S&P 500 index chart pattern
Possibility of some more correction was mentioned in last week's post on the daily bar chart pattern of S&P 500. Yet, the vicious bear attack on Wed. & Thu. (Oct 10 & 11) seemed to catch bulls unawares.
The index fell vertically to close below its 200 day EMA for the first time in 6 months. By touching an intra-day low of 2710 on Oct 11, the index dropped into the support zone between 2737 and 2689 (which are the 50% and 61.8% Fibonacci retracement levels respectively of the 408 points rally from the Feb 9 low of 2533 to the Sep 21 top of 2941).
Volume spikes on Wed. & Thu. may be the sign of a 'selling climax'. On Fri. Oct 12, the index bounced up to close above its 200 day EMA in bull territory. In the process, it formed an 'inside day' as well as a 'hammer' candlestick pattern. Bulls appear to be ready for a fight back.
Daily technical indicators are looking oversold. MACD and Slow stochastic are falling deeper inside their respective oversold zones. RSI is trying to emerge from its oversold zone, and can trigger a pullback towards the 2800-2850 zone.
On longer term weekly chart (not shown), the index fell below its 50 week EMA intra-week for the first time since Apr '18, but closed above its 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are showing downward momentum. MACD and Slow stochastic are falling in bullish zones. RSI has dropped below its 50% level.
FTSE 100 index chart pattern
The bottom seems to be falling out of the daily bar chart pattern of FTSE 100. Bulls were helpless against aggressive bears, as the index closed more than 320 points (4.4%) lower for the week.
All three EMAs are falling, and the index is trading below them in a bear market. A test of the Mar '18 low is on the cards. (At the time of writing this post, the index is correcting further.)
Daily technical indicators are looking oversold. MACD and RSI are falling deeper inside their oversold zones. Stochastic has stopped falling, and can trigger a technical bounce.
On longer term weekly chart (not shown), the index closed below its three weekly EMAs in long-term bear territory. Weekly technical indicators are looking bearish and showing downward momentum. MACD and RSI are falling towards their respective oversold zones. Stochastic is inside its oversold zone.
In a holiday-shortened trading week, FIIs were net sellers of equity on Mon., Tue., and Wed. (Sep 10-12), but net buyers on Fri. Sep 14. Their total net selling was worth Rs 22.9 Billion. DIIs were net sellers of equity on Mon. but net buyers on Tue., Wed. and Fri. Their total net buying was worth Rs 11.2 Billion, as per provisional figures.
India's CPI inflation dropped to a 10 months low of 3.69% in Aug '18 against 4.17% in Jul '18 - thanks to lower food prices. WPI inflation eased to 4.53% in Aug '18 from 5.09% in Jul '18.
The IIP number was a healthy 6.6% in Jul '18 - lower than the downwardly revised 6.8% in Jun '18 - on the back of good performance by the manufacturing sector and higher offtake of capital goods and consumer durables.
India's exports grew by 19.2% to US $27.8 Billion in Aug '18. Imports grew 25.4% to US $45.2 Billion, leaving a trade deficit of US $17.4 Billion. In Jul '18, trade deficit had soared to a five years high of US $18 Billion.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex had formed a 'reversal day' bar (higher high, lower close) after touching a lifetime high of 38990 on Aug 29. That triggered a correction within a downward-sloping channel.
The index bounced up after receiving twin support from its 50 day EMA and the lower edge of the channel to close above its three EMAs in a bull market, but lost about 300 points (0.8%) on a weekly closing basis.
Daily technical indicators are looking bearish, but showing signs of recovery. MACD is below its falling signal line in bullish zone. ROC and Slow stochastic have corrected oversold conditions, but remain in bearish zones. RSI is trying to cross above its 50% level after falling below it. ROC, RSI and Slow stochastic are showing negative divergences by falling below their Jun '18 lows.
Sensex is likely to attempt a breakout above the downward-sloping channel. Keep a watch on trading volumes. Any upward breakout should be accompanied by a significant increase in volumes. Otherwise, a pullback may follow.
A depreciating Rupee and rising oil prices are not conducive to a bull rally. The Finance Minister tried to 'talk up' the market by proposing measures to defend the Rupee. The 'measures' appear to be nothing more than a wait-and-watch policy. So, stay invested but remain watchful and cautious.
NSE Nifty index chart pattern
After touching a high of 11760 in the week ending on Aug 31 '18, the weekly bar chart pattern of Nifty has been correcting within a downward-sloping channel.
The index received good support from the lower edge of the channel and closed above its two rising weekly EMAs - forming a 'hammer' candlestick with bullish implications - but lost 74 points (0.6%) on a weekly closing basis.
Weekly technical indicators are inside their respective overbought zones, but showing downward momentum. MACD is sliding down above its signal line. ROC is about to cross below its 10 week MA. RSI and Slow stochastic are moving down.
Nifty's TTM P/E has slipped a bit to 28.0, but remains well above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) is correcting inside oversold zone. Some index upside is possible.
Bottomline? Sensex and Nifty charts are undergoing bull market corrections. Rising oil prices, a depreciating Rupee, widening trade and fiscal deficits comprise a wall of worries that bulls need to overcome. Be very choosy about where you invest, and keep a long-term outlook.
FIIs were net sellers of equity on Mon. & Wed. (Sep 3 & 5) but net buyers on Tue. (Sep 4). Their total net selling was worth Rs 3.7 Billion. DIIs were net sellers of equity on Mon. & Tue. but net buyers on Wed. Their total net selling was worth Rs 3.9 Billion, as per provisional figures.
India's manufacturing momentum slowed in Aug '18. Nikkei India's Manufacturing PMI eased to 51.7 from 52.3 in Jul '18 and 53.2 in Jun '18.
Nikkei India's Services PMI fell to 51.5 in Aug '18 from 54.2 in Jul '18 owing to weakest growth in new orders in three months. The Composite PMI (Manufacturing+Services) fell to 51.9 from 54.1 in Jul '18.
The following comments were made in last week's technical update on the daily bar chart pattern of Nifty: "For the past two months, the index has been trading within a steep upward-sloping channel. Such a steep rise - mainly led by a few large-cap stocks - is unsustainable for long."
The sharp rally within an upward-sloping trading channel has come to an end - as was expected. The index broke down below the channel on Mon. Sep 3 when both FIIs and DIIs turned sellers and continued downward on Tue. & Wed.
After correcting more than 350 points from the Aug 28 top of 11760 by slipping below 11400 today, the index recovered to 11477 - partly due to short-covering. The index has formed a 'hammer' candlestick pattern that can lead to a pullback towards the 20 day SMA (dotted green line).
On the downside, expect support from the lower Bollinger Band (at around 11300). Note that a penetration of the upper Bollinger Band - as had occurred on Aug 28 - is often followed by a corrective move.
The index is trading above its rising 50 day and 200 day EMAs, so there is no immediate threat to the bull market. However, some more correction can't be ruled out. In other words, don't jump into the market just yet.
Daily technical indicators are showing downward momentum after correcting overbought conditions. MACD has crossed below its signal line and is ready to drop from its overbought zone. RSI is seeking support from its 50% level. Slow stochastic is falling below its 50% level. All three are showing negative divergences by falling below their Aug 13th low of 11340.
Nifty's TTM P/E has moved down to 27.90 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply from its overbought zone, and is hinting at some more correction.
Macro headwinds - particularly, high oil prices and a falling Rupee - now include lower manufacturing and services PMIs. Demonetisation fiasco has severely dented NDA government's credibility. There seems to be a sense of foreboding in the market about the outcome of 2019 general elections.
Stay invested, but remain cautious. Continue with SIPs, but avoid new stock ideas till the correction plays out.
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S&P 500 index chart pattern
The following comments appeared in last week's post on the daily bar chart pattern of S&P 500: "Note that Friday's higher close was on weaker volumes. Bears may use the opportunity to force bulls to retreat. Any further rally is likely to face resistance from the 2810 level."
The index faced resistance at 2790, and pulled back to the top of the 'Flag' pattern on Wed. Jun 13. Instead of bouncing up, the index dropped inside the 'Flag' intra-day on Fri. Jun 15 but managed to close just above the 'Flag'.
Friday's trading formed a 'hammer' candlestick pattern that has bullish implications. The significant volume spike is probably a sign of 'selling climax'.
Daily technical indicators are in bullish zones. MACD and RSI are moving sideways. Slow stochastic is sliding down inside its overbought zone. The index is trading above its three rising EMAs in a bull market.
A possible move above 2810 can lead to a test of resistance from 'GAP 1'. Bears can be expected to give ground grudgingly. In case of further correction, 'GAP 2' should provide strong support.
On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market, but formed a 'doji' candlestick that can lead to some correction or consolidation. Weekly technical indicators are looking bullish.
FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 spent another week consolidating sideways in a range between 7601 and 7793.
On Thu. Jun 14, the index tested resistance from its Jan '18 top of 7793 but dropped to close below its 20 day EMA on Fri. Jun 15 - with a weekly loss of 0.6%.
The 50 day and 200 day EMAs are rising, and FTSE is trading above them in a bull market. Daily technical indicators are looking bearish and showing downward momentum - hinting at more consolidation/correction.
On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market. Weekly MACD is moving sideways inside its overbought zone. RSI is rising above its 50% level. Slow stochastic has fallen from its overbought zone.
S&P 500 index chart pattern
The following remarks were made in last week's post on the daily bar chart pattern of S&P 500: "Bulls may make another attempt to fill 'GAP 2' - either partly or completely. Their previous two attempts had failed. May be it will be 'third time lucky'? Even if it is, the upper edge of 'GAP 2' can provide tougher resistance."
Bulls did make another attempt to fill 'GAP 2' and were 'third time lucky' by completely filling it. On Wed. Jun 6, the index overcame resistance from the upper edge of 'GAP 2' and closed above the 'Flag' pattern.
Next day, the index pulled back to the top of the 'Flag' after facing resistance from the 2780 level - giving bulls a chance to 'buy the dip'. On Fri. Jun 8, the index bounced up to close just below 2780 with a 1.6% weekly gain.
Daily technical indicators are looking bullish and a bit overbought. MACD has entered its overbought zone. RSI is trying to rise towards its overbought zone. Slow stochastic is inside its overbought zone, and showing negative divergence by failing to rise higher with the index.
Note that Friday's higher close was on weaker volumes. Bears may use the opportunity to force bulls to retreat. Any further rally is likely to face resistance from the 2810 level. 'GAP 1' - which has remained unfilled for more than 4 months - is going to provide stronger resistance.
The index is trading above its three rising EMAs. The long-term structure of the chart remains bullish.
On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are showing upward momentum in bullish zones.
FTSE 100 index chart pattern
The following remark appeared in last week's post on the daily bar chart pattern of FTSE 100: "The index may attempt to cross above its Jan '18 top of 7793 after some more consolidation in the zone between 7610 and 7793."
As expected, the index consolidated in the zone between 7610 and 7793 during the week. On Fri. Jun 8, the index dropped sharply below its 20 day EMA to an intra-day low of 7638, but closed above it - forming a 'hammer' candlestick that has bullish implications. (At the time of writing this post, FTSE is trading 38 points higher.)
Daily technical indicators are looking bearish. MACD and RSI are falling in bullish zones. Slow stochastic is trying to recover after falling into bearish zone. Some more consolidation is likely. The index is trading above its three rising EMAs in a bull market.
On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market, but formed a 'doji' candlestick that shows indecision among bulls and bears. Weekly MACD is rising inside its overbought zone. RSI is rising above its 50% level. Slow stochastic is about to fall from its overbought zone.
S&P 500 index chart pattern
The following comments were made in last week's post on the daily bar chart pattern of S&P 500: "Slow stochastic has formed a 'double top' reversal pattern inside its overbought zone. Some more consolidation or correction is likely."
After a long weekend, the index dropped to an intra-day low of 2677 on Tue. May 29, and closed below its 20 day and 50 day EMAs at 2690. Bulls used the opportunity to 'buy the dip'. The index rose above its 20 day and 50 day EMAs and closed with a weekly gain of about 0.5%.
Daily technical indicators are in bullish zones. MACD has merged with its signal line, and is moving sideways. RSI and Slow stochastic briefly dropped below their respective 50% levels before recovering.
Bulls may make another attempt to fill 'GAP 2' - either partly or completely. Their previous two attempts had failed. May be it will be 'third time lucky'? Even if it is, the upper edge of 'GAP 2' can provide tougher resistance.
The two down-days last week (Tue. May 29 and Thu. May 31) had the highest transaction volumes. That is probably a sign of 'distribution' from stronger to weaker hands.
On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing very little upward momentum.
FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 corrected below its 20 day EMA to an intra-day low of 7610 on Tue. May 29. It bounced up the next day, and closed above its 20 day EMA.
The index consolidated above its 20 day EMA in bull territory till the end of the week, but lost about 0.4% on a weekly closing basis.
Daily technical indicators have corrected overbought conditions. MACD and RSI are showing downward momentum in bullish zones. Slow stochastic is trying to recover after falling below its 50% level.
The index may attempt to cross above its Jan '18 top of 7793 after some more consolidation in the zone between 7610 and 7793. (At the time of writing this post, FTSE is trading about 40 points higher.)
On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market, and formed a 'hammer' candlestick that has bullish implications. Weekly MACD is rising inside its overbought zone. RSI is rising above its 50% level. Slow stochastic is correcting inside its overbought zone.
Gold chart pattern
A 6 weeks long rally in the US Dollar index seems to have severely dampened bullish enthusiasm on the daily bar chart pattern of Gold.
After receiving some support from its 200 day EMA inside the 'support zone' and rallying briefly to test resistance from its falling 50 day EMA, gold's price fell below 1300 on May 15 - for the first time since the beginning of the year - with a volume surge.
On May 21, gold's price touched an intra-day low of 1282 - losing almost 90 points from its Apr '18 top - but formed a 'hammer' candlestick pattern that triggered a pullback inside the 'support zone'.
The merged 20 day and 200 day EMAs are providing resistance to the pullback rally. Daily technical indicators have corrected oversold conditions, but remain in bearish zones.
The breakout below the 'support zone' is a clear hint from bears that they will continue to 'sell on every rise' to retain their advantage.
On longer term weekly chart (not shown), gold’s price closed below its 20 week EMA but above its 50 week and 200 week EMAs in long-term bull territory. Weekly technical indicators are looking neutral to bearish. MACD is falling below its signal line in bullish zone. RSI is in neutral zone. Slow stochastic has fallen to the edge of its oversold zone.
Silver chart pattern
The daily bar chart pattern of Silver continued its sideways consolidation with a slight downward bias, which is evident from the resistance provided by the gradually sliding 200 day EMA.
On May 16, silver's price bounced up after receiving support from the 'support zone' and rallied for the next few days towards its 200 day EMA. Like its previous rally from the 'support zone' at the beginning of the month, silver's price retreated after facing resistance from the 200 day EMA on May 25.
Daily technical indicators are in neutral zones and not showing any upward or downward momentum. Expect the consolidation to continue a while longer.
On longer term weekly chart (not shown), silver’s price closed below its three sliding weekly EMAs in a long-term bear market. Weekly MACD and RSI are in neutral zones. Slow stochastic is in bearish zone.
FIIs were net sellers of equity on all five trading days. Their total net selling during the week was worth Rs 39.3 Billion. DIIs were net buyers of equity on all five trading days. Their net buying was worth Rs 58.5 Billion, as per provisional figures.
Despite heavy buying by DIIs, Sensex gained only 77 points (0.22%) on a weekly closing basis. Nifty closed almost flat - gaining just 9 points over the previous week.
India's GDP growth rate will accelerate to 7.5% in FY 2018-19 against 6.6% in FY 2017-18 on better performance from industrial and agricultural sectors, as per a CARE report. Inflation, lending rates, fiscal and current account deficits, exchange rates remain concerns.
BSE Sensex index chart pattern
The following comments were made in last week's post on the daily bar chart pattern of Sensex: "The index touched an intra-day low of 34822 on Fri. May 18, falling below its previous (May 4) low of 34848 which can lead to further downside. However, by closing exactly at 34848, the index has kept open the possibility of a technical bounce."
Bears had the upper hand during the first three days of trading. The index corrected below the 'gap' on Mon. May 21, received support from the 50 day EMA and bounced up a bit the next day.
On Wed. May 23, the index fell below its 50 day EMA to an intra-day low of 34303. Short covering triggered a technical bounce. The index recovered more than the first three days' losses in two days - closing inside the 'gap' on Fri. May 25.
Daily technical indicators are still looking bearish. MACD is below its falling signal line in bullish zone. ROC is below its falling 10 day MA in bearish zone. The up move of RSI towards its 50% level has stalled. Slow stochastic is trying to emerge from its oversold zone.
Q4 (Mar '18) results announced so far have clearly shown top line growth but bottom line pressure. Higher oil and commodity prices are starting to take a toll on corporate earnings.
Oil prices were not allowed to rise before the Karnataka state elections. Once the election got over and BJP failed to form the government, oil prices have been raised for 13 straight days!
When oil prices had fallen rapidly from US $60 to $40 during Jul-Aug '15, the NDA government raised excise duties and pocketed the benefits by depriving consumers. Now that prices have touched US $80, the government has refused to reduce excise duties and is burdening consumers with daily price hikes.
This disregard for the middle-class may hurt NDA's prospects in forthcoming state and general elections. It will also stoke the inflation fire - forcing RBI to raise interest rates. Neither event will be liked by the stock market.
Caution is suggested for those holding long positions. Sensex is trading well above its rising 200 day EMA in a bull market. That doesn't mean the corrective move from the Jan 29 top is over.
NSE Nifty index chart pattern
The following comments were made in last week's post on the weekly bar chart pattern of Nifty: "The previous 3 weeks' trading has formed a bearish 'broadening top' pattern (higher high, lower low) from which a downward breakout is likely."
The index did breakout below the 'broadening top' and the 20 week EMA intra-week, but short covering on Thu. & Fri. (May 24 & 25) ensured a pullback and close within the pattern.
Nifty has formed a 'hammer' candlestick that can trigger an up move towards the Feb 5 'gap'. Bears can be expected to 'sell on rise'. Weekly technical indicators are in bullish zones, but showing weak upward momentum.
Nifty's TTM P/E is at 26.24 - slightly lower than last week but well above its long-term average. The breadth indicator NSE TRIN (not shown) is about to fall from its oversold zone, and can limit near-term index upside.
Bottomline? The downward 'gaps' formed on Feb 5 are becoming 'lines of control' on Sensex and Nifty charts. Some more consolidation or correction is likely. At times like these, preservation of capital should take priority. Book partial profits and/or reallocate assets.
FIIs were net buyers of equity on Tue. (Nov 14) & Fri. (Nov 17), but net sellers on the other three days. DIIs were net sellers of equity on Mon. (Nov 13) and Tue. but net buyers on the other three days.
For the week, FIIs were net buyers of equity worth Rs 27.9 Billion; DIIs were also net buyers of equity worth Rs 29.1 Billion, as per provisional figures.
Sensex eked out a gain of 28 points while Nifty lost 38 points on a weekly closing basis. More importantly, both indices bounced up from important support levels - helping bulls to regain the initiative.
The initial euphoria of bulls on Fri. - due to the ratings upgrade of India's sovereign bonds by Moody's - appeared to diminish as trading drew to a close.
BSE Sensex index chart pattern
The following comments appeared in last week's post on the daily bar chart pattern of Sensex: "Some more correction towards the top of the downward-sloping channel is a possibility. Note that the 50 day EMA is just above the channel, and should provide additional support."
As expected, the index corrected below its 20 day EMA, but bounced up after finding twin supports from the 50 day EMA and the top of the downward-sloping channel.
By touching a low of 32684 on Wed. Nov 15, the index tested its Aug 2 top of 32686 and retraced 42.5% of its rally from the Sep 28 low of 31082 to the Nov 7 top of 33866. That is a little less than the 50% Fibonacci retracement level used by technical traders as a trend deciding level.
Daily ROC, RSI and Slow stochastic are in bearish zones, but showing signs of upward momentum. MACD is below its signal line in bullish zone, but has stopped falling.
The bull market correction - more of a time-wise correction than a price-wise correction - seems to be over. The index should rise to new highs soon, though India Inc.'s Q2 earnings growth is nothing to write home about.
If you hold fundamentally strong stocks in your portfolio, add to them instead of searching for new ideas near an index top. The 'easy money' in 'cheap' stocks has already been made.
NSE Nifty index chart pattern
The following comments appeared in last week's post on the weekly bar chart pattern of Nifty: "The index may correct a bit more. Expect strong support from the 'support zone' between 10100 and 9700."
The index bounced up from the 'support zone' to close near its opening level for the week, forming a 'hammer' candlestick pattern with bullish implications.
Note that the 10100 level, which had acted as a resistance level in Jul '17 and Sep '17 has now turned into a support level.
By touching an intra-week low of 10094, the index retraced 49.4% of its 802.9 points rally - from the low of 9687.55 (week ending Sep 29) to the high of 10490.45 (week ending Nov 10). That is almost equal to the 50% Fibonacci retracement level used by technical traders as a trend deciding level.
The index is trading above its three rising weekly EMAs in a bull market. Weekly technical indicators are looking bullish and overbought. Some consolidation is possible before the index rises to a new high.
Nifty's TTM P/E has slipped further to 26.14, but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling in neutral zone and hinting at some index upside.
Bottomline? Sensex and Nifty charts have bounced up from important support levels. The corrections provided adding opportunities. Bulls are regaining control. Stock picking skills will now be tested, so be very choosy about what you buy.
Gold chart pattern
The daily bar chart pattern of Gold bounced up sharply after receiving support from its rising 20 day EMA and crossed above the 1290 level to a 5 months high on Apr 17.
The 'golden cross' of the 50 day EMA above the 200 day EMA has technically confirmed a return to a bull market. Gold's price stopped just short of the 1300 level and closed lower to form a 'doji' candlestick pattern.
Negative divergences visible on MACD and Slow stochastic - which failed to touch new highs with gold's price - triggered a correction that received good support from the 20 day EMA.
Daily technical indicators have corrected overbought conditions, and are showing downward momentum in bullish zones. Some more correction or consolidation is likely.
On longer term weekly chart (not shown), gold’s price is trading above its three weekly EMAs in bull territory. The 20 week and 50 week EMAs need to cross above the 200 week EMA if bulls are to regain control. Weekly technical indicators are in bullish zones but not showing any upward momentum.
Silver chart pattern
The daily bar chart pattern of Silver crossed above the 18.60 level intra-day on Apr 17 but failed to close convincingly above the resistance level of 18.50. That was a signal for bears to mount an attack.
Silver's price corrected below its 20 day and 50 day EMAs, only to bounce up and close exactly at its 50 day EMA after receiving good support from its 200 day EMA.
Bulls will feel encouraged by a 'hammer' candlestick pattern that has formed at the end of the corrective move, and can trigger the next leg of the rally.
Daily technical indicators are looking bearish. MACD is falling below its signal line in positive zone. RSI has fallen below its 50% level. Slow stochastic has dropped to the edge of its oversold zone.
On longer term weekly chart (not shown), silver’s price corrected down to its 50 week EMA after facing strong resistance from its sliding 200 week EMA. Weekly MACD and RSI are in neutral zones. Slow stochastic has formed a 'double top' reversal pattern inside its overbought zone.
Expect some consolidation or correction before silver's price can cross above its 200 week EMA into bull territory.
S&P 500 index chart pattern
The daily bar chart pattern of S&P 500 was in pause mode - trading within a 25 points range and closing just 2 points lower for the week.
On Thu. Jan 12, the index dropped below its rising 20 day EMA to a low of 2254 intra-day, but bounced up to close near its much higher opening level of 2271 - forming a 'hammer' candlestick pattern.
Any bullish implications of the 'hammer' pattern were negated by the formation of a 'shooting star' candlestick on Fri. Jan 13 - showing honours were even between bulls and bears.
Daily technical indicators are in bullish zones but hinting at some more index consolidation before resumption of the up move. MACD is sliding down gently below its falling signal line. RSI and Slow stochastic are moving sideways.
On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market for the 45th week in a row. All three weekly technical indicators are looking overbought, but not showing much upward momentum.
FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 is in the midst of a record-breaking and unprecedented bull run with 14 consecutive higher closes starting from Dec 22 '16.
At the time of writing this post, the index is trading 5 points higher - and well above its three EMAs in a bull market. A weakening UK Pound against the US Dollar, Japanese Yen and Euro has been propelling the index higher.
All three daily technical indicators are inside their respective overbought zones. Note that an index can remain overbought for long periods. But such a one-way rally without a correction is not technically 'healthy'. It reminds me of the story of Icarus.
On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market for the 29th week in a row. Weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index.
Selling by FIIs abated a little during the week gone by. Their total net selling in equities was Rs 54.1 Billion, as per provisional figures. DIIs bought heavily. Their total net buying in equities touched Rs 61.9 Billion.
Both Sensex and Nifty breached their previous lows (the possibility was mentioned in last week's post), but recovered to gain about 0.5% on a weekly closing basis.
Demonetisation of bank notes continued to roil both houses of Parliament. Opposition parties joined forces in a desperate bid to project themselves as pro-poor when they were really protesting against the loss of their 'slush' funds.
In a surprising move, RBI has temporarily increased CRR to 100% in a bid to suck out excess liquidity from banks that was being parked in govt. bonds. Yields are expected to rise and bank share prices may take a hit.
BSE Sensex index chart pattern
The Daily bar chart pattern of Sensex dropped to an intra-day low of 25718 on Mon. Nov 21, and closed below its Nov 9 'panic bottom' of 25902 - proving once again that 'panic bottoms seldom hold'.
After consolidating sideways around the support level of 25900 for the next three days, the index bounced up strongly to close above the 26300 level.
The index is trading below its three EMAs in bear territory and is well below the blue down trend line. The 20 day EMA has crossed below the 200 day EMA. The 'death cross' of the 50 day EMA below the 200 day EMA, which technically confirms a bear market, appears imminent.
The down trend that started after Sensex touched a high of 29077 on Sep 8 continues. Bears definitely have the upper hand.
However, there are technical signs that the index has found an intermediate bottom and a pullback rally has started.
All four technical indicators are looking oversold, but are showing slight upward momentum as they try to emerge from their respective oversold zones.
ROC is showing positive divergence by not falling lower with the index. MACD and Slow stochastic have formed small 'rounding bottom' reversal patterns inside their oversold zones. RSI has formed an 'inverse head and shoulders' like reversal pattern inside its oversold zone.
Since touching the 'panic bottom' on Nov 9, the index had formed a small 'falling wedge' pattern, from which it broke out upwards on Fri. Nov 25.
By touching a low of 25718 on Nov 21, the index retraced 61.7% of its entire rally from 22495 (Feb 29 low) to 29077 (Sep 8 top). That is almost the same as the 61.8% Fibonacci retracement level.
A combination of value buying and short-covering can propel Sensex towards its 200 day EMA (at about 27000). That can be a trigger for bears to strike again. Bulls may try to wrest control with a convincing rally above 27600.
The market appears to have discounted most of the likely adverse fallouts of the demonetisation drive. Lengthy queues in front of banks and ATMs have been shrinking.
Time to take out your 'buy list'. Accumulate slowly instead of buying in bulk. Some more consolidation or correction can't be ruled out.
NSE Nifty index chart pattern
The following comments appeared in last week's post on the weekly bar chart pattern of Nifty: "The index had formed a high-volume 'panic bottom' in the previous week. A 'panic bottom' seldom holds. A drop below 8000 seems likely."
The index touched an intra-week low of 7916 before bouncing up to close above 8100.
In the process, Nifty formed a 'reversal week' bar (lower low, higher close) - as well as a 'hammer' candlestick pattern. Both can be bullish reversal patterns.
Of the four weekly technical indicators, MACD is falling below its signal line and looks poised to enter negative zone. ROC, RSI and Slow stochastic are looking oversold.
A pullback rally towards 8300 is likely. Bears will probably use the opportunity to sell. A convincing move above 8570 is required if bulls wish to regain control.
Bottomline? Sensex and Nifty charts may have formed intermediate bottoms. Valuations have improved, but weak earnings growth of India Inc. may continue for a quarter or two more. Be cautiously optimistic that the worst is over. Any pullback rally can trigger bear selling.
