Monday, July 22, 2019

S&P 500 and FTSE 100 charts (Jul 19, 2019): bears succeed in stalling the bull charges

S&P 500 index chart pattern


Overbought technical indicators had led to the following comment in last week's post on the daily bar chart pattern of S&P 500: "Some consolidation or correction is possible."

The index touched a new high of 3018 on Mon. Jul 15, but succumbed to profit booking and dropped to test support from its 20 day EMA. The index formed a 'reversal day' bar (lower low, higher close) on Thu. Jul 18, just as it had done on Tue. Jul 9, but failed to rally - losing 37 points (1.2%) on a weekly closing basis.

The index is trading above its three rising EMAs in a bull market. However, Friday's 'reversal day' bar (higher high, lower close) and strong volumes on last week's three down days show that bears are still alive and kicking.

Daily technical indicators are looking bearish. MACD crossed below its signal line and dropped from its overbought zone. RSI and Slow stochastic are falling towards their respective 50% levels. Another test of support from the 2954 level is a possibility.

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market, but formed a 'reversal' bar (higher high, lower close)Weekly technical indicators are beginning to correct overbought conditions - hinting at some consolidation or correction.

FTSE 100 index chart pattern



The daily bar chart pattern of FTSE 100 consolidated sideways with a downward bias for the second straight week. Like in the previous week, the index closed above the support level of 7529 during the first three days, but slipped below 7500 and its 20 day EMA on Thu. Jun 18.

On Fri. Jul 19, the index recovered to move above its three EMAs into bull territory, and closed almost flat on a weekly closing basis at 7509. FTSE appears to be forming a bullish 'flag' pattern from which an upward breakout is likely.

Daily technical indicators have turned bearish. MACD is falling below its signal line in bullish zone. RSI is falling towards its 50% level. Stochastic has dropped to the edge of its oversold zone, and can trigger a technical bounce. 

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in long-term bull territory for the 7th straight week. Weekly technical indicators are in bullish zones but not showing any upward momentum. MACD is moving sideways above its signal line. RSI is also moving sideways above its 50% level. Stochastic is hovering at the edge of its overbought zone.

Saturday, July 20, 2019

Sensex, Nifty charts (Jul 19, 2019): hostile bears force bulls to retreat

FIIs are rushing to the exit door. They were net sellers of equity on all five trading days. Their total net selling was worth Rs 30.3 Billion. DIIs were net buyers of equity on all five days, but couldn't match FII selling. Their total net buying was worth Rs 25.0 Billion, as per provisional figures.

India's Current Account balance deficit grew to US $68 Billion in FY 2018-19 from $49 Billion in FY 2017-18 as per IMF. Overall international reserves stood at $411.9 Billion on Mar 31 '19, down by $12.5 Billion from Mar 31 '18.

According to IHS Markit India Business Outlook, business sentiment fell to its lowest level since Jun '16, as companies worried about a slowing economy, water shortage and government policies. 

BSE Sensex index chart pattern



The following comments appeared in last week's post on the daily bar chart pattern of Sensex"The index appears to be forming a small, bearish 'flag' pattern that often forms midway during a sharp correction. If the pattern plays out, the index can completely fill GAP2, and test support from the up trend line and its 200 day EMA." 

After a sharp two days' correction below a bearish 'rising wedge' pattern, Sensex formed a bearish 'flag' pattern from which it has broken out downwards - filling about 50% of GAP2 (formed on May 20).

The index is trading above the up trend line (drawn through its Oct 26 '18 and Feb 19 '19 lows) and its 200 day EMA in a bull market. But the chart structure has turned distinctly bearish.

Sensex had touched a lifetime high of 40312 on Jun 4 '19. Since then, the index has not only formed a bearish pattern of 'lower tops, lower bottoms', it has also broken out below two bearish patterns (viz. 'rising wedge' and 'flag'). That is a clear sign that bulls are gradually yielding ground.

A confluence of supports - from the lower edge of GAP2, the blue up trend line and the 200 day EMA - should protect Sensex downside in the near term. If the index falls below its 200 day EMA, it can slip into a bear market.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bearish zone. ROC is falling below its 10 day MA in bearish zone. RSI has dropped to the edge of its oversold zone. Slow stochastic is falling towards its oversold zone after emerging from it. Any technical bounce may induce bear selling.  

Stock market participants were hoping for some relief on 20% tax on share buybacks and the extra surcharge on higher-bracket tax payers that affected about 40% of FIIs. Finance Minister quashed such hopes by tabling the Finance Bill in Parliament without any further relief on taxes.

It has been clarified by the government that relief announced for buying electric vehicles will apply only to commercial vehicles and not to personal transportation. That should effectively end any possibility of consumers switching to electric vehicles.

NSE Nifty index chart pattern



The following comments appeared in last week's post on the daily bar chart pattern of Nifty: "...the index is below a downward-sloping trend line, and has formed a bearish pattern of 'lower tops, lower bottoms'. Some more correction and/or consolidation is likely." 

The index dropped sharply below its 20 week EMA to completely fill the upward 'gap' formed in the week beginning on May 20. Twin downside support can be expected from the blue up trend line and the 50 week EMA.

Any technical bounce from the current level, or from the supports mentioned above, is unlikely to last long. Bears are seizing control of the chart and are likely to 'sell on rise' at every opportunity.

Weekly technical indicators are looking bearish. MACD has crossed below its signal line, and is falling in bullish zone. ROC is facing resistance from its falling 10 week MA in neutral zone. RSI is sliding below its 50% level. Slow stochastic is ready to fall below its 50% level

Nifty's TTM P/E has moved down to 27.92 - its lowest level this month - but remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone. Some more near-term index downside is possible.

Bottomline? Sensex and Nifty charts are slipping into the paws of bears. Tax proposals in the budget and a visibly slowing economy have combined to dampen bullish sentiments. Q1 (Jun '19) results declared so far have failed to create much buying enthusiasm. Time to batten down the hatches and wait for the bearish sentiment to pass.

Friday, July 19, 2019

Calculating Risk and Reward

Are you a risk taker? When you're an individual trader in the stock market, one of the few safety devices you have is the risk/reward calculation.

Sadly, retail investors might end up losing a lot of money when they try to invest their own money. 

There are many reasons for this, but one of those comes from the inability of individual investors to manage risk.

Read more at:
https://www.investopedia.com/articles/stocks/11/calculating-risk-reward.asp

Wednesday, July 17, 2019

Nifty chart: a midweek technical update (Jul 17, 2019)

FIIs were net sellers of equity during the first three trading days of the week. Their total net selling was worth Rs 6.8 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 14.4 Billion, as per provisional figures.

India's WPI-based inflation cooled to a 23 months low of 2.02% in Jun '19 from 2.45% in May '19 and 5.68% in Jun '18. Softening WPI has reinforced expectations of a further interest rate cut by RBI.

India's merchandise exports fell 9.71% YoY to US $25.01 Billion in Jun '19. Imports declined 9.06% YoY to $40.29 Billion - a 4 months low. Trade deficit narrowed 8% for the month to $15.28 Billion. Falling imports reflect weakness in demand and activity.



The following comment appeared in last week's technical update on the daily bar chart pattern of Nifty: "Slow stochastic has fallen sharply to enter its oversold zone, and can trigger a pullback towards the 50 day EMA." 

The index corrected and almost completely filled the 'GAP' (formed on May 20) as the stock market was disappointed with the budget provisions. The expected index pullback faced resistance from the 20 day EMA and closed just below the 50 day EMA today.

So far so good. What next? After touching a lifetime high of 12103 on Jun 3, Nifty has formed a bearish pattern of 'lower tops, lower bottoms'. If the pattern continues to play out, further upside ought to be limited. The next leg of the down move should follow.

Daily technical indicators are turning bullish. MACD is forming a 'rounding bottom' pattern below its falling signal line in bearish zone. RSI has moved up to its 50% level. Slow stochastic is rising after emerging from its oversold zone. Some near-term upside is likely.  

Nifty's TTM P/E has moved up to 28.58, which is well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling towards its overbought zone - hinting at limited near-term index upside.

Since Mar '19, Nifty has been trading above its rising 200 day EMA in a bull market. Which means 'buy the dips' should be the obvious strategy. However, there is nervousness in the market due to a slowing economy and a divergence in performance between the broader market and a few large-cap stocks.

Watch Q1 (Jun '19) results carefully. Be very selective and patient about what you buy. Near a market top, it is better to be cautious than adventurous.

Tuesday, July 16, 2019

WTI and Brent Crude Oil charts: bears trying to make life difficult for bulls

WTI Crude Oil chart


The following comment was made in the previous post on the daily bar chart pattern of WTI Crude Oil: "Falling volumes during the technical bounce may encourage bears to defend the 200 day EMA vigorously."

Oil's price dropped below its 50 day and 20 day EMAs, but bounced up after receiving support from the 56 level. After crossing above all three EMAs into bull territory, oil's price formed a small 'reversal day' bar (higher high, lower close) and pulled back to its 200 day EMA.

Daily technical indicators are in bullish zones. MACD is rising above its signal line. RSI is above its 50% level but showing slight downward momentum. Slow stochastic re-entered its overbought zone, but is slipping down. 

Bears are giving ground grudgingly. Oil's price has formed a bullish pattern of 'higher tops, higher bottoms' after forming a 'double bottom' reversal pattern inside the support zone between 50 and 52. A convincing price move above 67 is necessary if bulls are to regain control of the chart.

On longer term weekly chart (not shown), oil's price managed to close just above its 200 week EMA in long-term bull territory. Weekly technical indicators are in neutral zones, and not showing much upward momentum. Falling volumes during the recent rally should be a concern for bulls.

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil dropped below its 20 day EMA into bear territory, but bounced up after receiving good support from the 62 level. 

Oil's price rallied past its 20 day and 50 day EMAs, only to face strong resistance from its 200 day EMA. Strong volumes on recent down days show that bears are active.

Daily technical indicators are looking neutral to bullish. MACD is rising above its signal line in neutral zone. RSI is moving sideways above its 50% level. Slow stochastic re-entered its overbought zone, but is falling down. Some more consolidation is likely.

Bears are giving bulls a hard time. Oil's price has formed a bullish pattern of 'higher tops, higher bottoms' after forming a 'double bottom' reversal pattern inside the support zone between 58 and 60. A convincing price move above 75 is required for bulls to regain control of the chart.

On longer term weekly chart (not shown), oil's price closed above its 200 week and 20 week EMAs, but just below its 50 week EMA in long-term bull territory. Weekly technical indicators are looking neutral to bullish. MACD is below its sliding signal line in neutral zone. RSI is facing resistance from its 50% level. Slow stochastic is rising towards its 50% level.

Monday, July 15, 2019

S&P 500 and FTSE 100 charts (Jul 12, 2019): bears try their best to stop charging bulls

S&P 500 index chart pattern


An expected pullback towards the support level of 2954 on the daily bar chart pattern of S&P 500 touched an intra-day low of 2963 on Tue. Jun 9. Bulls decided to 'buy the dip'. 

The index formed a 'reversal day' bar (lower low, higher close), which triggered a quick rally past the 3000 level to a new high of 3014 on Fri. Jul 12. The index gained 23 points (0.8%) on a weekly closing basis.

Daily technical indicators are looking overbought. MACD is rising above its signal line inside its overbought zone. RSI has entered its overbought zone. Slow stochastic is climbing inside its overbought zone, but showing negative divergence by failing to touch a new high with the index. 

Some consolidation or correction is possible. All three EMAs are rising, and the index is trading well above them in a bull market. 

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull marketWeekly technical indicators are  looking bullish and overbought, and showing negative divergences by failing to touch new highs with the index.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 consolidated sideways with a downward bias during the week. After closing above the support level of 7529 during the first three days, the index slipped below 7529 on Thu. Jun 11.

The 20 day EMA provided good support. The index managed to close above the 7500 level and its three EMAs in bull territory. FTSE lost 47 points (0.6%) on a weekly closing basis.

Daily technical indicators are in bullish zones but looking bearish. MACD has crossed below its signal line. RSI and Stochastic are falling towards their respective 50% levels. Some more consolidation or correction is likely.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in long-term bull territory for the sixth straight week. Weekly technical indicators are in bullish zones. MACD has crossed above its signal line. RSI is slowing slight downward momentum above its 50% level. Stochastic has slipped down from its overbought zone. 

Saturday, July 13, 2019

Sensex, Nifty charts (Jul 12, 2019): look ready to correct some more

FIIs have stepped-up their selling. They were net sellers of equity on all five trading days. Their total net selling was worth Rs 28.5 Billion. DIIs were net buyers of equity on all five days. Their total net buying was worth Rs 33.6 Billion, as per provisional figures.

The Index of Industrial Production (IIP) slipped to 3.1% in May '19 against 3.8% in May '18. Power generation grew 7.4% against 4.2% a year ago. But mining and manufacturing growth reduced to 3.2% and 2.5% respectively, against 5.8% and 3.6% a year ago.

India's CPI-based retail inflation rose to an 8 months high of 3.18% in Jun '19 from 3.05% in May '19, but stayed below RBI's medium-term target of 4%. Rise in food inflation was the mean reason for increase in CPI.

BSE Sensex index chart pattern



Note the following comment from last week's post on the daily bar chart pattern of Sensex: "Sensex may correct down to completely or partly fill the 'gap' formed on May 20 (marked GAP2 on chart)."

On Mon. Jul 8, the index fell sharply below its 50 day EMA but stopped just short of GAP2. During the next two days, the index entered the 'gap' - partly filling it - but bounced up to close above the 'gap'.

On Thu. Jul 11, Sensex traded above the 'gap' throughout the day, raising bullish hopes. However, the index faced strong resistance from its sliding 50 day EMA on Fri. Jul 12, and formed a 'reversal day' bar (higher high, lower close).

The index appears to be forming a small, bearish 'flag' pattern that often forms midway during a sharp correction. If the pattern plays out, the index can completely fill GAP2, and test support from the up trend line and its 200 day EMA. 

The twin support from the up trend line and the 200 day EMA should hold - at least in the near term. In case the twin support gets breached - the possibility can't be ruled out - a deeper correction will ensue.

Daily technical indicators are looking bearish. MACD is below its falling signal line, and has entered bearish zone. ROC is below its 10 day MA in bearish zone. RSI has bounced up from the edge of its oversold zone, but its upward momentum has stalled. Slow stochastic is inside its oversold zone. Some more correction or consolidation is possible.  

The Finance Minister didn't get enough time to prepare the budget. A brave attempt has been made to keep a cap on fiscal deficit. However, the proposal for foreign-currency borrowing is ill-advised and can be disastrous in the long term. 20% tax on buybacks won't be able to force India Inc. to invest.

Small investors should get mentally prepared for a rough ride during the next couple of quarters. This may be a good time to park some money in bank FDs before interest rates are cut further in a bid to boost economic growth.

NSE Nifty index chart pattern



The inevitable happened. The weekly bar chart pattern of Nifty dropped inside the 165 points 'gap' (formed on May 20) and almost completely filled it. The index bounced up, but faced resistance from its 20 week EMA and closed inside the 'gap'.

Nifty is trading above its rising 50 week EMA in a long-term bull market. However, the index is below a downward-sloping trend line, and has formed a bearish pattern of 'lower tops, lower bottoms'. Some more correction and/or consolidation is likely. 

On the downside, the index should receive good support from the up trend line and its 50 week EMA. A breach of the up trend line and the 50 week EMA - should it occur - will be quite bearish.

Weekly technical indicators are looking bearish. MACD has crossed below its signal line, and fallen from its overbought zone. ROC is sliding below its falling 10 week MA, and has entered bearish zone. RSI has slipped below its 50% level. Slow stochastic is falling towards its 50% level

Nifty's TTM P/E has moved down to 28.33, which remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has fallen sharply from its oversold zone. Near-term index upside may be limited.

Bottomline? Sensex and Nifty charts have started correcting on the back of FII selling. Budget proposals have failed to trigger 'animal spirits' of India Inc. Companies seem more interested in cleaning up their books than undertaking capex. Stick to sector/market leaders. Watch Q1 (Jun '19) results carefully to determine stock-specific actions.

Friday, July 12, 2019

Investment Strategies To Learn Before Trading

The best thing about investment strategies is that they’re flexible. If you choose one and it doesn’t suit your risk tolerance or schedule, you can certainly make changes. 

But be forewarned: doing so can be expensive. Every purchase carries a fee. More importantly, selling assets can create a realized capital gain. These gains are taxable and therefore expensive.

Here, we look at four common investing strategies that suit most investors.

Read more at:
https://www.investopedia.com/investing/investing-strategies/

Wednesday, July 10, 2019

Nifty chart: a midweek technical update (Jul 10, 2019)

FIIs were net sellers of equity during the first three trading days of the week. Their total net selling was worth Rs 16.8 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 17.0 Billion, as per provisional figures.

The Finance Minister defended her decision to impose higher Income Tax surcharge on incomes above Rs 20 Million and Rs 50 Million per year that will affect about 40% of FIIs who do not have a corporate structure.

The Union Cabinet seeks to approve a bill that seeks to merge 13 central labour laws into a single code that would apply to all establishments employing 10 or more workers.


The following comments appeared in last week's technical update on the daily bar chart pattern of Nifty: "The 165 points upward 'gap' (formed on May 20) has remained unfilled. At some point, the index is likely to fall to partly or completely fill the 'gap'." 

The budget on Jul 5 provided just the opportunity for bears to fill the 'gap'. The increased surcharge on Income Tax for people in higher income brackets - including some categories of FIIs - dampened bullish sentiment.

Nifty is trading above its rising 200 day EMA in a bull market. However, it has formed a bearish pattern of 'lower tops, lower bottoms' and is in a down trend (marked by green down trend line).

A complete filling of the 'gap' (it has been partly filled) and a test of support from the 200 day EMA is now a definite possibility - specially if FIIs keep selling.

Daily technical indicators have turned bearish. MACD is falling below its signal line in bearish zone. RSI has dropped below its 50% level. Slow stochastic has fallen sharply to enter its oversold zone, and can trigger a pullback towards the 50 day EMA.  

Nifty's TTM P/E has moved down to 28.20, which is well inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone. Some near-term index consolidation is possible.

Bulls will be looking for some cheer from Q1 (Jun '19) results that have started hitting the market. Chances are they will find little to cheer about. Get ready for trying times if you entered the market to quickly double your money. 

Wealth building is a process that requires patience, discipline and diligence. Your investment mettle will be sorely tested during the next few months.

Tuesday, July 9, 2019

Gold and Silver charts: consolidating after upward breakouts

Gold chart pattern


The following comments appeared in the previous post on the daily bar chart pattern of Gold: "...the rally has been a bit too steep. Some profit booking is likely to emerge soon."

After a sharp upward breakout with good volume support above a 'Cup and Handle' pattern, gold's price twice tested the 1440 level - forming a small 'double top' reversal pattern.

A pullback towards the rising 20 day EMA and some sideways consolidation followed. Gold's price is trading above its three rising EMAs in a bull market.  

Daily technical indicators are correcting overbought conditions. MACD has crossed below its signal line inside its overbought zone. RSI has fallen from its overbought zone. Slow stochastic formed a 'double top' pattern before dropping from its overbought zone.

The US Dollar index dropped to a low of 95.36 on Jun 25, triggering the sharp rally in Gold's price. Since then, the Dollar Index has recovered smartly past 97 - keeping a lid on further upside in price.

On longer term weekly chart (not shown), gold’s price closed well above its three rising weekly EMAs in long-term bull territory. Weekly technical indicators are beginning to correct overbought conditions. Some more price consolidation or correction can follow.

Silver chart pattern


The following comments appeared in the previous post on the daily bar chart pattern of Silver"Slow stochastic is consolidating at the edge of its overbought zone. Some price consolidation/correction can be expected."

Silver's price consolidated sideways above its 200 day EMA before forming a small 'double top' reversal pattern and corrected down to its 50 day EMA.

Daily technical indicators are turning bearish. MACD formed a small bearish 'rounding top' pattern and crossed below its signal line. RSI has dropped to seek support from its 50% level. Slow stochastic has slipped below its 50% level. Some more price correction or consolidation is likely.

On longer term weekly chart (not shown), silver's price closed at its 20 week EMA, but below its 50 week EMA and well below its sliding 200 week EMA in a long-term bear market. Weekly technical indicators are looking bullish to neutral, but not showing any upward momentum. 

Monday, July 8, 2019

S&P 500 and FTSE 100 charts (Jul 05, 2019): pause after touching new highs

S&P 500 index chart pattern


The following comment appeared in last week's post on the daily bar chart pattern of S&P 500: "It is just a matter of time before bulls overcome bear resistance at the 2954 level."

A holiday-shortened trading week started well for bulls. On Mon. Jul 1, the index formed an upward 'gap' and broke out above the resistance level of 2954. However, the upward breakout was not accompanied by a significant increase in volumes - keeping the door open for a pullback.

The index rose to touch a new high of 2996 on Jul 3, but faced profit booking and formed a bearish 'hanging man' candlestick on Fri. Jul 5 - closing slightly lower at 2990 with a 1.6% weekly gain.

Daily technical indicators are looking bullish and overbought. MACD is above its rising signal line inside its overbought zone. RSI has slipped down after briefly entering its overbought zone. Slow stochastic has re-entered its overbought zone. 

Note that the technical indicators are showing negative divergences by failing to touch new highs with the index. A pullback towards 2954 and/or some consolidation is likely. All three EMAs are rising, and the index is trading well above them in a bull market. 

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull marketWeekly technical indicators are  looking bullish and overbought, and showing negative divergences by failing to touch new highs with the index.

FTSE 100 index chart pattern



The following comment appeared in last week's post on the daily bar chart pattern of FTSE 100: "Technical confirmation of the 'cup and handle' pattern is still awaited..."

By breaking out and closing above the previous (Apr 23) top of 7529 on Jul 2, formation of the 'cup and handle' pattern has been technically confirmed. Note that there was no significant increase in volumes during the upward breakout. 

As often happens to an upward breakout without volume support, the rally petered out after the index touched an intra-day high of 7622 on Jul 4. A pullback towards 7529 is in progress. Such pullbacks provide opportunities to add.

Daily technical indicators are in bullish zones but not showing any upward momentum. MACD is rising above its signal line, but its upward momentum has weakened. RSI and Stochastic have dropped from their respective overbought zones.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in long-term bull territory for the fifth straight week. Weekly technical indicators are looking bullish. MACD has crossed above its signal line in bullish zone. RSI is rising above its 50% level. Stochastic has entered its overbought zone. Some consolidation or correction is possible.

Sunday, July 7, 2019

Sensex, Nifty charts (Jul 05, 2019): correcting due to budget disappointment

FIIs were net buyers of equity on Mon. Jul 1, but turned net sellers during the next four days. Their total net selling was worth Rs 5.9 Billion. DIIs were net sellers of equity on Mon., but net buyers during the next four days. Their total net buying was worth Rs 7.1 Billion, as per provisional figures.

India's Services PMI contracted for the first time since May '18, slipping to 49.6 in Jun '19 from 50.2 in May '19 due to stagnant sales and unfavourable taxation. (A number below 50 indicates contraction.) The Composite (Manufacturing + Services) PMI dropped to 50.8 in Jun '19 from 51.7 in May '19.

According to analysts, revenue mobilisation may be the single biggest impediment in the investment and consumption oriented budget tabled by the Finance Minister in Parliament on Fri. Jul 5. It will be difficult to meet the fiscal deficit target (3.3% of GDP).

BSE Sensex index chart pattern



A pre-budget rally in the stock market led to the formation of a bearish 'rising wedge' pattern on the daily bar chart of Sensex. The index crossed above the 40000 level for the first time since Jun 11 on budget day (Fri. Jul 5), but formed a 'reversal day' bar and dropped below the 'wedge'.

The index found support at its 20 day EMA - just like it did on the previous Fri. (Jun 28) - and gained ~119 points (0.3%) on a weekly closing basis. Sensex is trading well above the (blue) up trend line and its 200 day EMA in a bull market.

Daily technical indicators are looking neutral to bullish. MACD has merged with its falling signal line in bullish zone. ROC is above its 10 day MA in neutral zone. RSI is rising above its 50% level. Slow stochastic is poised to fall from its overbought zone - hinting at some more correction or consolidation.  

The budget 'event risk' is out of the way. The next trigger for the stock market will be announcement of Q1 (Jun '19) results, which are not expected to be good. There may be a few positive surprises. That won't be enough to boost bullish sentiments.

Sensex may correct down to completely or partly fill the 'gap' formed on May 20 (marked GAP2 on chart). That will be an opportunity to add fundamentally strong but beaten down stocks. But try to avoid the temptation of buying 'cheap' small-caps. 

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty has closed above the upward 'gap' (formed on May 20) for the seventh week in a row. The index traded above the (blue) up trend line and its weekly EMAs in a long-term bull market - gaining 22 points (~0.2%) on a weekly closing basis.

Bears are not out of the game yet. Gains of the previous two weeks have been accompanied by falling volumes. Also, the index failed to sustain near the week's high and formed a 'shooting star' like candlestick pattern that has bearish implications.

Weekly technical indicators are looking neutral to bearish. MACD is about to cross below its signal line, and fall from its overbought zone. ROC is below its 10 week MA and is moving sideways in neutral zone. RSI is sliding down towards its 50% level. Slow stochastic is moving sideways with a downward bias in bullish zoneSome more consolidation or correction is possible. 

Nifty's TTM P/E has moved up to 29.04, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone after a sharp fall from its oversold zone. Some near-term index downside is likely.

Bottomline? Sensex and Nifty charts have been consolidating after touching lifetime highs. The pre-budget rally appears to have come to a halt. Continue with SIPs. Wait for Q1 (Jun '19) results to determine stock-specific actions.

Friday, July 5, 2019

The Art of Selling a Losing Position

Your stock is losing value. You want to sell, but you can't decide in favor of selling now, before further losses, or later when losses may or may not be larger. 

All you know is that you want to offload your holdings and preserve your capital and reinvest the money in a more profitable security. 

In a perfect world, you'd always achieve this aim and sell at the right time. Unfortunately, it isn't that easy in real life.

Read more at:
https://www.investopedia.com/investing/selling-a-losing-stock/

Wednesday, July 3, 2019

Nifty chart: a midweek technical update (Jul 03, 2019)

FIIs were net buyers of equity on Mon. Jul 1, but were net sellers on Tue. and Wed. (Jul 2 and 3). Their total net selling was worth Rs 4.7 Billion. DIIs were net sellers of equity on Mon., but were net buyers on Tue. and Wed. Their total net buying was worth Rs 3.8 Billion, as per provisional figures.

Almost all auto makers in India recorded YoY decline in sales in Jun '19 owing to weak consumer sentiments. Maruti, Toyota, Tata Motors, Ashok Leyland, Honda showed double-digit declines. Hyundai, Bajaj Auto, TVS Motor showed single digit declines. M&M car sales grew 4%, but CV sales declined 15%.

Nikkei India's manufacturing PMI fell to 52.1 in Jun '19 from 52.7 in May '19 due to slower order growth leading to slower output and employment growth. A number above 50 indicates expansion.

GST collection in Jun '19 dipped to Rs 999.4 Billion from Rs 1 Trillion in May '19 and 1.13 Trillion in Apr '19. The government needs to collect more than Rs 1 Trillion every month to meet its fiscal target.



The following comment appeared in last week's technical update on the daily bar chart pattern of Nifty: "Is this the beginning of a pre-budget rally? If it is, it will provide a good opportunity to book some profits."

After closing just above its 20 day EMA on Tue. Jun 25, the daily bar chart pattern of Nifty used its short-term moving average as a support, and steadily climbed above the 11900 level. This may be a good time to book partial profits.

The 20 day EMA has formed a bullish 'rounding bottom' pattern. All three EMAs are rising, and the index is trading above them in a bull market. The 165 points upward 'gap' (formed on May 20) has remained unfilled. At some point, the index is likely to fall to partly or completely fill the 'gap'. 

Daily technical indicators are looking bullish. MACD has crossed above its falling signal line in bullish zone. RSI is above its 50% level but not showing much upward momentum. Slow stochastic has risen quickly to enter its overbought zone, and can trigger some correction or consolidation.  

Nifty's TTM P/E has moved up to 29.30, well inside overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has fallen sharply from its oversold zone. Near-term index upside may be limited.

Buying in a few large-cap stocks that have comparatively higher weightage in the index has pushed Nifty higher, while the broader market has lagged behind. If you own stocks of RIL, HDFC/HDFC Bank, TCS then your portfolio should be doing great.

Unfortunately, most small investors stay far away from such 'expensive' stocks. If most of your holdings are in mid/small cap stocks, you may have to undergo more pain. The budget on Jul 5 is unlikely to boost the 'animal spirits' of Indian entrepreneurs. 

Let us hope that the LTCG tax on shares/mutual funds gets abolished. That should give a temporary boost to Nifty - and provide a great profit-booking opportunity. Q1 (Jun '19) results are expected to dampen bullish sentiments further.