Sunday, September 30, 2018

Sensex, Nifty charts (Sep 28, 2018): corrective moves approach support zones

FIIs were net buyers of equity on Thu. (Sep 27), but net sellers on the other four days. Their total net selling was worth Rs 37.1 Billion. DIIs were net sellers of equity on Thu. but net buyers on the other four days. Their total net buying was worth a huge Rs 84.4 Billion, as per provisional figures.

Demand for services and manufactured goods slowed in Aug. '18, while a cross-section of high-frequency indicators compiled by Bloomberg News suggest economic growth may moderate in the coming months from an 8%-plus pace in the Apr-Jun '18. 

A recent report by the United Nations Conference on Trade and Development (UNCTAD) stated that trade tariff tussle between USA and China is a symptom of a "deeper malaise". The report added that four BRICS nations, including India, are doing better because of their domestic demands.

BSE Sensex index chart pattern



After the panic selling on Fri. Sep 21, the daily bar chart pattern of Sensex got some respite from bears by consolidating sideways in a range during the week. On Fri. Sep 28, the index slipped 8 points below the low of 35993 touched on Sep 21 - proving the market adage 'Panic bottoms seldom hold'.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line in bearish zone. ROC is below its falling 10 day MA in oversold zone. RSI and Slow stochastic have re-entered their respective oversold zones. Any technical bounce may encounter more bear selling.

The support zone mentioned in last week's post - based on 50% and 61.8% Fibonacci retracement levels of the rally from the Mar '18 low and Aug '18 top - has been marked on the chart. The 200 day EMA is inside the support zone. 

Bulls can be expected to put up a fight to defend the support zone. Note that heavy buying by DIIs during the week failed to prevent the index from touching a lower low. That is a clear indication that HNIs and small investors have joined FIIs in rushing through the exit door.

Stay calm and sit on the sidelines. If you have spare savings that you are waiting to invest, wait a little longer. The prudent thing to do would be to buy when the market is on the way up than when it is on the way down.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty closed lower for the fourth straight week, touching a low of 10850 before bouncing up to close within the downward-sloping trading channel. The index closed below its 20 week EMA for the first time in 6 months.

Nifty closed above its 50 week EMA in long-term bull territory. Any further correction should get support from the zone between 10850 and 10550. In case the index falls below 10550, it can drop to test its Mar '18 low.

Weekly technical indicators have corrected overbought conditions and are showing downward momentum. MACD has crossed below its signal line and has fallen from its overbought zone. ROC has crossed below its 10 week MA and has dropped to its neutral zone. RSI and Slow stochastic have also dropped to their respective neutral zones.

Nifty's TTM P/E has come down to 26.44, but remains above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) is falling in neutral zone, and can trigger a pullback.

Bottomline? The corrective downward moves on Sensex and Nifty charts have dropped near strong support zones. Technical bounces are likely, but bears may use them to sell again. Macro headwinds - like rising oil prices, a depreciating Rupee, widening trade and fiscal deficits, ongoing debt woes of IL&FS - remain concerns for bulls. Time to sit on the sidelines and wait for the indices to find bottoms.

Saturday, September 29, 2018

A Beginner's Guide to Growth Investing

"People have many different styles and tastes when it comes to money, but making your money grow is typically considered the most fundamental investment objective.

The best way to accomplish this goal will vary according to factors such as the investor's risk tolerance and time horizon.

However, there are some key principles and techniques that are applicable for many different types of investors and growth strategies."

Read more at:

https://www.investopedia.com/articles/basics/13/introduction-to-growth-investing.asp

Related Post
A 4-Step Guide to Growth Investing

Wednesday, September 26, 2018

Nifty chart: a midweek technical update (Sep 26, 2018)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 25.6 Billion. DIIs were net buyers on all three days. Their total net buying was worth a whopping Rs 53.7 Billion, as per provisional figures.

The government has approved a Rs 55 Billion package for the sugar industry that includes a two-fold increase in production assistance to cane growers, and transport subsidy to sugar mills for exporting up to 5 million tonnes of surplus domestic stock of sugar.

India's fiscal deficit for the period Apr-Aug '18 touched 94.7% of the estimate for the full year. However, it was slightly lower than the 96.1% figure during the same period in the previous year.


The daily bar chart pattern of Nifty has corrected sharply below its 20 day and 50 day EMAs, but appears to have found some support from the 'Support/Resistance zone 1' (between 10800 and 10900).

Though the index is trading above its 200 day EMA in bull territory, a fall towards 'Support/Resistance zone 2' (between 10400 and 10600) can't be ruled out. By touching a 'panic bottom' of 10866 with strong volumes on Sep 21, the index retraced almost 50% of its rally from the Mar '18 low to the Aug '18 top.

A 61.8% Fibonacci retracement will drop the index to around 10650. That means, it will be imperative for bulls to mount a rally should the index fall towards the 'Support/Resistance zone 2'. Otherwise, a change of trend will become inevitable.

Daily technical indicators are looking bearish and a bit oversold. MACD is falling below its signal line and is ready to enter its oversold zone. RSI has bounced up weakly after receiving support from the edge of its oversold zone. Slow stochastic is oscillating at the edge of its oversold zone. Some consolidation or a pullback towards the falling 50 day EMA is possible.

Nifty's TTM P/E has moved down to 26.87, but still remains much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is hovering below the edge of its overbought zone, and is hinting at some consolidation.

Macro headwinds like high oil prices, a falling Rupee and widening twin deficits now include chaos and uncertainty about the financial stability of private banks, housing finance companies and NBFCs. 

Lack of transparency about the Rafale aircraft deal, and Supreme Court's decision against linking of Aadhar cards to bank accounts and cell phones have cast a huge shadow of doubt about the credibility of the NDA government.

The stock market detests uncertainty and usually votes with its feet. That seems to be the real reason behind the indiscriminate selling of even fundamentally strong stocks.

Stick to existing SIPs, but avoid any lump sum investments or adventurous forays into unknown small-caps. Nifty hasn't bottomed out yet.

Tuesday, September 25, 2018

Gold and Silver charts: bears rule but bulls trying to put up a fight

Gold chart pattern


The daily bar chart pattern of Gold has been consolidating sideways within a 'rectangle' pattern for the past five weeks - getting support from the 1190 level and facing resistance from the 1220 level.

Gold's price has been oscillating about its 20 day EMA, and is trading below its falling 50 day and 200 day EMAs in a bear market. Higher volumes on recent down days indicate that bears remain in charge.

A 'rectangle' is an unreliable pattern - sometimes acting like a continuation pattern and sometimes like a reversal pattern. One has to wait for the eventual price breakout before taking any buy/sell decisions.

Daily technical indicators are looking bearish to neutral, and not showing any upward momentum. MACD is above its rising signal line in bearish zone. RSI and Slow stochastic are oscillating in their respective neutral zones.

On longer term weekly chart (not shown), gold’s price closed well below its three weekly EMAs in long-term bear territoryThe 'death cross' of the 50 week EMA below the 200 week EMA has technically confirmed a long-term bear market. Weekly technical indicators are in bearish zones after correcting oversold conditions.

Silver chart pattern


The following comment appeared in the previous post on the daily bar chart pattern of Silver: "Silver's price has resumed its downward journey and may fall below 14.20 in the near term."

Silver's price touched a low of 13.91 on Sep 11, and has been consolidating within a bearish 'rising wedge' pattern for the past three weeks. The likely breakout from the 'wedge' is downwards.

Daily technical indicators are showing some bullish signs. MACD is rising above its signal line in bearish zone. RSI is hovering below its 50% level. Slow stochastic has moved above its 50% level. Silver's price is trading well below its falling 50 day and 200 day EMAs in a bear market. 

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

Monday, September 24, 2018

S&P 500 and FTSE 100 charts (Sep 21, 2018): bulls shove aside bear resistance

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 bounced up after receiving support from its 20 day SMA (blue dotted line) and rose to penetrate the upper Bollinger Band on Thu. Sep 20. 

On Fri., the index touched a new high of 2941 with a huge volume surge, but formed a small 'reversal day' bar (higher high, lower close). That can trigger a corrective move towards the lower Bollinger Band.

Daily technical indicators are bullish and looking overbought. MACD has crossed above its signal line and is poised to re-enter overbought zone. RSI is facing resistance from the edge of its overbought zone. Slow stochastic is inside its overbought zone. All three indicators are showing negative divergences by touching lower tops.

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 looking overbought. MACD is rising above its signal line inside its overbought zone. RSI is about to enter its overbought zone. Slow stochastic is moving sideways inside its overbought zone. 

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 shows a spirited fightback by bulls. The index formed a small 'rounding bottom' pattern and climbed above its 20 day EMA. On Fri. Sep 21, the index touched a high of 7495 but closed 5 points lower as it faced strong resistances from the merged 50 day and 200 day EMAs.

The index gained 186 points (2.5%) on a weekly closing basis, and is on the verge of re-entering bull territory above its three EMAs. The 'death cross' of the 50 day EMA below the 200 day EMA has been averted for now.

Daily technical indicators are looking bullish. MACD has crossed above its signal line in bearish zone. RSI has bounced up above its 50% level after receiving support from the edge of its oversold zone. Stochastic has risen sharply to enter its overbought zone.

(At the time of writing this post, the index is trading at 7475 - as bears are desperately trying to prevent a move above the 50 day and 200 day EMAs.)

On longer term weekly chart (not shown), the index closed just below its 20 week EMA but above its 50 week and 200 week EMAs in a long-term bull market. Weekly MACD is below its falling signal line in bearish zone. RSI and Stochastic have moved up towards their respective 50% levels.

Sunday, September 23, 2018

Sensex, Nifty charts (Sep 21, 2018): bears threatening to change the market trend

Bears (i.e. FIIs) had the upper hand in another holiday-shortened trading week. FIIs were net sellers of equity on Mon., Tue., and Wed. (Sep 17-19), but net buyers on Fri. Sep 21. Their total net selling was worth Rs 26.7 Billion. DIIs were net sellers of equity on Mon. but net buyers on Tue., Wed. and Fri. Their total net buying was worth Rs 17.8 Billion, as per provisional figures.

The failure of IL&FS to repay a loan from SIDBI, and RBI's refusal to grant an extension to Yes Bank's MD triggered panic selling in the stocks of banks, NBFCs and Housing finance companies on Fri. Sep 21. DHFL and Yes Bank bore the brunt of the bear attack.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex corrected during the first three trading days of the week, falling below its 20 day and 50 day EMAs but remaining within the downward-sloping channel.

Friday's panic selling dropped the index well below the channel to an intra-day low of 35993, before short-covering and some value buying led to a recovery and a close just above the lower edge of the channel. The index is trading above its rising 200 day EMA in a bull market, but bears are threatening to wrest the advantage.

On a weekly closing basis, Sensex lost almost 1250 points (3.3%). Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line in bearish zone. ROC is below its falling 10 day MA in oversold zone. RSI and Slow stochastic are inside their respective oversold zones. Any technical bounce may encounter more bear selling.

By touching a low of 35993, Sensex has retraced 46% of its 6500 points gain from the Mar '18 low of 32484. That is close to the 50% Fibonacci retracement level of 35737. The 200 day EMA is at about 35370. If the index corrects some more and falls below its 200 day EMA, expect support near the 61.8% Fibonacci retracement level of 34970. 

What if the index falls below 34970? That will technically confirm a change of trend from bull to bear. As of now, that possibility may seem remote. Nevertheless, knowing about the various support levels can help in making better buy/sell decisions.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty, which had been correcting within a downward-sloping channel, dropped sharply below the channel during intra-day trading on Fri. Sep 21.

The index recovered to close exactly at its 20 week EMA within the channel, losing 372 points (3.2%) on a weekly closing basis. However, Friday's sharp selloff has caused a major dent in bullish sentiment, and opened the door for a deeper correction.

On the downside, support can be expected from the 50 week EMA (at about 10700) and the support/resistance level of 10550. If those two supports fail, the index can test its Mar '18 low of 9998 - though the possibility may seem remote as of now.

Weekly technical indicators are correcting overbought conditions and showing downward momentum. MACD is about to cross below its signal line and fall from its overbought zone. ROC has crossed below its 10 week MA and is falling towards its neutral zone. RSI and Slow stochastic have dropped from their respective overbought zones.

Nifty's TTM P/E has come down to 27.09, but remains above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown), which had fallen vertically from its oversold zone, has re-entered it. Some more correction is likely.

Bottomline? The corrective downward moves on Sensex and Nifty charts appear to be gathering strength. Macro concerns like rising oil prices, a depreciating Rupee, widening trade and fiscal deficits have been compounded by the ongoing debt woes in IL&FS. Fear has spread like a wildfire in the market. Time to sit on the sidelines and wait for the dust to settle.

Saturday, September 22, 2018

"There's Never Just One Cockroach in the Kitchen" - Warren Buffett

Buffett had made that comment in an interview following an accounting scandal in Wells Fargo. He may as well have made that comment about corruption in ICICI Bank and misreporting of NPAs by Axis Bank.

Yes Bank was the third 'cockroach'. (PSU banks are not being discussed here because collectively they are a massive 'anaconda' that is threatening to swallow India's financial system as a whole!)

The latest 'vermin' is IL&FS, whose MD has quit on his own. (The MD of ICICI Bank remains in suspended animation - for reasons best known to her. RBI has shown the door to the MDs of Axis Bank and Yes Bank, but is powerless to do likewise with the MDs of PSU banks.)

Moody's recently said that rising liquidity worries at IL&FS are credit negative for banks and debt market. The stock market reacted by indiscriminately pummeling the stocks of banks, NBFCs and housing finance companies.

It is interesting to note that despite a hurriedly-called concall with denials about any near-term liquidity problems, DHFL's stock failed to recover much from its lows on Friday (Sep 21). Which is the next 'cockroach'? 

There will be more than one. The business model of banks, NBFCs and HFCs requires borrowing short-term to lend long-term. If short-term liquidity dries up (or, gets costlier due to rising interest rates) the proverbial you-know-what will hit the fan - as it seems to be doing now. 

One market expert tried to reassure investors by stating that Friday's huge selloff was due to 'technical reasons'. One presumes he meant that fundamentally everything is hunky-dory in the financial system. Really?!

Talking about 'technical reasons', the market made a 'panic bottom' - with a sharp surge in transaction volumes - before bouncing up on short covering and some value buying. 

Typically, such a 'panic bottom' occurs during the second leg of a bear phase. 
However, the fact that it has occurred at an early stage of a corrective move is a clear warning to perma-bulls. 

Remember the stock market adage: Panic bottoms seldom hold. That means the market is headed lower than Friday's low. By how much? Likely support levels will be discussed in tomorrow's post on Sensex and Nifty.

Related Post
How to tackle a ‘panic bottom’

Wednesday, September 19, 2018

'Rolling Bear Market' Will Paralyze Stocks for Years: Morgan Stanley

U.S. stock investors should brace for a market that will be paralyzed for several years in a narrow trading range, according to one team of analysts on the Street, and as reported by CNBC. 

Investors are already in the midst of a "rolling bear market" that will push the S&P 500 down as much as 17% and no higher than 4% from today's levels, Morgan Stanley's chief equity strategist, Michael Wilson, told clients in a recent note.

"We think this 'rolling bear market' has already begun with peak valuations in December and peak sentiment in January," stated Wilson. 

Read more at: 

https://www.investopedia.com/news/rolling-bear-market-will-paralyze-stocks-years-morgan-stanley/

Tuesday, September 18, 2018

WTI and Brent Crude Oil charts: in consolidation mode

WTI Crude Oil chart


For the past three weeks, the daily bar chart pattern of WTI Crude Oil has been consolidating sideways within a range of 4 points - getting support at 67 but facing resistance at 71.

Oil's price closed above its three EMAs in bull territory, but formed a 'long-legged doji' candlestick pattern that indicates indecision among bulls and bears.

Daily technical indicators are looking neutral. MACD is above its signal line and moving sideways in neutral zone. RSI is also moving sideways in neutral zone. Slow stochastic is oscillating about its 50% level. The consolidation may continue a little longer.

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 looking neutral to bearish. MACD is falling below its signal line in bullish zone. RSI is moving sideways in neutral zone. Slow stochastic has resumed its down move in bearish zone.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil has been consolidating sideways within a 4 points range for the past three weeks - getting support at 76 but facing resistance at 80.

Oil's price closed above its three rising EMAs in a bull market, but is moving down towards its 20 day EMA and can correct some more.

Daily technical indicators are in bullish zones but showing downward momentum. MACD is about to cross below its rising signal line. RSI is sliding towards its 50% level. Slow stochastic is falling towards its 50% level.

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 not showing much upward momentum. MACD is rising towards its sliding signal line. RSI is moving sideways above its 50% level. Slow stochastic is facing resistance from the edge of its overbought zone.

Monday, September 17, 2018

S&P 500 and FTSE 100 charts (Sep 14, 2018): bears trying to spoil the bull party

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 had touched a high of 2916.50 on Aug 29. In the process, the index had penetrated its upper Bollinger Band. As often happens after such an event, a corrective move followed.

The index received good support from its 20 day SMA (marked by blue dotted line) and bounced up to close above the 2900 level in bull territory. A convincing move above the Aug 29 top will restore control to bulls. A failure to do so will encourage bears to go on the offensive.

Daily technical indicators are looking bullish. MACD is about to cross above its signal line in bullish zone. RSI has bounced up after receiving support from its 50% level. Slow stochastic had dropped below its 50% level but has since moved above it.

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 looking overbought. MACD is rising above its signal line inside its overbought zone. RSI is hovering just below its overbought zone. Slow stochastic is sliding down inside its overbought zone. 

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 had been correcting inside a downward-sloping trading channel after touching a lifetime high of 7903.50 on May 22 '18. On Sep 5, the index breached the lower edge of the channel, and dropped to close below 7300 on Sep 7.

On Sep 11, the index touched a low of 7220.50 but formed a 'dragonfly doji' candlestick pattern, which has bullish implications. However, the 7300 level is providing strong resistance. The imminent 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a return to a bear market.

Daily technical indicators are looking bearish. MACD is below its falling signal line in bearish zone. RSI has bounced up a bit after receiving support from the edge of its oversold zone. Stochastic is trying to emerge from its oversold zone.

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 is below its falling signal line and has entered bearish zone. RSI is below its 50% level. Stochastic is moving up inside its oversold zone.

Sunday, September 16, 2018

Sensex, Nifty charts (Sep 14, 2018): undergoing bull market corrections

In a holiday-shortened trading week, FIIs were net sellers of equity on Mon., Tue., and Wed. (Sep 10-12), but net buyers on Fri. Sep 14. Their total net selling was worth Rs 22.9 Billion. DIIs were net sellers of equity on Mon. but net buyers on Tue., Wed. and Fri. Their total net buying was worth Rs 11.2 Billion, as per provisional figures.

India's CPI inflation dropped to a 10 months low of 3.69% in Aug '18 against 4.17% in Jul '18 - thanks to lower food prices. WPI inflation eased to 4.53% in Aug '18 from 5.09% in Jul '18. 

The IIP number was a healthy 6.6% in Jul '18 - lower than the downwardly revised 6.8% in Jun '18 - on the back of good performance by the manufacturing sector and higher offtake of capital goods and consumer durables.

India's exports grew by 19.2% to US $27.8 Billion in Aug '18. Imports grew 25.4% to US $45.2 Billion, leaving a trade deficit of US $17.4 Billion. In Jul '18, trade deficit had soared to a five years high of US $18 Billion. 

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex had formed a 'reversal day' bar (higher high, lower close) after touching a lifetime high of 38990 on Aug 29. That triggered a correction within a downward-sloping channel.

The index bounced up after receiving twin support from its 50 day EMA and the lower edge of the channel to close above its three EMAs in a bull market, but lost about 300 points (0.8%) on a weekly closing basis.

Daily technical indicators are looking bearish, but showing signs of recovery. MACD is below its falling signal line in bullish zone. ROC and Slow stochastic have corrected oversold conditions, but remain in bearish zones. RSI is trying to cross above its 50% level after falling below it. ROC, RSI and Slow stochastic are showing negative divergences by falling below their Jun '18 lows.

Sensex is likely to attempt a breakout above the downward-sloping channel. Keep a watch on trading volumes. Any upward breakout should be accompanied by a significant increase in volumes. Otherwise, a pullback may follow.

A depreciating Rupee and rising oil prices are not conducive to a bull rally. The Finance Minister tried to 'talk up' the market by proposing measures to defend the Rupee. The 'measures' appear to be nothing more than a wait-and-watch policy. So, stay invested but remain watchful and cautious.

NSE Nifty index chart pattern


After touching a high of 11760 in the week ending on Aug 31 '18, the weekly bar chart pattern of Nifty has been correcting within a downward-sloping channel.

The index received good support from the lower edge of the channel and closed above its two rising weekly EMAs - forming a 'hammer' candlestick with bullish implications - but lost 74 points (0.6%) on a weekly closing basis.

Weekly technical indicators are inside their respective overbought zones, but showing downward momentum. MACD is sliding down above its signal line. ROC is about to cross below its 10 week MA. RSI and Slow stochastic are moving down.

Nifty's TTM P/E has slipped a bit to 28.0, but remains well above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) is correcting inside oversold zone. Some index upside is possible.

Bottomline? Sensex and Nifty charts are undergoing bull market corrections. Rising oil prices, a depreciating Rupee, widening trade and fiscal deficits comprise a wall of worries that bulls need to overcome. Be very choosy about where you invest, and keep a long-term outlook.

Friday, September 7, 2018

Sensex, Nifty charts (Sep 07, 2018): breakout below trading channels

FIIs were net sellers of equity on Mon., Wed. & Thu. (Sep 3, 5 & 6), but net buyers on the other two days. Their total net selling was worth Rs 7.9 Billion. DIIs were net buyers of equity on Wed., Thu. & Fri. but net sellers on Mon. & Tue. Their total net buying was worth Rs 11.7 Billion, as per provisional figures.

During Apr-Jun '18, India's overall balance of payments slipped into deficit for the first time in six quarters due to large Dollar outflows. The deficit stood at US $11.3 Billion against a surplus of $11.4 Billion during Apr-Jun '17.

The Current Account Deficit (CAD) rose to US $15.8 Billion (2.4% of GDP) from $15 Billion (2.5% of GDP) in the year ago quarter. Outflows of US $8.1 Billion compared with inflows of $12.5 Billion a year ago led to a sharp depreciation of the Rupee. 

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex broke out below last two months' upward-sloping trading channel on Mon. Sep 3, and continued to correct during the next two days - closing below its 20 day EMA for the first time in two months.

A combination of short covering and some value buying led to a pullback and a close above the 20 day EMA by Fri. Sep 7. The index lost 255 points (0.7%) on a weekly closing basis, but remained above its three EMAs in bull territory.

Daily technical indicators have corrected overbought conditions. MACD has crossed below its signal line and descended from its overbought zone. RSI has bounced up after receiving support from its 50% level. Stochastic fell below its 50% level but is trying to cross above it. 

Sensex may correct or consolidate some more before it can resume its up move. Note that the MSCI Emerging Markets ETF (EEM) has been in a bear market for more than two months, so FII outflows are expected to continue.

That means the Rupee will depreciate some more, and consequent higher cost of imported oil will stoke the inflation fire. Expect RBI to hike interest rates again at its Oct '18 monetary policy meeting. A deeper index correction is likely to follow.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty touched a slightly lower top of 11752 and broke out below the steep upward-sloping trading channel within which it had traded for more than two months.

After slipping below 11400 intra-week, the index retraced more than 50% of its 366 points fall from its previous week's high if 11760. All three weekly EMAs are rising, and the index is trading above them in a long-term bull market.

Weekly technical indicators are inside their respective overbought zones. MACD is still moving up above its signal line, but its upward momentum has reduced. RSI and Slow stochastic have started to move down.

Nifty's TTM P/E touched a high of 28.72 on Mon. Aug 27 but has corrected a bit to 28.17 - still well above its long-term average, and in overbought territory. The breadth indicator NSE TRIN (not shown) is in neutral zone. Some index consolidation is likely.

Bottomline? Bulls are still in control of Sensex and Nifty charts, but bears have signalled their willingness for a fight. Macro headwinds like high oil prices, a depreciating Rupee, widening trade and fiscal deficits, and US-China tariff war have enabled bears to stall two months long rallies. Stay invested but stay wary. This is not the time for making easy money.

(Note: I'm planning to take a short break - so there will be no blog posts next week. Regular readers may please bear with me till then.)

Wednesday, September 5, 2018

Nifty chart: a midweek technical update (Sep 05, 2018)

FIIs were net sellers of equity on Mon. & Wed. (Sep 3 & 5) but net buyers on Tue. (Sep 4). Their total net selling was worth Rs 3.7 Billion. DIIs were net sellers of equity on Mon. & Tue. but net buyers on Wed. Their total net selling was worth Rs 3.9 Billion, as per provisional figures.

India's manufacturing momentum slowed in Aug '18. Nikkei India's Manufacturing PMI eased to 51.7 from 52.3 in Jul '18 and 53.2 in Jun '18

Nikkei India's Services PMI fell to 51.5 in Aug '18 from 54.2 in Jul '18 owing to weakest growth in new orders in three months. The Composite PMI (Manufacturing+Services) fell to 51.9 from 54.1 in Jul '18.




The following comments were made in last week's technical update on the daily bar chart pattern of Nifty: "For the past two months, the index has been trading within a steep upward-sloping channel. Such a steep rise - mainly led by a few large-cap stocks - is unsustainable for long."

The sharp rally within an upward-sloping trading channel has come to an end - as was expected. The index broke down below the channel on Mon. Sep 3 when both FIIs and DIIs turned sellers and continued downward on Tue. & Wed.

After correcting more than 350 points from the Aug 28 top of 11760 by slipping below 11400 today, the index recovered to 11477 - partly due to short-covering. The index has formed a 'hammer' candlestick pattern that can lead to a pullback towards the 20 day SMA (dotted green line).

On the downside, expect support from the lower Bollinger Band (at around 11300). Note that a penetration of the upper Bollinger Band - as had occurred on Aug 28 - is often followed by a corrective move. 

The index is trading above its rising 50 day and 200 day EMAs, so there is no immediate threat to the bull market. However, some more correction can't be ruled out. In other words, don't jump into the market just yet.

Daily technical indicators are showing downward momentum after correcting overbought conditions. MACD has crossed below its signal line and is ready to drop from its overbought zone. RSI is seeking support from its 50% level. Slow stochastic is falling below its 50% level. All three are showing negative divergences by falling below their Aug 13th low of 11340.

Nifty's TTM P/E has moved down to 27.90 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply from its overbought zone, and is hinting at some more correction.

Macro headwinds - particularly, high oil prices and a falling Rupee - now include lower manufacturing and services PMIs. Demonetisation fiasco has severely dented NDA government's credibility. There seems to be a sense of foreboding in the market about the outcome of 2019 general elections.

Stay invested, but remain cautious. Continue with SIPs, but avoid new stock ideas till the correction plays out.

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Tuesday, September 4, 2018

Gold and Silver charts: technical pullback rallies flatter to deceive

Gold chart pattern


Oversold technical indicators triggered a pullback rally on the daily bar chart pattern of Gold. After crossing above its 20 day EMA and 'Support/Resistance zone 3 (1200-1210)', gold's price touched a high of 1217 on Aug 28 but formed a 'reversal day' bar (higher high, lower close).

That seems to have brought the pullback rally to an end. Gold's price dropped below its 20 day EMA and closed inside 'Support/Resistance zone 3'. (After a dip below 94.50 on Aug 28, the US Dollar index has moved up above 95 - cooling bullish fervour.) 

Daily technical indicators are turning bearish. MACD is above its signal line in bearish zone, but its upward momentum has stalled. RSI has moved down after facing resistance from its 50% level. Slow stochastic has turned down after facing resistance from the edge of its overbought zone.

Gold's price is trading below its three EMAs in a bear market that was technically confirmed by the 'death cross' of the 50 day EMA below the 200 day EMA (marked by light grey circle) back in Jun '18. Expect bears to continue to 'sell on rise'.

On longer term weekly chart (not shown), gold’s price closed well below its three weekly EMAs in long-term bear territoryThe 50 week EMA is about to cross below the 200 week EMA. Weekly technical indicators have corrected oversold conditions but remain in bearish zones. 

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 fizzled out when silver's price faced strong resistance from its falling 20 day EMA and formed a 'reversal day' bar on Aug 28.

Silver's price has resumed its downward journey and may fall below 14.20 in the near term.

Daily technical indicators are in bearish zones and showing downward momentum after correcting oversold conditions. Silver's price is trading well below its three falling EMAs in a bear market. Expect bears to remain in control.

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

Monday, September 3, 2018

S&P 500 and FTSE 100 charts (Aug 31, 2018): bulls on top but bears still fighting

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 brushed aside technical headwinds by opening with a small upward 'gap' on Mon. Aug 27, and rose to touch a new high of 2916.50 on Wed. Aug 29.

A bit of profit booking dropped the index below the 2900 level, but by end of trade on Fri. Aug 31, the index closed just above 2900 with a weekly gain of 0.9%. The index is trading above its three rising EMAs in a bull market.

There can be three possible index moves here onwards - two bullish and one bearish. The index can remain above Monday's small 'gap' and continue upwards. It can correct a bit more to fill the 'gap' and then resume its up move.

However, the index can correct to form a downward 'gap' that overlaps Monday's upward 'gap'. In which case, the entire trading above the small 'gap' will form a bearish 'island reversal' pattern. Such a pattern is rare - hence has a low probability of forming.

Nevertheless, investors should be aware of the possibility. Daily technical indicators are in the process of correcting overbought conditions. MACD is above its signal line in overbought zone, but has stopped rising. RSI has slipped down after entering its overbought zone. Slow stochastic has started correcting inside its overbought zone.

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 upward momentum but looking overbought. The index penetrated its upper Bollinger Band (not shown). The last time it did that was in the last week of Jan '18. A sharp corrective move had followed. 

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 continued with its sideways consolidation within a downward-sloping trading channel.

The index dropped below the 7500 level and closed below its 200 day EMA in bearish zone. (At the time of writing this post, the index is pulling back towards 7500.)

Daily technical indicators are looking bearish. MACD is below its falling signal line in bearish zone. RSI is falling below its 50% level. Stochastic has dropped inside its oversold zone, and may trigger a technical bounce.

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 is falling below its signal line in bullish zone. RSI is falling towards its 50% level. Slow stochastic has dropped inside its oversold zone.