistance

FIIs were net sellers of equity on four out of five trading days last week. Their total net selling was worth Rs 18 Billion. DIIs were net buyers of equity on all five days. Their total net buying was worth Rs 22.9 Billion, as per provisional figures.

In twin setbacks for India's economy, CPI inflation increased to 5% in Jun '18 from 4.87% in May '18 while IIP moderated to a 7 months low of 3.2% in May '18 from 4.7% in Apr '18.

India's trade deficit widened to a 5 year high of US $16.6 Billion in Jun '18 from US $14.6 Billion in May '18 due to a surge in oil prices and a weaker Rupee against the US Dollar. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex shows that bulls have successfully overcome the resistance of bears - thanks to sustained buying by DIIs. The down trend line that dominated the chart for more than 5 months has been comprehensively breached.

The index touched a new lifetime high of 36740 on Fri. Jul 13, but closed a shade lower to form a small 'reversal day' bar that can lead to a pullback towards the breached down trend line. That may be an opportunity for entry for those who missed buying on the break out.

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone; RSI has entered its overbought zone. Both are showing negative divergences by failing to touch new highs with the index. ROC and Slow stochastic have started to move down inside their respective overbought zones.

Sensex is trading well above its three rising EMAs in a bull market. However, just a handful of index stocks have been mainly responsible for the rally from the Mar '18 low. The broader market - particularly mid-cap and small-cap stocks - have not participated in the rally so far.

That can change if Q1 (Jun '18) results of India Inc. start to show earnings improvement. Stock picking skills will get tested at a market top. It is better to err on the side of caution. Use the SIP approach. Avoid impulsive buying in bulk. 

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty finally breached the down trend line that had dominated the chart for the previous 23 weeks. Note that the surge in volumes that technically validates an upward breakout was missing. A pullback towards the trend line is a possibility.

The index is trading well above its two rising weekly EMAs in a bull market. Any pullback towards the trend line can be a buying opportunity.

Weekly technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. ROC is about to cross above its 10 week MA and enter its overbought zone. RSI and Slow stochastic are moving sideways inside their respective overbought zones, and showing negative divergences by failing to rise higher with the index.

Nifty's TTM P/E has moved up to 27.38 - which is well above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) has dropped towards its overbought zone, hinting at some correction or consolidation.

Bottomline? Bulls have overcome four straight weeks of strong bear resistance by triggering a break out above down trend lines on Sensex and Nifty charts. Some  consolidation or correction will improve the technical 'health' of the charts. No need to feel euphoric yet, as only a few large-cap stocks have been responsible for the rallies from the lows of Mar '18.

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5 Stocks contributed Half of Nifty's 1000 point Rally from its Mar '18 low

"Nifty 50 has gained more than 1,000 points from its previous low in March, with the benchmark index taking 76 sessions to chart the journey.

The 50-stock gauge beat small- and mid-cap indices on returns but lagged the Nifty Bank Index during the period. It’s now trading close to its all-time high that the index scaled in January before it started retreating.

The market rallied on the back of short-covering and buying in selective stocks while mid caps underperformed during the period..."

Read more at:

https://www.bloombergquint.com/charts/2018/07/12/what-contributed-to-niftys-1000-point-jump-from-march-low

Nifty chart: a midweek technical update (Jul 11, 2018)

FIIs were net sellers of equity during the first two trading days this week, but net buyers today. Their total net buying was worth Rs 0.5 Billion. DIIs were net buyers on all three days. Their total net buying was worth Rs 10.5 Billion, as per provisional figures.

The GST Council may consider reduction in tax rates on several goods and services with low revenue implications as part of the tax rationalisation exercise in its next meeting on July 21.

Q1 (Jun '18) results season of India Inc. has started with a bang. TCS reported better than expected numbers. IndusInd Bank turned out another solid quarter. Prakash Ind. announced spectacular triple-digit growth in net profit.  

After being thwarted by bears a few times, the daily bar chart pattern of Nifty finally broke out above the (purple) down trend line that had dominated the chart for more than 5 months.

All three EMAs are rising, and the index is trading above them in a bull market. Time for bulls to start celebrating? Yes, but with a less vigorous approach. Why?

There are a few technical reasons: 
1) volumes (not shown) accompanying the breakout on Mon. Jun 9 were moderate - not sufficiently strong to technically validate the breakout; 2) the index has moved a bit far above its 20 day EMA, which is a sign of an overbought condition; 3) negative divergences visible on MACD and RSI, which touched lower tops than their May '18 tops, while the index has moved higher; 4) today's trading has formed a 'doji' candlestick that may be part of a bearish 'evening star' pattern (which will get confirmed only if tomorrow's trading forms a bear candle).

As often happens after a breakout, a pullback towards the down trend line can be expected. Can the pullback cause the index to drop below the down trend line? The possibility can't be ruled out at this stage.

Daily technical indicators are bullish, and looking overbought. MACD has crossed above its signal line, and rising towards overbought zone. RSI is also rising towards its overbought zone, but its upward momentum has reduced. Slow stochastic is well inside its overbought zone, and can trigger a pullback towards the down trend line.

Nifty's TTM P/E has moved up to 27.2 - which is much higher than its long-term average and in overbought zone. The breadth indicator NSE TRIN (not shown) is falling in neutral zone, and may limit near-term index up side.

Trump has announced more tariff's on Chinese imports. FIIs are fleeing Asian emerging markets. Oil's price remains high, and can go higher. Rupee is tumbling against the US Dollar, and RBI is forced to sell Dollars to prevent a Rupee free fall. Inflation is rising, and interest rates will follow. Lots of IPOs are in the pipeline. 

The macro environment is not conducive for a sustained bull rally. Stay invested, but don't feel euphoric about this week's Nifty breakout.

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