Friday, May 31, 2019

How to Analyse a Company's Inventory

Inventory represents products a company possesses on its premises or goods consigned to third parties. Inventory plays an important role in the smooth functioning of a company's business since it acts as a buffer between the production and completion of customers' orders.

... Inventory represents a current asset since a company typically intends to sell its finished goods within a short amount of time, typically a year. Inventory has to be physically counted or measured before it can be put on a balance sheet. 

Read more at:
https://www.investopedia.com/articles/investing/020116/how-analyze-companys-inventory.asp

Wednesday, May 29, 2019

Nifty chart: a midweek technical update (May 29, 2019)

FIIs were net buyers of equity on Mon. (May 27), but were net sellers during the next two days. Their total net buying was worth Rs 4.1 Billion. DIIs were net sellers of equity on Mon. and Wed. (May 29), but were net buyers on Tue. Their total net selling was worth Rs 2.5 Billion, as per provisional figures.

The 2nd NDA government has its task cut out as India is facing one of the worst job crisis in several decades. According to an analysis based on data from Centre for Monitoring Indian Economy (CMIE), nearly 5 million people lost their jobs during 2016-18.

According to an ICRA report which analysed the Q4 results of 300 odd companies, weakness in consumer spending and lower commodity prices have led to a revenue growth of 10.7% during Jan-Mar '19 - a 6-quarter low. 


After forming a 165 points upward 'gap' on May 20, the daily bar chart pattern of Nifty rose to touch a lifetime high of 12041 on May 23 (the day election results were announced). But it formed a large 'reversal day' bar (higher high, lower close), and dropped to test support from the 'gap' zone (shaded in grey).

Though the index bounced up, and touched a new closing high of 11929 on Tue. May 28, it has failed to test its May 23 top so far. The index is trading well above its three rising EMAs in a bull market - so rising to a new high may be just a matter of time.

Daily technical indicators are in bullish zones, but not showing much upward momentum. MACD is rising above its signal line in overbought zone. RSI is moving sideways above its 50% level, but appears to be forming a small 'rounding top' reversal pattern. Slow stochastic is moving sideways after re-entering its overbought zone

All three indicators continue to show negative divergences by failing to touch new highs with the index. Some consolidation or correction may follow.

Nifty's TTM P/E has moved up to 29.44, which is in overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has fallen sharply from its oversold zone, hinting at some near-term consolidation.

A correction that partly or completely fills the May 20 'gap' will improve the technical 'health' of the chart, enabling Nifty to rise much higher. But corrections hardly ever happen if you wish for them.

There is a remote possibility of Nifty forming an 'island reversal' pattern - if it falls below the upward 'gap' of May 20 with a downward 'gap'. In such an unlikely event, the outcome will be very bearish. Not saying such a rare reversal pattern will actually form - but forewarned is forearmed.

Tuesday, May 28, 2019

Gold and Silver charts: bears remain on top

Gold chart pattern


The following remark appeared in the previous post on the daily bar chart pattern of Gold: "Slow stochastic has entered its overbought zone, and can trigger a pullback towards the top of the 'wedge'."

The expected pullback turned into a correction. Gold's price dropped back inside the 'falling wedge' (which is the 'handle' of a large 'cup and handle') pattern, and fell below its three EMAs into bear territory.

After touching a low of 1269 on May 21, Gold's price bounced up to close above its 200 day EMA - keeping bullish hopes alive. Recent volume spikes on up days indicate buying interest.

Daily technical indicators are looking neutral to bearish. MACD is facing resistance from its signal line in bearish zone. RSI is facing resistance from its 50% level. Slow stochastic has bounced up from the edge of its oversold zone. Gold's price may make another attempt to break out above the 'wedge'.

After touching a high of 98.26 on May 23 - its highest level in 2 years - the US Dollar index dropped to a low 97.40 on May 24, limiting the upside on Gold's price.

On longer term weekly chart (not shown), gold’s price bounced up after receiving support from its 200 week EMA, and closed just below its 20 week EMA 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 at its 50% level. Slow stochastic is moving sideways at the edge of its oversold zone.

Silver chart pattern


The (purple) down trend line has been dominating the daily bar chart pattern of Silver for the past three months, showing that bears are clearly on top, and in no mood to relinquish their advantage.

A few recent attempts at upward break outs have faced strong resistances from the trend line and the 20 day EMA. Silver's price is trading below its three falling EMAs in a bear market.

Daily technical indicators are in bearish zones, but showing slight upward momentum. MACD is facing resistance from its falling signal line. RSI has bounced up from the edge of its oversold zone. Slow stochastic has emerged from its oversold zone.

On longer term weekly chart (not shown), silver's price is trading below its three falling weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones and showing downward momentum - suggesting some more correction. 

Monday, May 27, 2019

S&P 500 and FTSE 100 charts (May 24, 2019): bears trying to exert control

S&P 500 index chart pattern


The following comment was made in last week's post on the daily bar chart pattern of S&P 500: "The index remains in a down trend (marked by purple trend line) that started after the index touched a lifetime high of 2954 on May 1."

The index traded below the (purple) down trend line through the week. It made an attempt to move above its 50 day EMA on Tue. and Wed. (May 21 and 22), but dropped down to close below it - losing 1.2% on a weekly closing basis.

On Thu. May 23, the index tested support from the 2800 level for the second time since Mon. May 13, and bounced up a bit - keeping bullish hopes alive. As long as the index trades above its 200 day EMA, bulls need not worry too much.

Daily technical indicators are in bearish zones, and showing downward momentum. MACD is falling below its signal line. RSI has dropped down again after facing resistance from its 50% level. Slow stochastic had bounced up from the edge of its oversold zone, but is falling down towards it once more. 

Some more correction, and a test of support from the 200 day EMA can be expected. A breach of the 200 day EMA can drop the index to the 2700-2725 zone.

On longer term weekly chart (not shown), the index dropped below its 20 week EMA for the 2nd week in a row, but bounced up to close above its three weekly EMAs in a long-term bull marketWeekly technical indicators are in bullish zones, but showing downward momentum - hinting at some more correction. 

FTSE 100 index chart pattern



The following comment was made in last week's post on the daily bar chart pattern of FTSE 100: "A convincing move above the Apr 23 top of 7529 is necessary to complete the 'cup and handle' pattern."

The index made a feeble attempt to rise higher - touching a much lower top of 7373 on Wed. Mar 22 - but dropped down to test support from its 200 day EMA the next day.

Though the index bounced up to close just above 7275 in bull territory on Fri. May 24, it lost 70 points (~1%) on a weekly closing basis.

Daily technical indicators are giving conflicting signals. MACD is seeking support from its signal line in bearish zone. RSI is rising towards its 50% level after falling below it. Stochastic has moved above its 50% level after falling below it.

Expect some consolidation before the index can make another attempt to move above the Apr 23 top of 7529, which is necessary to complete the 'cup and handle' pattern.

On longer term weekly chart (not shown), the index dropped below its merged 20 week and 50 week EMAs, but bounced up to close above its three weekly EMAs in long-term bull territory. Weekly technical indicators are looking neutral to bearish, and showing slight downward momentum. 

Sunday, May 26, 2019

Sensex, Nifty charts (May 24, 2019): at lifetime highs

FIIs were net sellers of equity on Wed. May 22, but net buyers on the other four days. Their total net buying exceeded Rs 53.3 Billion. DIIs were net sellers of equity on all five trading days, but could not match the pace of FII buying. Their total net selling was worth Rs 25.8 Billion, as per provisional figures.

A SEBI-constituted committee has proposed wide-ranging changes to Foreign Portfolio Investment (FPI) and FDI schemes to boost capital inflows - by improving 'ease of doing business' for large and well-regulated global entities.

A Commerce Ministry strategy paper has suggested steps for reducing import dependence from, and pushing exports to China, and attracting foreign firms that are planning to shift manufacturing bases from China. 

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex formed a 570 points upward 'gap' on Mon. May 20 after exit polls indicated a big victory for the NDA in the general elections.

The index closed 350 points above the 39000 level - which corresponds with the right apex of the 'diamond' pattern and was expected to provide some resistance.

During the next three days, the index oscillated about the 39000 level. On Thu. May 23 - the day election results were announced - Sensex touched a lifetime intra-day high of 40125, but formed a large 'reversal day' bar (higher high, lower close) and closed below 39000.

The index gained 1500 points (4%) on a weekly closing basis, as it ended the week at a lifetime closing high of 39435 on the back of strong buying by FIIs.

Daily technical indicators are in bullish zones. MACD is rising above its signal line. ROC has entered its overbought zone. RSI has moved above its 50% level. Slow stochastic has dropped from its overbought zone

All four indicators are showing negative divergences by failing to touch new highs with the index. Some more near-term index upside is possible, before the reality of weak corporate earnings hits bullish market sentiments. 

Caution is advised for small investors near a lifetime index high. This is a time when lot of junk shares may get dumped on unsuspecting newcomers by savvy investors. 'Invest in quality' should be the guiding principle.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty formed a 165 points upward 'gap' and touched lifetime intra-week (12041) and closing (11844) highs - gaining 3.8% on a weekly closing basis - as bulls celebrated a huge election victory by the NDA.

Weekly technical indicators are looking bullish and overbought. MACD, ROC and Slow stochastic are moving sideways below their respective overbought zones.  RSI has re-entered its overbought zone. 

All four indicators are showing negative divergences by failing to touch new highs with the index. Some correction or consolidation is possible. 

Nifty's TTM P/E has moved up to 29.44, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone, hinting at some near-term index upside.

Bottomline? Sensex and Nifty charts have closed at lifetime highs, as bulls celebrated NDA's huge election victory. Caution is suggested near a lifetime high. Stay invested, maintain trailing stop-losses and enjoy the bull ride. Use dips to add.

Friday, May 24, 2019

5 Financial Strategies to Last a Lifetime

Achieving your long-term financial goals is a lifelong commitment. It requires careful planning and daily decision making in a manner that is consistent with the financial targets you have established. 

To stay consistent with your financial goals, consider implementing these five financial strategies that should help you grow your personal balance sheet and ensure your financial security.

Read more at:
https://www.investopedia.com/advisor-network/articles/051716/5-financial-strategies-last-lifetime/

Wednesday, May 22, 2019

Nifty chart: a midweek technical update (May 22, 2019)

FIIs turned net buyers of equity on Mon. and Tue. (May 20 and 21), but were net sellers today. Their total net buying was worth Rs 19.5 Billion. DIIs were net sellers of equity on all three trading days. Their total net selling was worth Rs 17.9 Billion, as per provisional figures.

According to the World Economic Situations and Prospects (WESP) 2019 Mid-Year Update released by the United Nations, strong domestic consumption and investment will continue to support India's GDP growth, which is projected at 7% in 2019 and 7.1% in 2020.

The debt crisis in IL&FS translated into higher borrowing costs and reduced market access for other NBFCs, adversely impacting the growth of the NBFC sector - as per a report by Fitch Ratings.



Exit polls predicting a comfortable victory for the NDA in the recent general elections encouraged FIIs to go on a buying spree. The daily bar chart pattern of Nifty formed a 165 points upward 'gap' on Mon. May 20, and closed above 11800 for the first time ever.

FII buying continued on Tue. May 21. The index touched a new lifetime high of 11883.50 during early trading, but dropped down to close at 11709 - forming a 'reversal day' bar (higher high, lower close) that often terminates an intermediate up move.

Today's trading formed a 'doji' candlestick - which indicates indecision among bulls and bears - and a Nifty close below 11750 for the second straight day. The index traded well above its three rising EMAs in a bull market.

Nifty had broken out below a 'diamond' reversal pattern on May 6. The subsequent correction had found support near the upward 'gap' formed on Mar 12. A convincing move above 11750 - the level corresponding to the right apex of the 'diamond' - is necessary for bulls to regain control of the chart. 

That should be a foregone conclusion if the actual general election results correspond to the exit poll predictions of a comfortable NDA win.

Daily technical indicators are looking bullish. MACD has crossed above its signal line to enter bullish zone. RSI is moving sideways above its 50% level. Slow stochastic has risen sharply to enter its overbought zone

All three indicators are showing negative divergences by failing to touch new highs with the index. Some consolidation or correction may follow.

Nifty's TTM P/E has moved up to 29.22, which is in overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone, hinting at some near-term consolidation/correction.

The opposition parties are trying to put up a brave face despite the adverse exit poll predictions. However, the writing seems to be on the wall. Even if NDA misses out on a clear majority, many of the smaller opposition parties are likely to be lured to the NDA fold before government formation.

Monday's buying euphoria was overdone. The large upward 'gap' of 165 points, with strong volume support, has the trait of an 'exhaustion gap'. There may be some more profit booking after election results are announced on Thu. May 23. Stay on the sidelines till the dust settles.

Tuesday, May 21, 2019

WTI and Brent Crude Oil charts: consolidating near support-resistance zones

WTI Crude Oil chart


The daily bar chart pattern of WTI Crude Oil consolidated sideways with a slight upward bias during the past two weeks. Oil's price closed above its three EMAs in bull territory, but failed to close above the 'support-resistance zone' (between 62 and 64).

Note that trading volumes during recent down days have exceeded volumes on up days. That is a sign that bears are active and following a 'sell on rise' strategy.

Daily technical indicators are looking bullish. MACD is about to cross above its falling signal line in neutral zone. RSI has moved above its 50% level. Slow stochastic is rising above its 50% level. 

Oil's price may rise further due to escalating US-Iran tensions and concerns about US-China trade war.

On longer term weekly chart (not shown), oil's price bounced up after receiving strong support from its converging weekly EMAs, and closed in long-term bull territory. Weekly technical indicators are in bullish zones, but not showing much upward momentum

Brent Crude Oil chart


The daily bar chart pattern of Brent Crude Oil consolidated sideways with a slight upward bias before breaking out to close above the 'support-resistance zone' (between 70 and 72) on Thu. May 16.

Bears started to 'sell on rise'. Oil's price slipped down to close just below 72, but above its three EMAs in bull territory.

Daily technical indicators are looking bullish but not showing much upward momentum. MACD is facing resistance from its sliding signal line in bullish zone. RSI is above its 50% level, but moving down. Slow stochastic has moved up towards its overbought zone, but its upward momentum has weakened. 

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 - hinting at some more consolidation.

Monday, May 20, 2019

S&P 500 and FTSE 100 charts (May 17, 2019): pullback after corrective moves

S&P 500 index chart pattern


Note the following comment in last week's post on the daily bar chart pattern of SPX 500: "Friday's 'outside day' candlestick may be hinting at a continuation of the down trend that started after the index touched its lifetime high of 2954 on May 1."

On Mon. May 13, the index dropped to test support from the 2800 level, and closed below its 50 day EMA. A technical bounce followed during the next three days. The index breached the 20 day EMA intra-day on Thu. May 16, but failed to close above it.

Bears came to the fore on Fri. May 17. The index dropped below its 50 day EMA intra-day, but managed to close just above it. 

The index remains in a down trend (marked by purple trend line) that started after the index touched a lifetime high of 2954 on May 1.

Daily technical indicators are in bearish zones. MACD is moving sideways below its falling signal line. RSI has dropped down after facing resistance from its 50% level. Slow stochastic has bounced up from the edge of its oversold zone. 

Some consolidation or more correction can be expected.

On longer term weekly chart (not shown), the index dropped below its 20 week EMA, but bounced up to close above its three weekly EMAs in a long-term bull marketWeekly technical indicators are in bullish zones, but showing downward momentum. 

FTSE 100 index chart pattern



Note the following comments in last week's post on the daily bar chart pattern of FTSE 100: "The 'cup and handle' pattern has not been negated yet. Daily technical indicators are looking bearish and oversold...and can trigger a technical bounce."

On Mon. May 13, the index touched a low of 7151 and closed below its three EMAs in bear territory at 7164. A technical bounce during the next three days propelled the index to a close above its three EMAs and the 7350 level on Thu. May 16.

On Fri. May 17, the index closed just below 7350 but above its three EMAs in bull territory. However, formation of a small 'hanging man' candlestick can lead to some correction or consolidation.

Daily technical indicators are looking bullish after correcting oversold conditions. MACD is about to cross above its falling signal line in bearish zone. RSI and Stochastic have moved above their respective 50% levels.

A convincing move above the Apr 23 top of 7529 is necessary to complete the 'cup and handle' pattern.

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

Sunday, May 19, 2019

Sensex, Nifty charts (May 17, 2019): pullbacks after downward breakouts from 'diamond' patterns

FIIs were net sellers of equity on all five trading days. Their total net selling exceeded Rs 62.2 Billion. DIIs were net buyers of equity on all five trading days, and more than matched the pace of FII selling. Their total net buying was worth Rs 67.3 Billion, as per provisional figures.

In Apr 2019, India's trade deficit widened to a five months high of US $15.33 Billion, compared to $10.9 Billion in Mar '19 and $13.72 Billion in Apr '18.

Merchandise export in Apr '19 grew 0.64% (a four months low) to $26.07 Billion - down sharply from $32.6 Billion in Mar '19. Imports increased 4.48% (a six months high) to $41.4 Billion - on the back of higher oil and gold imports.

BSE Sensex index chart pattern



The following comments were made in last week's post on the daily bar chart pattern of Sensex: "Sensex is just above a strong support zone, from where a technical bounce can be expected."

On Mon. May 13, the index dropped down to completely fill the 125 points 'gap' formed on Mar 12. During the next three trading days, Sensex oscillated about the 'gap' in a 630 points range.

On Fri. May 17, the expected technical bounce took the index above the trading range and its 50 day EMA, but failed to overcome resistance from its falling 20 day EMA. Further index upside may face resistance from the 39000 level, which corresponds to the level of the right apex of the 'diamond' reversal pattern.

Daily technical indicators are correcting oversold conditions. MACD is forming a small 'rounding bottom' pattern below its falling signal line in bearish zone. ROC, RSI and Slow stochastic have emerged from their respective oversold zones, but remain in bearish zones. Some more near-term index upside is likely. 

The Indian stock market appears to be on tenterhooks regarding results of the general election on May 23. A likely return of the NDA for a second term should provide a temporary spike to the index. India Inc's muted Q4 (Mar '19) results may not sustain a long rally.

An unlikely upset victory of the combined opposition would accentuate bearish sentiment. A test, and breach, of the (blue) down trend line and the 200 day EMA should be kept in the realm of possibilities.

NSE Nifty index chart pattern



The following comment appeared in last week's post on the weekly bar chart pattern of Nifty: "As long as the index trades above its 50 week EMA, the bull market will remain in force."

Nifty dropped to test support from the lower edge of the 'support zone' (between 11230 and 11100) and bounced up to close above its 20 week EMA with a 1.1% weekly gain.

Further Nifty upside may face resistance from the 11750 level, which corresponds to the right apex of the 'diamond' reversal pattern.

Weekly technical indicators are in bullish zones after correcting overbought conditions. MACD is falling towards its rising signal line. ROC has crossed below its 10 week MA. RSI is moving sideways below its overbought zone. Slow stochastic is falling below its overbought zone. Some more correction or consolidation is possible. 

Nifty's TTM P/E has moved up to 28.44, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is rising inside its oversold zone, and can trigger near-term index upside.

Bottomline? Sensex and Nifty charts are pulling back from support zones after sharp break outs below 'diamond' patterns. Stay invested, and await election results on May 23 before jumping in to buy or sell.

Friday, May 17, 2019

8 Ways Companies Cook the Books

Every company manipulates its numbers to a certain extent to make sure budgets balance, executives score bonuses, and investors continue to offer up funding. Such creative accounting is nothing new. 

However, factors such as greed, desperation, immorality, and bad judgment can cause some executives to cross the line into outright corporate fraud.

... investors should ... know how to recognize the basic warning signs of falsified statements. While the details are typically hidden, even from accountants, there are red flags in financial statements that can point to the use of manipulating methods.

Read more at:
https://www.investopedia.com/articles/analyst/071502.asp

Wednesday, May 15, 2019

Nifty chart: a midweek technical update (May 15, 2019)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 42.1 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 39.7 Billion, as per provisional figures.

India's CPI based retail inflation inched up to 2.92% in Apr '19 against 2.86% in Mar '19, but remained well within RBI's target level of 4%.

However, WPI based wholesale inflation slipped to 3.07% in Apr '19 against 3.18% in Mar '19 due to lower cost of fuel and manufactured items, even as food prices rose higher.



The following comments appeared in last week's technical update on the daily bar chart pattern of Nifty: "On the downside, there is an unfilled upward 'gap' of 46 points (formed on Mar 12). Expect Nifty to find some support at the 'gap' zone." 

On Mon. May 13, the index fell more than 130 points - completely filling the 'gap' by closing below it. Short covering after 9 days of correction led to a pullback above, and a close at, the upper edge of the 'gap' on Tue. May 14.

Bullish hopes were dashed as Nifty dropped to close below the 'gap' for the second time on Wed. May 15. Effectively, the index oscillated about the 'gap' within a 200 points range (between 11300 and 11100) during the past three trading sessions.

What next? Note that the index formed an 'inside day' candlestick (lower high, higher low) on May 15, which indicates indecision among bulls and bears and often leads to a continuation of the current trend.

The way FIIs are fleeing the Indian market, there is every possibility of a test, and likely breach, of the 200 day EMA. Expect bulls to strongly defend the 200 day EMA.

Daily technical indicators are looking bearish and oversold. MACD is falling deep inside bearish zone. RSI has bounced up weakly from the edge of its oversold zone. Slow stochastic is moving sideways with a slight upward bias inside its oversold zone.

Remember that an index (or stock) can remain oversold for long periods - though it hasn't happened for Nifty in a long while. 

Nifty's TTM P/E has moved down to 27.82, but remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen sharply inside its oversold zone, and may trigger a near-term technical bounce.

FIIs are worried about the US-China trade tiff. They may have also been spooked by the way opposition leaders are meeting and talking about forming the next government. 

If the NDA manages to get past the finishing post first on May 23, bulls will celebrate. However, their celebrations should be tempered with the reality of weak Q4 earnings reports from India Inc., and visible signs of an economic slowdown. 

Tuesday, May 14, 2019

Gold and Silver charts: bulls staging a come back?

Gold chart pattern


The following comment appeared in the previous post on the daily bar chart pattern of Gold: "The past 2 months' trading has formed the 'handle', which itself is looking like a 'falling wedge' from which the likely breakout is upwards."

Note that gold's price twice dropped below its 200 day EMA into bear territory, but formed a small 'double bottom' reversal pattern. That triggered a technical bounce that has broken out above the 'falling wedge' (which is the 'handle' of a 'cup and handle') pattern.

A strong volume surge accompanied the upward break out - validating it technically. Gold's price managed to close above the 1300 level, and well above its three EMAs in bull territory after a month. 

Daily technical indicators are looking bullish. MACD is rising above its signal line in bearish zone. RSI is climbing above its 50% level. Slow stochastic has entered its overbought zone, and can trigger a pullback towards the top of the 'wedge'.

After touching a high of 98.10 on Apr 26 - its highest level in 2 years - the US Dollar index dropped to a low 96.80 on May 13. Gold's price usually moves in the opposite direction to the Dollar index.

On longer term weekly chart (not shown), gold’s price bounced up after receiving support from its 200 week EMA, and closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators are giving conflicting signals. MACD is moving sideways below its falling signal line in bullish zone. RSI is rising above its 50% level. Slow stochastic has emerged from its oversold zone, and can trigger a rally.

Silver chart pattern


The daily bar chart pattern of Silver had formed a 'double top' reversal pattern back in Feb '19, and has been in a down trend (marked by purple trend line) since then.

A couple of recent attempts to break out above the trend line and the falling 20 day EMA have come to nought. Silver's price is trading below its three falling EMAs in a bear market.

A silver lining for bulls is the formation of a small 'double bottom' reversal pattern near the 14.60 level. Whether the support at 14.60 holds or not remains to be seen.

Daily technical indicators are in bearish zones, and not showing any upward momentum. MACD has merged with its signal line. RSI is moving sideways below its 50% level. Slow stochastic has dropped below its 50% level after briefly moving above it.

On longer term weekly chart (not shown), silver's price is trading below its three falling weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones and showing downward momentum - suggesting some more correction. 

Monday, May 13, 2019

S&P 500 and FTSE 100 charts (May 10, 2019): bears use US-China trade war as excuse to strike hard

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 dropped below the 'rising wedge' and its 20 day EMA intra-day on Mon. May 6, but pulled back to close just inside the 'wedge' by the end of the day.

Bears took control on Tue. May 7. The index dropped sharply below its 20 day EMA and closed below it, but received good support from its 50 day EMA. The next day, the index traded below its 20 day EMA but above its 50 day EMA.

An intra-day fall below the 50 day EMA on Thu. May 9 was followed by a pullback and close above it. On Fri. May 10, the index formed an 'outside day' candlestick pattern (lower low, higher high), but failed to close above its falling 20 day EMA - losing 2.2% on a weekly closing basis.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. RSI is trying to recover after falling below its 50% level. Slow stochastic has bounced up a bit from the edge of its oversold zone. 

Friday's 'outside day' candlestick may be hinting at a continuation of the down trend that started after the index touched its lifetime high of 2954 on May 1.

Inconclusive US-China trade talks and increased US tariffs on Chinese imports should encourage bears to press home their advantage. 

On longer term weekly chart (not shown), the index dropped to test support from its 20 week EMA, and closed above its three weekly EMAs in a long-term bull marketWeekly technical indicators are in bullish zones, but showing downward momentum. 

FTSE 100 index chart pattern



The following remarks were made in last week's post on the daily bar chart pattern of FTSE 100: "The index appears to be forming a large 'cup and handle' pattern, from which the likely breakout is upwards. The 'handle' of the 'cup' is in the process of getting formed... A fall below 7000 will negate the pattern."

The ongoing US-China trade war has affected bullish sentiment in global stock markets. FTSE succumbed to the bears - falling sharply below its 50 day EMA on Tue. May 7, but receiving brief support from its 200 day EMA.

On Thu. May 9, the index dropped below its 200 day EMA into bear territory but managed to cling on to the 7200 level by the end of the week - losing 2.4% on a weekly closing basis. The 'cup and handle' pattern has not been negated yet.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line in bearish zone. RSI is falling towards its oversold zone. Stochastic is inside its oversold zone, and can trigger a technical bounce.

On longer term weekly chart (not shown), the index closed just below its merged 20 week and 50 week EMAs, but above its 200 week EMA in long-term bull territory. Weekly technical indicators are looking bearish, and showing downward momentum. MACD has started falling above its signal line in bullish zone. RSI has slipped below its 50% levelStochastic is falling towards its 50% level.

Saturday, May 11, 2019

Sensex, Nifty charts (May 10, 2019): downward breakouts from 'diamond' reversal patterns

FIIs were net sellers of equity on all five trading days. Their total net selling exceeded Rs 41.9 Billion. DIIs were net buyers of equity on all five trading days, but couldn't match the pace of FII selling. Their total net buying was worth Rs 28.8 Billion, as per provisional figures.

India's IIP contracted to -0.1% in Mar '19 from 0.1% growth in Feb '19. It was the lowest IIP number in 21 months. IIP in Mar '18 was 5.3%. On annual basis, IIP slowed to a 3 year low of 3.6% in FY 2018-19 against 4.4% in FY 2017-18 and 4.6% in FY 2016-17.

According to CRISIL, operating margins of domestic cotton yarn spinners may shrink by 1-1.5% in FY 2019-20 due to lower cotton output, rising cotton prices and moderating demand.  

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex shows a sharp downward breakout from a 'diamond' reversal pattern, due to heavy selling by FIIs. Though the index has dropped below its 20 day and 50 day EMAs, it is trading above its 200 day EMA in a bull market.

Can the index fall even lower? Anything is possible when FIIs decide to turn bears. However, by touching an intra-day low of 37370 on Fri. May 10, the index has already corrected 50% of the last leg of its (2 months long, 4200 points) rally from the Feb 19th low to the Apr 18th top.

The 125 points upward 'gap' formed on Mar 12 can provide some support. The 61.8% Fibonacci retracement level of the 4200 points rally is at 36890 - which falls in between the 'gap' and the 200 day EMA.

In case the index falls below 36890, there is likely to be stronger support from the 200 day EMA and the (blue) up trend line. In other words, Sensex is just above a strong support zone, from where a technical bounce can be expected.

The level of the right apex of the 'diamond' (~39000) can act as a resistance if and when a likely technical bounce moves the index above the 50 day and 20 day EMAs. Sensex may consolidate within a 2000 points range (between 37000 and 39000) till election results are announced on May 23.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line in bearish zone. ROC, RSI and Slow stochastic have entered their respective oversold zones, and are showing negative divergences by falling below their Feb '19 lows. Some more downside is possible before a technical bounce occurs.

Finance Ministry mandarins are trying to 'invent' new arguments on a daily basis to put positive spins on negative data that are clearly pointing to worsening economic conditions (viz. unemployment, falling auto and FMCG sales, NBFC loan defaults, lower IIP and GDP).

What should small investors do now? What they should be doing at all times: follow a financial plan and asset allocation plan, and continue with monthly SIPs. Treat daily market gyrations as entertainment. 

NSE Nifty index chart pattern



The following comment appeared in last week's post on the weekly bar chart pattern of Nifty: "The index ... appears to have formed a 'diamond' pattern, which usually acts as a trend reversal pattern at a market top."

FIIs may not have read the post, but they sure respected the reversal pattern, and started selling heavily during the week. The index dropped sharply to seek support from its 20 week EMA - negating all gains made in the previous 7 weeks.

Below the 20 week EMA is a support zone between 11100 and 11230. The 50% Fibonacci retracement level of the 1270 points rally from the Feb '19 low of 10586 to the Apr '19 top of 11856 is at 11220 - which is just below the upper edge of the support zone.

If the support zone gets breached, expect stronger support from the 50 week EMA and the (blue) up trend line. As long as the index trades above its 50 week EMA, the bull market will remain in force.

Weekly technical indicators have started correcting overbought conditions. MACD has slipped down from its overbought zone, and is falling towards its rising signal line. ROC has crossed below its 10 week MA and fallen from its overbought zone. RSI has dropped from its overbought zone. Slow stochastic is about to follow suit. Some more correction is possible before a technical bounce can occur. 

Nifty's TTM P/E has moved down to 28.14, which remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone and can limit near-term index downside.

Bottomline? Sensex and Nifty charts have broken out below 'diamond' patterns, which often signal trend reversals. Stay invested, follow your asset allocation plans and let the correction play out before jumping in.