Let's start with the good news first. Two years ago, Ajay Singh, the original promoter of SpiceJet, reportedly bought the debt-laden and about-to-be-shut-down company from Kalanithi Maran (of Sun TV) for Rs 2.
The company has seen an upswing in its fortunes since then. Singh engineered a turnaround that moved the company back into the black after several years of losses. Capacity utilisation and on-time performance is one of the best in the domestic airline industry.
Lower oil (and ATF) prices helped in the turnaround. Govt's decision to revamp 50 under-utilised airports and announcement of 100% FDI in domestic airlines should further boost the growth of domestic airlines.
Now, the bad news. All is not well between Maran and Singh, with the former taking the latter to court for transgressions of their sales agreement. An adverse judgement could prove costly for the company.
More importantly - for existing and potential investors - the company's net worth is negative. It may take several years of profitable operations to clean up the balance sheet - which can be a chimera in the airline industry.
The daily bar chart pattern of SpiceJet shows that all the good news has already been discounted in the price. After touching multiple bottoms around 17 during Apr-Jun '15, the stock price shot up to touch a high of 95.30 on Jan 28 '16 - gaining a whopping 460% in 7 months.
All four technical indicators reached their overbought zones. Three of them - ROC, RSI, Slow stochastic - showed negative divergences by touching lower tops (marked by blue arrows). MACD formed a head-and-shoulders reversal pattern.
Bears used the opportunity to attack. The stock corrected more than 40% from its top, but found support at 55 near its rising 200 day EMA. That was a year ago.
Since then, the stock has been consolidating sideways in a 30 points range within a 'rectangle' pattern. The price has moved up to the top edge of the 'rectangle' for the first time since May '16. However, technical indicators are looking overbought. ROC and RSI are showing negative divergences by touching lower tops.
A 'rectangle' is usually a continuation pattern. Since the stock's price entered the 'rectangle' after a correction, the breakout should be downwards. However, a 'rectangle' is an unstable pattern. A breakout can occur in either direction.
Since the stock is trading above its three rising EMAs in bull territory, the breakout can occur upwards as well. In fact, an attempted upward breakout today was thwarted by bears.
There is a saying about the airline industry: If you want to be a millionaire in the sector, start with a billion. Mallya and Maran have already proved the veracity of that adage.
If you are planning to enter the counter - don't. If you are an existing holder - book out. There are far better sectors to invest in. Which ones? Check out the link below:
Which sectors should you invest in?
The Indian paints industry is dominated by Asian Paints - with more than 50% market share. Akzo Nobel (formerly ICI) India is an 'also ran' with 11% market share - behind Berger Paints (19%) and Kansai Nerolac (15%).
So, what is the investment rationale for this company? It is part of the largest paints and coatings company in the world, and has been gradually rationalising its India operations and slowly gaining market share.
Valuation looks more attractive than its larger competitors. Through organic (greenfield and brownfield) as well as inorganic expansions, the company has been growing at a 20% CAGR over the past 5 years (against an industry average of 12%).
The daily bar chart pattern of Akzo Nobel India had completed a large 'double bottom' reversal pattern around 1200 in Feb '16, and rallied strongly to touch a lifetime high of 1740 on Aug 31 '16.
Note that all four daily technical indicators showed negative divergences (marked by blue arrows) by touching lower tops while the stock touched its lifetime high.
Over the next two months, a 'triple top' reversal pattern was formed. That initiated a correction which was exacerbated be Modi's demonetisation announcement in Nov '16.
The stock price dropped sharply below its three EMAs into bear territory, and touched a low of 1375 on Nov 23 '16. After some sideways consolidation, it dropped even lower to 1328 on Jan 16 '17.
Note that three of the technical indicators - MACD, ROC, RSI - showed positive divergences (marked by blue arrows) by touching higher bottoms while the stock price dropped lower.
That was a trigger for the stock to start its recovery. Resistance from the long-term 'support-resistance' level of 1460 has been overcome. The 'golden cross' of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market.
The stock may consolidate or correct a little before resuming its up move. The company has a history of strong cash flows and good dividend payments. Patient investors can think about adding it to their portfolios.
FIIs went on a selling spree in a holiday-shortened trading week. Their net selling in equity was worth Rs 62.2 Billion, as per provisional figures. DIIs failed to match them with their net buying in equities worth Rs 45.3 Billion.
Both Sensex and Nifty gave up further ground - losing 2.5% and 2.7% respectively - on a weekly closing basis. Both indices may test, and even breach, their lows of the previous week.
Rupee depreciation against the US Dollar, a likely US interest rate hike which can cause more outflow of foreign capital, RBI's failure to supply adequate currency to replace the demonetised bank notes of Rs 500 and Rs 1000 have badly dented bullish sentiments.
BSE Sensex index chart pattern
The following were the concluding comments in last week's post on the daily bar chart pattern of Sensex: "Small investors should not be in a hurry to start bottom fishing. A test of Wednesday's low of 25900 can't be ruled out."
The index continued its downward trajectory, closing lower on all four trading days of the week. It has closed below its 200 day EMA in bear territory for 5 straight days, and is within handshaking distance of the previous week's low of 25902.
The bottom has fallen out of the previous week's 'flag' pattern, so it has been replaced with a down trend line. As per trend line theory, the down trend will remain in force till it gets breached convincingly.
The 20 day EMA is about to cross below the 200 day EMA. The 50 day EMA has formed a 'rounding top' reversal pattern. These are signs that the index may be slipping into a bear phase.
Sensex has retraced 48% of its gains from the Feb 29 '16 low (of 22495) to the Sep 8 '16 top (of 29077). That is close to the 50% Fibonacci retracement level from which bull market corrections are likely to reverse.
Stock indices don't really follow mathematics or logic. There is no reason to go long during F&O expiry week. However, there is some possibility of at least a technical bounce.
All four daily technical indicators are inside their oversold zones. Note that ROC is showing positive divergence by not falling lower with the index.
Any pullback towards the 200 day EMA will provide another selling opportunity to bears (i.e. FIIs).
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty dropped to close well below its 50 day EMA, and looks poised to revisit its previous week's low of 8002.
The 20 week EMA is forming a bearish 'rounding top' pattern. So is the signal line of the MACD indicator. Weekly ROC, RSI and Slow stochastic are looking oversold and showing downward momentum.
The index had formed a high-volume 'panic bottom' in the previous week. A 'panic bottom' seldom holds. A drop below 8000 seems likely. Support levels below 8000 were mentioned in last Wednesday's post.
Oversold conditions indicate the possibility of a technical bounce towards 8300 next week. If you are a short-term player, use the likely bounce to close out long positions.
For long-term investors, the current state of the index is a good test of their patience and discipline. Both characteristics will be under stress. The men will get separated from the boys.
Bottomline? Sensex and Nifty charts are turning bearish due to global and local events. Valuations are improving, but weak earnings growth of India Inc. is going to take some more time to overcome the demonetisation shock. Caution is advised. Any technical bounce may be followed by lower levels on both indices.
FIIs and DIIs were both net sellers of equity in another holiday-shortened trading week. FII net selling was worth only Rs 65 Crores. They turned net buyers on the last two days of the week, as per provisional figures.
DII net selling was worth Rs 690 Crores. Both Sensex and Nifty closed about 1% lower for the week, but their up-trends from Feb '16 lows remain intact.
India's macroeconomic worries continue. WPI inflation rose to a two years high of 3.74% in Aug '16, against 3.55% in Jul '16 and -5.06% in Aug '15 - thanks to a spike in prices of pulses, potatoes and some manufactured items.
Merchandise exports fell for the second straight month, contracting -0.3% in Aug '16 against -6.84% in Jul '16. There was some talk about a Rupee devaluation to boost exports - but the step would be ill-advised as cost of imports will go up.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex opened trading on Mon. Sep 12 with a big 274 points downward 'gap' and dropped below its 20 day EMA, but received support from the blue up-trend line (drawn from its Feb 12 '16 low).
The index continued to receive good support from the up-trend line during the next two trading sessions as it continued to hover near its 20 day EMA.
Opening with a 40 points upward 'gap' on Fri. Sep 16 - thanks to strong FII buying - Sensex rose to touch an intra-day high of 28779. Monday's downward 'gap' got completely filled.
However, the index could not sustain near the day's high and dropped down to close just below the long-term 'support-resistance' level of 28600. What are the technical consequences of these downward and upward 'gaps'?
Note that in the previous week (on Tue. Sep 6), Sensex had opened trading with a 50 points upward 'gap'. The downward 'gap' of 274 points on Mon. Sep 12 overlapped the previous week's upward 'gap' - turning the previous week's trading into an 'island reversal' pattern.
Such a reversal pattern does not necessarily signify a change of trend, but can cause a retracement of the entire intermediate rally. When did the intermediate rally begin? From the 63 points upward 'gap' formed on Jul 11 '16.
How likely is it for Sensex to drop and close the Jul 11 'gap'? Not very - though the possibility can't be ruled out entirely.
The blue uptrend line, the rising 50 day EMA and the 27600 level are expected to provide good support should the index fall further. Only if 27600 is breached convincingly can the possible filling of the Jul 11 'gap' be taken into consideration.
Daily technical indicators have corrected overbought conditions but remain in bullish zones. MACD is moving sideways below its signal line in positive territory. ROC crossed below its 10 day MA but bounced up after receiving support from its '0' line. RSI is rising towards its overbought zone. Slow stochastic has bounced up from its 50% level.
The index is trading above its three EMAs in a bull market. Bears are trying to stand their ground and prevent the index from rising to a new high. But they may be fighting for a lost cause.
NSE Nifty index chart pattern
Overbought technical indicators and high TTM index valuation had led to the following warning in last week's post on the weekly bar chart pattern of Nifty: "The index looks ripe for a correction."
The week's trading started with a big 133 points downward 'gap'. However, the index received good support from the blue uptrend line (drawn from its low from the week ending on Feb 12).
Though the index failed to overcome resistance from the 8850 level, it managed to fill the downward 'gap' by the end of the week's trading.
The index is trading above its two rising weekly EMAs in a bull market. Weekly technical indicators are inside their overbought zones. Only ROC is showing a bit of bearishness by crossing below its 10 week MA.
Nifty TTM P/E remains high at 24.07. The breadth indicator NSE TRIN (not shown) has corrected extreme overbought conditions and is rising inside its overbought zone - suggesting some more correction or consolidation around current levels.
A convincing downward breach of the blue uptrend line will tilt the balance in favour of bears. Otherwise, expect the bulls to resume their domination soon.
Bottomline? Bears almost wrested control away from bulls in their efforts to prevent Sensex and Nifty charts to rise to new highs. Bulls fought back strongly on Friday. As usual, FII fire power will decide the fate of the Indian market. Stay invested and stay patient.
Global concerns regarding Britain's possible exit ('Brexit') from the European Union turned FIIs into bears during the week - though their net selling in equities was worth less than Rs 150 Crores, as per provisional figures.
DIIs were also net sellers of equity worth less than Rs 600 Crores. Sensex and Nifty closed almost flat for the week. Concerns about a delayed monsoon and rising inflation led to bearish market sentiments.
India's exports slipped by 0.8% YoY in May '16. Imports dipped by 13.2%, bringing down trade deficit to $6.3 Billion in May '16 compared to $10.4 Billion in May '15.
For FY 2015-16, the Current Account Deficit (CAD) was 1.1% of GDP against 1.8% of GDP in FY 2014-15. Exports declined by 15.8% and Imports declined by 14.1% during FY 2015-16.
BSE Sensex chart pattern
The following remarks appeared in last week's post on the daily bar chart pattern of Sensex: "Some more correction and/or consolidation within the 'support-resistance' zone is likely. The rising 20 day EMA and the 26300 level may prevent the index from falling too far."
As expected, the index consolidated within the 'support-resistance' zone for the third week in a row and received good support from its 20 day EMA and the 26300 level.
Daily technical indicators have corrected overbought conditions and are turning bearish. MACD has crossed below its signal line in positive zone. ROC, RSI and Slow stochastic have slipped into bearish zones.
Some more correction or consolidation is likely till results of the 'Brexit' vote are declared on Jun 24. Those voting for Britain to remain in the Eurozone should win, but global markets may 'sell on news'.
The index is trading above its three EMAs in bull territory, so dips can be used to add. However, there is a possibility that the index may drop to seek support from its 50 day EMA (as it had done 4 times in the past 3 months).
NSE Nifty chart pattern
The weekly bar chart pattern of Nifty traded within a range of less than 150 points and remained within the 'support-resistance' zone between 7950 and 8275 for the third week in a row.
The index is trading above the blue down trend line and its two weekly EMAs in bull territory. The 20 week EMA is about to cross above the 50 week EMA. The 50 week EMA is completing a bullish 'saucer' pattern. Bulls are slowly regaining control of the chart.
However, weekly technical indicators are looking overbought. The market breadth indicator, NSE TRIN (not shown), has dropped to extreme overbought level not seen in the past year.
A correction towards 7950 level is likely. In case 7950 gets breached on the downside, expect strong support from the 20 week and 50 week EMAs.
Bottomline? Bears are using global and local concerns to fight back and prevent bulls from regaining control of Sensex and Nifty charts. It is a losing battle, as bull markets usually climb a 'wall of worries'. Stock selection will be a key. Don't get sucked into sector-rotation - a strategy that 'smart money' appears to be following.
A hawkish stance by the US Fed raised the spectre of an interest hike in June '16. US Dollar rose to multi-week highs. Oil prices and Rupee plummeted. Brexit concerns (Britain's emexit from Eurozone) exacerbated a sell-off in global stock markets.
Indian stock market wasn't spared, as FIIs were net sellers of equity worth almost Rs 2100 Crores during the week, as per provisional figures. DIIs were net buyers of equity worth nearly Rs 2600 Crores - but could not prevent Sensex and Nifty from closing lower for the week.
Q4 (Mar '16) results for PSU banks have been a disaster. The worst may not be over for them. ITC results beat street estimates. Their Rs 25000 Crores planned investments in processed foods and a 1:2 Bonus announcement came too late on Friday (May 20) to pep up bulls.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex made another futile attempt to cross above the blue down trend line that has been dominating the chart for the past 15 months.
Once again, the index faced strong resistance from the trend line and dropped below its 200 day and 20 day EMAs into bear territory. The rising 50 day EMA provided support - as it had done in the past two months.
For the past 6 weeks, the index has been consolidating sideways within a 'symmetrical triangle' pattern - with the down trend line acting as the upper boundary and the 50 day EMA acting as the lower boundary.
Triangles are unreliable patterns. One must wait for a breakout - which can occur upwards or downwards - before taking a decision to buy/sell.
Daily technical indicators are looking bearish. MACD is falling below its signal line in positive zone. ROC is about to cross below its 10 day MA and enter negative territory. RSI is facing resistance from its 50% level. Slow stochastic is about to slip below its 50% level.
Some more consolidation within the 'symmetrical triangle' is likely. ITC's unexpected bonus announcement may stoke bullish fervour. Bears are unlikely to give up control during F&O expiry week.
In case of a breakout above the trend line or a drop below the 50 day EMA, expect the index to remain within the 'support-resistance zone' between 24830 and 26300.
NSE Nifty chart pattern
The weekly bar chart pattern of Nifty crossed above the blue down trend line intra-week but failed to close above it for the 5th week in a row. The index closed below its 50 week EMA but above its 20 week EMA.
For the 9th straight week, the index consolidated within the 'support-resistance zone' between 7530 and 7950. Nifty is showing clear signs of wanting to breakout upwards - but FII selling has prevented bulls from regaining control.
Weekly technical indicators are providing conflicting signals, which often happens during periods of consolidation. MACD is rising above its signal line and is poised to enter positive zone. ROC has crossed below its 10 week MA in positive zone. RSI has risen to the edge of its overbought zone. Slow stochastic is about to drop from its overbought zone.
Bottomline? Bears are strongly defending the blue down trend lines on the chart patterns of Sensex and Nifty. The imminent onset of monsoon may provide incentive for bulls to fight back. But that may only happen after a couple of weeks. Till then, remain invested, and look for opportunities among companies that have declared good Q4 (Mar '16) results.
FIIs and DIIs were both net buyers of equity last week. Their net buying was worth Rs 1700 Crores and Rs 2100 Crores respectively, as per provisional figures. Sensex and Nifty closed more than 1% higher for the week after two weeks of correction - but failed to close above their down trend lines.
There was a 'double whammy' on the macroeconomic front. The IIP number was a paltry 0.1% in Mar '16 against 1.98% in Feb '16. For FY 2015-16, IIP was 2.4% against 2.8% in FY 2014-15. CPI inflation rose to 5.39% in Apr '16 against 4.83% in Mar '16. A further cut in interest rates may be kept in abeyance by RBI.
However, India's trade deficit narrowed for the 4th straight month to US$ 4.84 Billion in Apr '16 - the lowest level since Mar '11 - against $ 5.07 Billion in Mar '16. Lower oil prices and subdued gold demand due to the jewellers' strike helped reduce the trade gap.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex oscillated about its 200 day EMA during the week - consolidating sideways within a narrow range and receiving good support from its 20 day EMA.
Technically, the index is trading in a bear market, as it failed to close above its 200 day EMA by the end of the week. The down trend from the Mar '15 top - marked by blue down trend line - has entered its 15th month.
The down trend will remain in force till it gets reversed convincingly. That means, the index needs to cross above the down trend line with strong volume support, and then continue to close above it for several days in a row.
So far, five attempts by Sensex to cross above the down trend line since Jul '15 have been strongly repelled by bears. Remember that unlike support/resistance levels, which get weakened by each test, a trend line gets strengthened the more it gets tested.
Daily technical indicators are turning bearish - hinting at a continuation of the current consolidation/correction. MACD is moving sideways in positive zone, but remains below its falling signal line. ROC managed to cross above its falling 10 day MA - only to re-enter negative territory. RSI is facing resistance from its 50% level. Slow stochastic looks ready to drop below its 50% level.
There is a good chance that the index will correct towards the lower edge of the 'support-resistance' zone between 24830 and 26300, before it can gather enough strength to cross above the down trend line.
On longer term weekly chart (not shown), Sensex failed to close above its 50 week EMA, but is trading almost 1800 points above its rising 200 week EMA in a long-term bull market. The consolidation is providing an adding opportunity.
NSE Nifty chart pattern
For the fourth week in a row, the weekly bar chart pattern of Nifty crossed above its blue down trend line intra-week, but failed to close above it. Bears are putting up a stiff fight to defend the down trend line that has been ruling the chart from Mar '15 onwards.
The index managed to close almost exactly at the level of its 50 week EMA, but the failure to close above the down trend line on a weekly basis may lead to a correction down to the lower edge of the 'support-resistance' zone between 7530 and 7950.
Weekly technical indicators are giving mixed signals. MACD is rising above its signal line, but is yet to enter positive territory. ROC has dropped sharply from its overbought zone and is seeking support from its rising 10 week MA. RSI has bounced up from its 50% level. Slow stochastic is about to drop from its overbought zone.
The breadth indicator NSE TRIN (not shown) is in neutral zone. That may lead to some more consolidation around current levels. Prediction by Skymet of an early onset of monsoon may provide some impetus to bulls.
Bottomline? The down trends visible on the chart patterns of Sensex and Nifty have entered their 15th month. The macroeconomic condition appears to be taking two steps forward and one step back. Earnings growth of Indian companies are mainly due to lower costs of commodities. Be stock-specific and enter slowly with appropriate stop-losses.
FIIs were net buyers of equity during Mar & Apr '16, but turned net sellers during the first trading week of May '16. Their net selling was worth Rs 750 Crores, as per provisional figures. DIIs turned net buyers worth Rs 730 Crores during the week, after being net sellers during the past two months.
Both Sensex and Nifty lost about 1.5%, closing lower for the second week in a row. Negative global sentiment, profit booking after a sharp rally from the Feb '16 lows and strong resistances from the blue down trend lines dominating the two index charts kept bulls away.
JP Morgan's Global All-Industry Output Index - which combines survey data from USA, UK, France, Germany, Japan, China, Russia - nudged up to 51.6 in Apr '16 from 51.5 in Mar '16. A PMI covering services rose to 51.9 in Apr from 51.5 in Mar. (A number above 50 indicates growth.)
BSE Sensex chart pattern
The daily bar chart pattern of Sensex closed below its 200 day EMA in bear territory on all 5 trading days of the week. However, the 50 day EMA has provided good downside support.
Note that the upward 'gap' between 25180 and 25358, formed on Apr 13 '16, has been completely filled. There is a possibility that the index may resume its up move soon.
Daily technical indicators are looking bearish. MACD has crossed below its signal line in positive zone after forming a 'double top' pattern. ROC has dropped below its 10 day MA and seeking support from the edge of its oversold zone. RSI has fallen below its 50% level. Slow stochastic has entered its oversold zone.
Some more correction or consolidation around current levels is likely before bulls gather enough strength to fight back. The advent of monsoon - still about 3 weeks away - may provide the necessary upward trigger.
On longer term weekly chart (not shown), Sensex is trading more than 1500 points above its rising 200 week EMA in a long-term bull market. That means corrections can be used as adding opportunities.
NSE Nifty chart pattern
For the third week in a row, the weekly bar chart pattern of Nifty crossed above its blue down trend line intra-week, but failed to close above it. That means the down trend from the Mar '15 top of 9119 remains in force.
The index received support from its rising 20 week EMA, keeping bullish hopes alive. However, weekly technical indicators are showing signs of bearishness that can lead to some more correction.
MACD is rising above its signal line, but hasn't entered its positive zone yet. ROC is trying to re-enter its overbought zone. RSI has formed a 'rounding top' pattern, and is seeking support from its 50% level. Slow stochastic has started to move down from its overbought zone.
The market breadth indicator NSE TRIN (not shown) has not reached its oversold zone yet. That means the ongoing correction may continue next week.
Bottomline? Chart patterns of Sensex and Nifty are correcting after failing to reverse 14 months long down trends. The current macroeconomic situation is better than what it was when the down trend started in Mar '15. It may take at least another quarter for earnings growth of Indian companies to catch up with stock valuations. Add/enter gradually.
Trading activity was comparatively low during F&O expiry week. FIIs were net buyers of equity worth Rs 1060 Crores, but they were net sellers on the last trading day of the month. DIIs were net sellers of equity worth Rs 1410 Crores during the week, as per provisional figures.
Sensex and Nifty failed to close above their respective down trend lines for the second week in a row and corrected, but received good support from their long-term moving averages.
Q4 (Mar '16) results are coming in thick and fast, with more hits than misses so far. PSU banks - and even ICICI Bank - have disappointed. If the initial trends are maintained, Q4 results may turn out to be better than Q3 results.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex faced strong resistance from the blue down trend line and slipped below the 200 day EMA on Fri. Apr 29, but received support from the 20 day EMA and bounced up to close just above the 200 day EMA.
The following comments were made in last week's post: "Sensex had formed an upward 'gap' between 25180 and 25358 on Wed. Apr 13. The current level of the rising 20 day EMA is within the 'gap' zone, and is likely to provide support if the index corrects some more."
Bears were expected to put up a fight to defend the down trend line - like they did in Jul, Aug & Oct '15. Just above the trend line is the 26300 level, which is a long-term 'support-resistance' level. So, bulls have their work cut out.
Daily technical indicators are in the process of correcting overbought conditions. MACD is about to cross below its signal line and drop from its overbought zone. ROC has dropped from its overbought zone. RSI is trading sideways just below its overbought zone. Slow stochastic is poised to fall from its overbought zone.
Some more correction looks likely. The rally from the Feb 29 low was quite sharp. The correction will improve the technical 'health' of the chart and provide a buying opportunity.
Expect support from the 'gap' zone (between 25180 and 25358) and the rising 50 day EMA.
There is also a possibility of the index bouncing up and crossing above the down trend line next week. But the bounce may not be strong enough to cross 26300.
On longer term weekly chart (not shown), Sensex has formed a 'reversal' bar (higher high, lower close) and closed below its 20 week EMA, but is trading more than 1900 points above its rising 200 week EMA in a long-term bull market.
NSE Nifty chart pattern
The weekly bar chart pattern of Nifty crossed above the blue down trend line and the resistance level of 7950 for the second week in a row, but failed to close above them.
The index dropped to seek support from its 50 week EMA and closed above it. In the process, the index formed a 'reversal week' bar (Higher high, lower close) that can lead to a correction.
Weekly technical indicators are giving mixed signals. MACD is rising above its signal line, but has not entered positive zone yet. ROC has dropped down from its overbought zone. RSI is moving sideways above its 50% level. Slow stochastic is rising inside its overbought zone.
NSE TRIN (not shown) is near the upper edge of its overbought zone after bouncing up from the lower edge - hinting at some more correction.
Bottomline? Chart patterns of Sensex and Nifty failed to overcome strong resistances from their respective blue down trend lines for the second week in a row. Some more correction or consolidation is possible. Be stock specific, and check Q4 (Mar '16) results before buying.
S&P 500 index chart
The daily bar chart pattern of S&P 500 shows a continuation of the rally from the Feb '16 low. The index rose above its Dec '15 top but stopped just short of its Nov '15 top before correcting a bit.
The periodic small corrections that received good support from the rising 20 day EMA have kept the chart technically 'healthy'. The 'golden cross' of the 50 day EMA above the 200 day EMA signalled a return to a bull market.
Daily technical indicators are in bullish zones but showing downward momentum. MACD, RSI and ROC (not shown) failed to touch new highs with the index. The combined negative divergences probably triggered the correction from the Apr 20 top of 2111.
On longer term weekly chart (not shown), the index closed above its three weekly EMAs for the 7th week in a row. The index is trading more than 250 points above its rising 200 week EMA in a long-term bull market. The 20 week EMA has just crossed above the 50 week EMA. Weekly technical indicators are in bullish zones, but Slow stochastic is overbought.
FTSE 100 index chart
The following comments appeared in last week's post on the daily bar chart pattern of FTSE 100: "Bulls will need to overcome strong resistance from the zone between 6400-6500 if they wish to regain control of the chart."
Note that the index entered the resistance zone and touched an intra-day high of 6427 on Apr 21 '16 - stopping short of its Dec '15 top by 20 points. After forming a 'reversal day' pattern (higher high, lower close), the index dropped to seek support from its 20 day EMA.
FTSE spent the entire week above its three EMAs in bull territory. The 20 day EMA has crossed above the 200 day EMA - after falling below it more than 9 months ago. The 'golden cross' of the 50 day EMA above the 200 day EMA is still awaited.
Daily technical indicators are in the process of correcting overbought conditions, but remain in bullish zones. Some more correction or consolidation is possible before the rally resumes.
On longer term weekly chart (not shown), the index formed a 'reversal bar' (higher high, lower close) and slipped below its 200 week EMA. However, it closed above its 20 week and 50 week EMAs. Weekly technical indicators are looking bullish.
The stock market caught a strong tailwind of macroeconomic news. The IIP number was positive for Feb '16 after 3 months of contraction. CPI inflation dropped below 5% to its lowest level in 6 months. Early monsoon forecasts indicated a rain surplus.
In a holiday-shortened trading week, FIIs were net buyers of equity worth Rs 1050 Crores - Rs 100 Crores more than their net sales during the first 6 trading days of the month. Even DIIs were net buyers of equity worth Rs 500 Crores.
Both Sensex and Nifty overcame resistances from their respective long-term moving averages, and closed at their highest levels in 2016. But all may not be well for bulls yet.
BSE Sensex chart pattern
The following remarks appeared in the previous post on the daily bar chart pattern of Sensex: "Some more correction or consolidation can't be ruled out, but bulls may fight back at any time."
On Mon. Apr 11, the index formed a 'reversal day' pattern (lower low, higher close) and emerged from the long-term 'support-resistance zone' between 23840 and 24830.
The index opened with an upward 'gap' today and closed in bull territory above its 200 day EMA for the first time in more than 5 months. But bulls will be wise to postpone their celebrations.
Why? All four daily technical indicators are in bullish zones and have good upward momentum, but are showing negative divergences by touching lower tops (marked by blue arrows) while the Sensex touched a new high for the year.
Expect some profit booking next week. In case FIIs keep buying and the index continues to rally, strong resistance is likely from the down trend line and the next 'support-resistance' level of 26300.
Q4 (Mar '16) results will be the next trigger for the market. Check them out and look for consistent performers.
NSE Nifty chart pattern
The weekly bar chart pattern of Nifty formed a large 'reversal week' bar (lower low, higher close) and crossed above its 50 week EMA for the first time since the week ending on Oct 23, '15.
The index is still 100 points below the down trend line and the next 'support-resistance' level of 7950. Those two hurdles will need to be convincingly crossed with good volume support for bulls to regain control of the chart.
Bears may put up a strong fight to prevent that from happening.
Weekly technical indicators are looking bullish and showing good upward momentum. However, MACD is still in negative zone. Slow stochastic is entering its overbought zone; the previous time it did that was in Aug '15 when it had faced strong resistance from the down trend line.
ROC has also reached the edge of its overbought zone from where it had corrected in Aug '15. So, excitement and euphoria at today's market move should be curtailed. Remain cautiously optimistic.
If initial Q4 (Mar '16) results disappoint the market, Nifty can face a sharp correction.
Bottomline? Chart patterns of Sensex and Nifty have just about managed to overcome resistances from long-term moving averages. Expect bears to strongly defend the blue down trend lines on both charts. Check forthcoming Q4 (Mar '16) results to plan your next moves.
FIIs were huge net buyers of equity during Mar '16 - allowing Sensex and Nifty to register sharp recoveries from their 52 week lows touched on Feb 29 '16. It is not a great surprise that they have been in profit booking mode in Apr '16.
During the first 6 trading days this month, FIIs have been net sellers of equity worth Rs 950 Crores. DIIs were also net sellers of equity worth Rs 700 Crores. Both Sensex and Nifty corrected more than 3% from their Mar 31 tops.
Auto sales showed decent growth during the financial year Apr 2015-Mar 2016. Four wheeler sales grew more than 7%. Two wheeler sales grew 3%. Most encouraging was the 11.5% growth in CV sales - showing clear sign of economic growth.
BSE Sensex chart pattern
Negative divergences visible on technical indicators in the previous post on the daily bar chart pattern of Sensex had triggered the following warning: "Expect some correction or consolidation prior to Q4 results season."
After failing to overcome strong resistance from its 200 day EMA, the index has slipped below its 20 day EMA and is seeking support from its 50 day EMA inside the 'support-resistance zone' between 23840 and 24830.
Daily technical indicators are looking bearish. MACD has crossed below its signal line in positive zone. ROC has dropped inside negative zone below its falling 10 day MA. RSI is seeking support from its 50% level. Slow stochastic has plummeted to the edge of its oversold zone.
Some more correction or consolidation can't be ruled out, but bulls may fight back at any time. The index is trading below its 200 day EMA and the blue down trend line in bear territory. However, market sentiment is definitely more bullish than it was during Jan-Feb '16.
On longer-term weekly chart (not shown), Sensex closed below its 20 week and 50 week EMAs but more than 1000 points above its 200 week EMA in a long-term bull market. Weekly technical indicators are turning bearish.
NSE Nifty chart pattern
The weekly bar chart pattern of Nifty faced strong resistance from its sliding 50 week EMA and closed lower for the second week in a row. The index dropped below its 20 week EMA and tested support from the 'support-resistance zone' between 7240 and 7540 before closing just above it.
Weekly technical indicators are turning bearish and hinting at some more correction or consolidation.
MACD is moving sideways above its signal line in negative zone. ROC is above its 10 week MA, but about to fall inside negative zone. RSI is sliding down below its 50% level. Slow stochastic is in bullish zone but starting to drift down.
The breadth indicator NSE TRIN is heading towards its oversold zone, but hasn't quite reached there yet.
Despite the correction during the week, Nifty has closed 430 points above its rising 200 week EMA (not shown) in a long-term bull market.
Bottomline? Chart patterns of Sensex and Nifty faced strong resistances from long-term moving averages, and dropped to seek support from 'support-resistance zones'. Some more correction or consolidation is possible. Stick to your asset allocation plans. Check forthcoming Q4 (Mar '16) results before jumping in to buy.
Fiscal year 2015-16 was a big disappointment for long-term investors. After touching lifetime highs in Mar '15, both Sensex and Nifty entered down trends that are still in force - wiping out gains made during the previous fiscal year.
Both indices touched 52 week lows in Feb '16 before recovering strongly on the back of huge buying by FIIs during Mar '16. FIIs were net buyers of equity worth Rs 24200 Crores during the month, which was their highest net buying figure since Mar '14.
DIIs turned net sellers of equity (worth Rs 16900 Crores) for only the second time during the past 14 months. That prevented both indices from crossing above important long-term moving averages.
Auto sales during Mar '16 were encouraging. Maruti (15%), M&M (20%), Ford (44%) and Hero Moto (14%) showed double-digit YoY growth for the month. Hyundai grew 4%. Tata Motors grew only 1%, but their commercial vehicle sales grew 20%.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex traded above its 20 day and 50 day EMAs for the 4th week in a row, and rose to touch an intra-day high of 25480 on Thu. Mar 31 but could not stay above the 25450 level for long.
Bears were expected to put up a fight to defend the 200 day EMA, and they did. The index closed about 68 points lower for the week.
Despite heavy buying by FIIs during Mar '16, the index is trading below the blue down trend line and its 200 day EMA in bear territory.
Expect stronger bear activity if RBI maintains status quo on interest rates next week, because the stock market appears to have discounted a 25 bps (0.25%) cut in the repo rate.
Daily technical indicators are looking bullish but showing negative divergences by failing to touch new highs with the index. Expect some correction or consolidation prior to Q4 results season.
On longer term weekly chart (not shown), Sensex formed a weekly 'reversal bar' (higher high, lower close) but remains more than 1650 points above its rising 200 week EMA in a long-term bull market.
Weekly technical indicators are showing upward momentum, but MACD is still in negative zone and RSI is in neutral zone.
NSE Nifty chart pattern
The weekly bar chart pattern of Nifty closed marginally lower for the week after 4 straight weeks of gains. Effective Apr 1, addition of the Tata Motor DVR stock means that the index now has 51 stocks.
Bears exerted strong resistance near the 50 week EMA. The index formed a weekly 'reversal bar' (higher high, lower close) but closed above its 20 week EMA and the 'support-resistance zone' between 7240 and 7540.
Weekly technical indicators are giving mixed signals. ROC and Slow stochastic are looking bullish. MACD is above its signal line, but in negative zone. RSI is facing resistance from its 50% level and sliding down.
RBI's policy announcement on Apr 5 and Q4 results to be declared from the following week may be keeping market players on tenterhooks. Expect some consolidation or correction.
Nifty closed almost 600 points above its rising 200 week EMA (not shown) in a long-term bull market.
Bottomline? Chart patterns of Sensex and Nifty faced strong resistances from long-term moving averages. Some more correction or consolidation is likely. Use any dips to enter fundamentally strong stocks. If stock picking is not your forte, buy balanced fund units. Long-term bull markets are recovering from year-long corrections, but bears are in no mood to give up yet.
Activity was expected to be at a low key during a 3-day trading week truncated by Holi and Good Friday holidays. Continued buying interest from FIIs ensured that both Sensex and Nifty gained about 1.5% each on a weekly closing basis.
As per provisional figures, FIIs were net buyers of equity worth nearly Rs 3500 Crores during the week. DIIs were net sellers of equity worth Rs 2600 Crores. Both indices are facing resistances from long-term support/resistance levels.
Stock indices may remain volatile next week due to F&O expiry and financial year end on Thu. Mar 31 '16. Hopes of an interest rate cut by RBI in April and short covering can continue to sustain the market rally from the Feb 29 low.
BSE Sensex chart pattern
The daily bar chart pattern of Sensex has traded above its 20 day and 50 day EMAs for the past 3 weeks. The 20 day EMA has crossed above the 50 day EMA after 5 months. These are short-term bullish signals.
However, after breaking out above the support/resistance level of 24830, the index is facing resistance from the 25450 level. The 200 day EMA is still falling, and the index is trading below it in bear territory.
Bears may put up a fight to defend the 200 day EMA. When - not if - the index moves above the 200 day EMA, expect stronger resistances from the support/resistance level of 26300 and the blue downtrend line.
Three of the four daily technical indicators - MACD, RSI, Slow stochastic - are in their overbought zones. ROC has corrected from its overbought zone, but remains positive.
Some correction or consolidation is likely as the index approaches its 200 day EMA.
On longer-term weekly chart (not shown), Sensex closed above its 20 week EMA for the first time after 5 months. The index is now 1750 points above its rising 200 week EMA in a long-term bull market.
Weekly MACD and ROC are still in negative zones. RSI is in neutral zone. Slow stochastic has crossed above its 50% level. Bulls are gradually gaining ground, but bears haven't given up the fight yet.
NSE Nifty 50 chart pattern
The weekly bar chart pattern of Nifty 50 closed higher for the 4th straight week. It also managed to close just above the next support/resistance level of 7700, but remains below its 50 week EMA in bear territory.
Bears may try to defend the 50 week EMA. Stronger resistances are likely from the blue downtrend line and the next support/resistance level of 7950.
A change of trend will be confirmed only when the index crosses above the downtrend line convincingly (i.e. supported by a significant increase in volumes).
Weekly technical indicators are showing decent upward momentum. ROC and Slow stochastic have entered bullish zones. MACD has crossed above its signal line in negative zone. RSI is facing resistance from its 50% level.
Nifty closed 600 points above its rising 200 week EMA (not shown) in a long-term bull market. The scale continues to tilt towards bulls.
Bottomline? Chart patterns of Sensex and Nifty are testing long-term 'support/resistance' levels. Some correction or consolidation is a possibility. Use dips to enter fundamentally strong stocks. Long-term bull markets are recovering slowly but surely from year-long corrections.
