WTI and Brent Crude Oil charts: resistance zones cap counter- trend rallies

WTI Crude Oil chart

The daily bar chart pattern of WTI Crude Oil managed to move above its 50 day EMA, but retreated after facing strong resistance from the 'support/resistance zone' between 53 and 55.

Oil's price bounced up a bit after getting support from its 20 day EMA, but is trading well below its falling 200 day EMA in a bear market.

Daily technical indicators are turning bearish. MACD is above its signal line in bullish zone, but may be forming a 'rounding top' reversal pattern. RSI is seeking support from its 50% level. Slow stochastic has corrected down from its overbought zone.

US sanctions may curb oil exports from Venezuela, but with China's economy slowing down and ample global supply, a sustained rally in oil's price is unlikely.

On longer term weekly chart (not shown), oil's price closed below its three weekly EMAs in long-term bear territory. Weekly technical indicators are in bearish zones and not showing much upward momentum. The 50 week EMA has just crossed below the 200 week EMA - the 'death cross' technically confirming a long-term bear market.

Brent Crude Oil chart

The daily bar chart pattern of Brent Crude Oil touched an intra-day high of 63.15 on Mon. Jan 21, but could not sustain above the 'support/resistance zone' between 61 and 63.

Oil's price has since closed below its 20 day EMA - and well below its sliding 200 day EMA in a bear market.

Daily technical indicators are looking bearish. MACD is moving sideways above its signal line in bullish zone. RSI has slipped below its 50% level. Slow stochastic has fallen from its overbought zone after forming a 'double top' reversal pattern.

Some more correction and/or consolidation is possible.

On longer term weekly chart (not shown), oil's price closed below its three weekly EMAs in long-term bear territory, but maybe forming a bullish 'inverse head and shoulders' pattern. Weekly technical indicators are in bearish zones but not showing any upward momentum.

S&P 500 and FTSE 100 charts (Jan 25, 2019): pullback rallies hit road blocks

S&P 500 index chart pattern

Note the following comment from last week's post on the daily bar chart pattern of SPX 500: "Bears can be expected to put up a stronger resistance when trading starts on Tue. Jan 22 (after the long weekend)."

On cue, the index retreated on Tue. Jan 22 but received good support from its 50 day EMA. After consolidating sideways within a narrow range for the next two days, the index opened with an upward 'gap' on Fri. Jan 25, and crossed above the (purple) down trend line intra-day.

However, it dropped down to close exactly on the down trend line - losing 6 points during the truncated trading week. Bulls have their work cut out to overcome twin overhead resistances from the upper Bollinger Band and the 200 day EMA. Bears are unlikely to give up control in a hurry.

Daily technical indicators are in bullish zones, but not showing much upward momentum. MACD is rising above its signal line. RSI is moving sideways above its 50% level. Slow stochastic has bounced up weakly from the edge of its overbought zone. The index is trading below its 200 day EMA in bear territory.

On longer term weekly chart (not shown), the index closed well above its 200 week EMA in long-term bull territory, but faced resistance from its 20 week EMA and closed just below it. Weekly MACD is rising in bearish zone. RSI is facing resistance from its 50% level. Slow stochastic has moved above its 50% level.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 touched an intra-day high of 6988 on Mon. Jan 21 but closed lower at 6971. By failing to close above the Jan 11 top of 7002, the bullish 'inverse head and shoulders' pattern (refer last week's post) got negated.

Bears used the rise to sell. The index dropped down during the rest of the week and closed at 6809 - losing more than 150 points (2.3%) on a weekly basis. (At the time of writing this post, the index is trading more than 30 points lower.)

Daily technical indicators have turned bearish. MACD has crossed below its signal line in neutral zone. RSI has dropped below its 50% level. Stochastic has entered its oversold zone. 

The index is trading below its three EMAs in a bear market. Some more correction is likely. 

On longer term weekly chart (not shown), the index faced twin resistances from its 20 week and 200 week EMAs and closed below its three weekly EMAs in long-term bear territory. Weekly technical indicators are in bearish zones. MACD has crossed above its falling signal line inside its oversold zone. RSI is falling below its 50% level. Stochastic has dropped below its 50% level. 

S&P 500 and FTSE 100 charts (Jan 18, 2019): pullback rallies showing renewed vigour

S&P 500 index chart pattern

After a day's correction on Mon. Jan 14, the daily bar chart pattern of SPX 500 brushed past bear resistance at 2600, and soared above its 50 day EMA to close at 2670 with a 2.9% weekly gain.

Looming overhead is a resistance zone (marked by light gray oval), where the sliding 200 day EMA, the upper Bollinger Band and the (purple) down trend line have converged. 

Bears can be expected to put up a stronger resistance when trading starts on Tue. Jan 22 (after the long weekend). 

Daily technical indicators are looking bullish. MACD is rising above its signal line in bullish zone. RSI is moving up above its 50% level. Slow stochastic is moving sideways inside its overbought zone, and can trigger a correction.

On longer term weekly chart (not shown), the index closed well above its 200 week EMA and just above 20 week EMA in long-term bull territory, but remains below its falling 50 week EMA. Weekly technical indicators are in bearish zones. MACD has started to move up inside its oversold zone. RSI and Slow stochastic are moving up towards their respective 50% levels.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 consolidated sideways during the first three trading days - facing resistance from its 50 day EMA and getting support from its 20 day EMA.

On Thu. Jan 17, the index dropped below its 20 day EMA and the 6800 level intra-day, but recovered to close at 6835 (just below its 20 day EMA). Bulls bought the dip on Fri. Jan 18.

The index remains below its falling 200 day EMA in a bear market, but closed above its 20 day and 50 day EMAs with a 0.7% weekly gain. FTSE may have formed a bullish 'inverse head and shoulders' reversal pattern with an upward-sloping neckline.

Note that the index is yet to breakout above the neckline. A convincing close above the Jan 11 top of 7002 with good volume support is required to technically confirm the reversal pattern. (At the time of writing this post, the index is trading around 6980.)

Daily technical indicators are looking bullish. MACD is moving sideways above its signal line in bullish zone. RSI has bounced up after getting support from its 50% level. Stochastic has re-entered its overbought zone. 

On longer term weekly chart (not shown), the index tested resistance from its 200 week EMA and closed just below it at 6968. It remains below its three weekly EMAs in long-term bear territory. Weekly technical indicators are turning bullish. MACD has crossed above its falling signal line inside its oversold zone. RSI is rising towards its 50% level. Stochastic is moving up above its 50% level. 

WTI and Brent Crude Oil charts: pullback rallies stall at 50 day EMAs

WTI Crude Oil chart

The following remark was made in the previous post on the daily bar chart pattern of WTI Crude Oil: "Some price consolidation can be expected, as bulls may try to defend the long-term support/resistance level of 42."

Bulls did put up a strong defence at the long-term 'support/resistance' level of 42 - aided by  positive divergences visible on MACD and RSI (which touched higher lows). 

Oil's price had touched an intra-day low of 42.36 on Dec 24 and closed at 42.53. On the next trading day (Dec 26), oil's price recovered from an intra-day low of 42.52 to close at 46.22.

After a brief sideways consolidation, oil's price easily climbed above its 20 day EMA and rose to test resistance from its 50 day EMA. Bears used weakness in the Chinese economy as a trigger to start selling.

Daily technical indicators are turning bearish. MACD is rising above its signal line in bearish zone, but its upward momentum is weakening. RSI is seeking support from its 50% level. Slow stochastic has started correcting inside its overbought zone.

Oil's price is trading well below its falling 200 day EMA in a bear market. Some more correction, or consolidation around current levels, can be expected.

On longer term weekly chart (not shown), oil's price closed well below its three weekly EMAs in long-term bear territory. Weekly technical indicators are correcting oversold conditions. The 50 week EMA is about to cross below the 200 week EMA - the 'death cross' will technically confirm a long-term bear market.

Brent Crude Oil chart

The following remarks appeared in the previous post on the daily bar chart pattern of Brent Crude Oil: "MACD and RSI are showing positive divergences by touching higher bottoms inside their respective oversold zones. Some price consolidation or pullback may be on the cards."

On Dec 26 '18, oil's price slipped below 50 intra-day but closed 4 points higher - forming a 'reversal day' bar (lower low, higher close) that triggered a smart pullback rally that soared past the 20 day EMA but faced strong resistance from the 50 day EMA.

Daily technical indicators are turning bearish. MACD is rising above its signal line in bearish zone, but its upward momentum is losing strength. RSI has dropped back to seek support from its 50% level. Slow stochastic is correcting inside its overbought zone.

Oil's price closed well below its falling 200 day EMA in a bear market. Some more correction and/or consolidation is likely.

On longer term weekly chart (not shown), oil's price closed below its three weekly EMAs in long-term bear territory, but maybe forming a bullish 'inverse head and shoulders' pattern. Weekly technical indicators are correcting oversold conditions.

S&P 500 and FTSE 100 charts (Feb 16, 2018): bulls fighting back

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: "...the index has fallen like a stone from its Jan 26 top. Such a steep fall can't be sustained. Expect some pullback and consolidation on short-covering and bottom fishing. That will provide an exit opportunity from a short-term perspective."

The expected pullback turned into a sharp rally as bulls fought back and propelled the index above its three EMAs into bull territory. Is the correction over?

The index has retraced 65% of its 340 points fall from the Jan 26 top (2873) to the Feb 9 low (2533). That is more than the 61.8% Fibonacci retracement level that is considered by technical traders as a trend reversal level.

However, on a closing basis the (292 points) correction has been retraced 52% - a bit more than the 50% Fibonacci retracement level. Also, by closing near the opening and intra-day low level on Fri. Feb 16, the index formed a 'shooting star' candlestick that has bearish implications.

Daily technical indicators have corrected oversold conditions, but MACD is still in bearish zone and RSI is in neutral zone. Slow stochastic has entered bullish zone above its 50% level.

Note that last week's steep rally was on sliding volumes. The rally may be losing steam. That will be just the incentive bears need to go on the offensive once again.

On longer term weekly chart (not shown), the index bounced up after receiving good support from its 50 week EMA, and closed above its three weekly EMAs in a long-term bull market. Weekly technical indicators have corrected extremely overbought conditions. MACD has crossed below its signal line in bullish zone. RSI has bounced up after receiving support from its 50% level. Slow stochastic is seeking support from its 50% level.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 had formed a small 'double bottom' reversal pattern by touching an intra-day low of 7073 on Fri. Feb 9. Technical indicators were looking bearish and oversold, which had hinted at a technical bounce towards the 200 day EMA.

The technical bounce occurred as expected, but stopped well short of the 200 day EMA due to strong resistance from the 7300 level. (At the time of writing this post, the index is hovering near the 7300 level - marked by purple horizontal line.)

Daily technical indicators have corrected oversold conditions, but remain in bearish zones. MACD is about to cross above its signal line. RSI has bounced up after receiving support from the edge of its oversold zone. Slow stochastic has started to move up after forming an 'inverse head-and-shoulders' reversal pattern inside its oversold zone.

The 50 day EMA is falling towards its 200 day EMA. Both will provide resistance to the index if it tries to rally further. Despite last week's pullback, bears have retained their advantage.

On longer term weekly chart (not shown), the index closed below its 20 week EMA and 50 week EMAs but above its 200 week EMA in a long-term bull market. Weekly MACD and Slow stochastic are in bearish zones. RSI is showing downward momentum in bullish zone.

Gold and Silver charts: bulls win tough battles; will they win the war?

Gold chart pattern

The following remarks appeared in the previous post on the daily bar chart pattern of Gold: "The resistance level of 1300 has been tested twice. A resistance (or support) level gets weakened by each subsequent test. Expect bears to defend the 1300 level strongly."

Gold's price dropped to its rising 20 day EMA, only to bounce up and breach the 1300 level on Fri. Aug 18 by touching an intra-day high of 1306.90, but profit booking led to a close at 1291.60.

During the following week (Aug 21-25), bulls tried their best to breach the 1300 level, but bears defended strongly. Gold's price again dropped to seek support from its rising 20 day EMA on Fri. Aug 25, but closed just below the 1300 level.

The 1300 level got 'weakened' by the frequent tests of resistance. Bulls just needed a trigger to extend the rally from the Jul '17 low. 

North Korea fired a missile that flew over Japan on Mon. Aug 28. The US Dollar index fell sharply. Gold's price easily broke out above the 1300 level, and is trading well above its three rising daily EMAs in a bull market.

Expect bulls to press home their near-term advantage and propel gold's price to the 1330-1340 zone. Note that daily technical indicators are looking overbought and showing negative divergences by failing to touch new highs with gold's price.

A pullback towards 1300 can occur at any time. That will be a buying opportunity for those who missed buying on Monday's breakout.

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators are in bullish zones and showing upward momentum. Slow stochastic is well inside its overbought zone and can induce profit booking.

Silver chart pattern

The daily bar chart pattern of Silver shows a fierce battle near the 200 day EMA. Bears did their level best to defend the long-term moving average to prevent the rally from the Jul '17 low from extending any further.

Bulls defended the 16.90 level (the 'neckline' of an 'inverse head and shoulders' pattern) with equal fervour. (Please refer the previous post .) Bulls eventually won the battle as silver's price broke out above the 200 day EMA on Mon. Aug 28. 

Daily technical indicators are in bullish zones but looking a bit overbought. Note that RSI and Slow stochastic are showing negative divergences by failing to rise to new highs with silver's price.

Any further rally towards 17.75-18 may invite bear selling and a pullback towards the 200 day EMA.

On longer term weekly chart (not shown), silver’s price closed above its 20 week and 50 week EMAs, but below its 200 week EMA in a long-term bear market. Weekly MACD has crossed above its signal line in bearish zone. RSI is rising above its 50% level. Slow stochastic has entered its overbought zone and can trigger a pullback towards the 50 week EMA.

Gold and Silver charts: bull rallies hit the pause button

Gold chart pattern

The following remarks appeared in the previous post on the daily bar chart pattern of Gold: "The pullback rally is probably on its last legs. Profit booking can begin at any time."

Gold's price rose to 1280.30 on Tue. Aug 1. Profit booking started from the next day. Gold's price dropped to its rising 20 day EMA on Tue. Aug 8.

The falling US Dollar index and nuclear war rhetoric from North Korea gave a boost to gold bulls. Gold's price bounced up to touch a slightly lower top of 1298.10 on Fri. Aug 11 - testing but failing to overcome the strong resistance level of 1300.

Daily technical indicators are in bullish zones, but looking overbought. RSI and Slow stochastic are showing negative divergences by failing to rise higher with gold's price.

The US Dollar index has subsequently risen to its highest level since Jul 27. Bears have taken the opportunity to sell. At the time of writing this post, gold futures are trading lower around 1281.

The resistance level of 1300 has been tested twice. A resistance (or support) level gets weakened by each subsequent test. Expect bears to defend the 1300 level strongly.

Any fall below the Jul 10 low of 1204 will be very bearish because it will turn the Apr, Jun and Aug '17 tops into a 'triple top' reversal pattern. So, the battle lines between bulls and bears are clearly drawn.

On longer term weekly chart (not shown), gold’s price closed above its three weekly EMAs in long-term bull territory. Weekly technical indicators are in bullish zones, but their upward momentum is reducing.

Silver chart pattern

The daily bar chart pattern of Silver appears to have formed a bullish 'inverse head and shoulders' pattern with a 'neckline' at 16.90.

Note that silver's price broke out above the 'neckline' and its 200 day EMA with good volume support - which technically validates the breakout .

However, silver's price has failed to rise higher after touching a high of 17.24 on Thu. Aug 10. Daily technical indicators are looking bullish, but Slow stochastic is showing negative divergence by touching a lower top while silver's price rose higher.

Bears are using the opportunity to sell. At the time of writing this post, silver futures are trading lower at 16.85 - below its 200 day EMA, and testing support from the 'neckline' at 16.90.

A deeper fall below its 20 day and 50 day EMAs will negate the 'inverse head and shoulders' pattern - giving back control of the chart to bears. Bulls may defend the 16.90 level to try and prevent a deeper fall.

On longer term weekly chart (not shown), silver’s price closed above its 20 week and 50 week EMAs, but below its 200 week EMA in a long-term bear market. Weekly MACD has crossed above its signal line in bearish zone. RSI is in neutral zone. Slow stochastic is rising towards its overbought zone and showing upward momentum.

Technical updates – Thermax and Voltas

There has been considerable change in the fortunes of Thermax and Voltas since the previous technical update.

Slow economic growth and poor credit off-take had taken a toll on the capital goods sector. Just when things were beginning to look up, demonetisation of Rs 500 and Rs 1000 notes put a spanner in the works.

Notwithstanding strong protests and predictions of dire consequences by opposition parties, economic recovery from demonetisation has been surprisingly better than expected. The effect is clearly visible on the charts of Thermax and Voltas.

Thermax

The stock had hit a high of 1294 in Mar '15 but daily technical indicators formed various reversal patterns inside their overbought zones. That triggered a long bear phase that touched a low of 707 in May '16.

A technical bounce into bull territory was followed by formation of a 'double top' reversal pattern and a correction below all three EMAs. The stock touched a higher bottom of 742 in Jan '17 - forming a 'double bottom' reversal pattern that has propelled the stock back into bull territory.

Daily technical indicators are correcting overbought conditions. The dip can be used to add.

Voltas

After undergoing a strong corrective move from a high of 358 in Jun '15 to a low of 222 in Feb '16, the stock formed an 'inverse head and shoulder' like pattern that triggered a strong bull rally.

The stock rose to touch a high of 402 in Oct '16, but all four technical indicators touched lower tops. The combined negative divergences led to a sharp correction below all three EMAs to a low of 293.

Oversold technical indicators signalled the beginning of another strong rally that took the stock to a new high of 419 on Apr 20 '17.

The stock is in a strong bull grip despite periodic sharp corrections. Dips can be used to add.

BSE Sensex and NSE Nifty 50 index chart patterns – Mar 04, 2016

The Finance Minister stuck to the fiscal deficit target of 3.5% of GDP, and maintained status quo on long-term capital gains tax on equity holdings in his budget proposals. 

FIIs were reassured - despite lack of clarity on retrospective taxation - and have turned buyers. During the first 4 days of Mar '16, their net buying in equities crossed Rs 5900 Crores, as per provisional figures. DIIs were net sellers of equity worth Rs 2400 Crores.

India's manufacturing PMI (Purchase Manager's Index) was 51.1% in Feb '16 - the same as in Jan '16. A number above 50% indicates growth. However, services PMI dropped to a 3 months low of 51.4% in Feb '16. It was 54.3% in Jan '16 - a 19 months high.

RBI relaxed capital adequacy requirements of banks by allowing 45% of readily-saleable property value and foreign currency translation reserves to be included in Tier - I capital calculations. This has come as a big relief for PSU banks struggling with huge NPAs.  

BSE Sensex chart pattern

The daily bar chart pattern of Sensex touched a new 52 week low of 22495 on budget day (Feb 29 '16) but recovered to close just above the 23000 level. It rallied during the next 3 days as FIIs suddenly turned bulls.

The index easily crossed above its 20 day EMA, the support/resistance level of 23840 and its 50 day EMA before facing resistance from the next support/resistance level of 24830.

All four daily technical indicators touched higher bottoms (marked by blue arrows) while the index dropped to a new low. The combined positive divergences was a technical trigger for the rally.

Is the year-long correction finally over? It may be a bit early to call. The index is still trading below its falling 200 day EMA and the blue downtrend line, and technically remains in a bear market. Things can change quickly if FIIs continue to buy.

What is Sensex likely to do next? Shorts have been covered and there are no immediate positive triggers for the market. RBI has hinted at a possible interest rate cut in April '16.

Till then, expect some consolidation in the zone between 23840 and 24830. A possible move can be a test of support from the 23840 level before the index tries to overcome resistance from the 24830 level. In that case, an 'inverse head and shoulders' reversal pattern will form.

Sensex can also breach the support at 23840 and re-test its Feb 29 low - but that seems a low probability event as of now. A third possibility is a continuation of the current rally past 24830, in which case the next resistance level will be 26300.

On longer term weekly chart (not shown) the index has closed 1100 points above its 200 week EMA, keeping the long-term bull market alive. If you missed buying on the rally, use any dips to add. Otherwise, stick to your asset allocation plan.

NSE Nifty 50 chart pattern

The weekly bar chart pattern of Nifty has formed a large 'reversal bar' on strong volumes, hinting that the year-long correction from the Mar '15 top is coming to an end.

The index needs to overcome overhead resistances from the support/resistance level of 7540, its falling 20 week and 50 week EMAs and the blue downtrend line before bulls can regain control of the chart.

Weekly technical indicators have recovered from oversold conditions and are showing good upward momentum, but remain in bearish zones.

On weekly closing chart (not shown), Nifty has formed a 'double bottom' reversal pattern and bounced up to close nearly 400 points above its 200 week EMA.

Bottomline? Chart patterns of Sensex and Nifty have bounced up to close well above their respective 200 week EMAs. The threat to long-term bull markets has been averted. With FIIs turning buyers, bullish sentiment is back in the market. Don't get caught up in the euphoria. Be patient, and stick to your investment plans.

BSE Sensex and NSE Nifty 50 index chart patterns – Feb 19, 2016

Short covering, some amount of value buying and hopes of market-friendly announcements in the forthcoming budget may have triggered last week's rally in the stock market.

There was also a slight let-up in FII selling in equities. Their net selling, as per provisional figures, was Rs 2600 Crores - thanks to net buying of Rs 400 Crores on Thu. Feb 18. DII were net buyers of equity worth Rs 3700 Crores.

Sensex and Nifty gained more than 3% each on a weekly closing basis - their biggest weekly gains in 4 months - and pulled back to test resistance from their respective Jan '16 lows. 

Can the resistances be overcome, or will both indices resume their downward journeys? A lot will depend on whether budget announcements are able to meet or exceed already low market expectations.

BSE Sensex chart pattern

The daily bar chart pattern of Sensex pulled back to its Jan 20 '16 low of 23840, where it is facing resistance from its falling 20 day EMA. The reasons for a likely technical bounce were explained in last week's post.

In the chart above, green arrows have been used to indicate previous bottoms that acted as supports. Once these supports got breached, they turned into resistance levels (marked by red arrows) for subsequent up moves. 

Observant readers may see similar patterns near the 26300 level - supports turning into resistances. The reverse also occurs - resistances, when breached, turn into supports during bull phases.

Daily technical indicators have recovered from oversold conditions, but remain in negative zones and are not showing much upward momentum. RSI is showing positive divergence by touching a higher bottom while Sensex touched a 52 week low of 22600 on Fri. Feb 12.

Bears may use the pullback to sell. Sensex is likely to test the Feb 12 low, and even breach it if budget proposals disappoint the market. 

There is also a possibility - however slim - of the index forming an 'inverse head and shoulders' reversal pattern. The left 'shoulder' has already formed, and the 'head' is in the process of being formed. One has to wait about 5-6 weeks for the pattern to play out.

After dropping and closing below its 200 week EMA (not shown) last week, Sensex has pulled back to close above it. The threat to the long-term bull market has been averted - for now.

NSE Nifty 50 chart pattern

The following remarks appeared in last week's analysis of the weekly bar chart pattern of Nifty 50: 

"A close below the 200 week EMA is considered very bearish. But a single week's breach should not cause panic. Faint bullish hopes were kept alive as the index closed the week within the 3% 'whipsaw' limit below its 200 week EMA."

Nifty pulled back to its Jan '16 low of 7241, and in the process, closed more than 100 points above its 200 week EMA (not shown).

Weekly technical indicators remain in negative zones, but RSI and ROC are showing signs of upward momentum. MACD is still sliding down. Slow stochastic is muddling along the edge of its oversold zone.

Bears (i.e. FIIs) remain in control of the chart, and they are not showing any signs of relinquishing it.

Bottomline? Chart patterns of Sensex and Nifty have pulled back to their Jan '16 lows, and managed to close above their respective 200 week EMAs. The threat to long-term bull markets has been temporarily averted. Remain watchful and cautious, but don't give up on your investment plans.

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 22, 2016

There seems to be no let up in FII selling. Last week, their net selling in equities crossed Rs 5900 Crores as per provisional figures. DIIs more than matched them as their net buying in equities crossed Rs 6075 Crores.

However, both Sensex and Nifty closed marginally lower for the week after completing bearish 'rounding top' patterns. Can Friday's (Jan 22) technical bounce lead to a trend reversal? Or, can more downside be expected?

The charts below are showing some interesting developments that may go in favour of bulls.

BSE Sensex chart pattern

The daily bar chart pattern of Sensex dropped to test support from the 'gap' (of 156 points between 23573 and 23729) formed on the chart in May '14 following the euphoria of Modi-led victory in the general elections.

Most 'gaps' formed on charts get filled quickly, but some don't get filled for a long time and often become 'support/resistance' zones. The May '14 'gap' has remained unfilled for 20 months.

So, will the 'gap' continue to act as a 'support' zone for the index, as it did last week? It may, or it may not - but it shouldn't really matter for bulls. Why?

After an upward 'gap' gets filled, the previous up move - during which the 'gap' had formed - tends to resume. (The same holds true for a downward 'gap', i.e. the down move usually resumes after the 'gap' is filled.)

Are there any other technical indications of a reversal of the intermediate down trend? The answer is: Yes. Three of the four technical indicators have formed reversal patterns inside their respective oversold zones. 

ROC has formed a small 'inverse head and shoulders' pattern. RSI and Slow stochastic have formed 'double bottom' patterns. (Please right click on the chart and open it in a new window or tab to see the patterns more clearly.)  

Note that the index is trading below its three falling EMAs and the blue down trend line in bear territory. The 24830 level, which had acted as a 'support' level in Sep '15 and Dec '15 may provide 'resistance' to a continuation of Friday's technical bounce.

On longer-term weekly chart (not shown), Sensex continues to trade more than 900 points above its still rising 200 week EMA in a long-term bull market. The correction has provided an opportunity to buy fundamentally strong stocks at fair prices.

NSE Nifty 50 chart pattern

The weekly bar chart pattern of Nifty has formed a 'dragonfly doji' pattern (in candlestick parlance), which has bullish implications. 

A 'doji' usually indicates indecision among bulls and bears. But a 'dragonfly doji' formed at the bottom of a 3 months long intermediate downtrend may be hinting at a trend reversal.

There is no guarantee that the index won't fall lower - specially with FIIs still in selling mode. However, the 7120 level is likely to provide strong support. (Significance of the 7120 level was explained in a post 2 days ago.)

All four weekly technical indicators are looking bearish and oversold. ROC is showing some upward momentum in an effort to emerge from its oversold zone. The other three are still showing downward momentum.

The index looks ready for a counter-trend move, but that may not happen during F&O settlement week.

Bottomline? Chart patterns of Sensex and Nifty are near important long-term support levels. Technical indicators are suggesting a counter-trend move. Long-term bull markets are still intact, as both indices are trading above their rising 200 week EMAs (not shown). Use the dip to gradually buy fundamentally sound stocks. Deploy 15-20% of your savings on 2/3 different stocks instead of going 'all in' on one.

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 04, 2015

FIIs resorted to heavy selling during the week gone by. Their net selling in equity was worth Rs 3450 Crores, as per provisional figures. Net buying by DIIs crossed Rs 2300 Crores, and failed to prevent both Sensex and Nifty from closing 2% lower for the week.

Did India’s economy take a sudden turn for the worse? Hardly. In fact, the economy is showing signs of improvement. Bearish sentiments got a boost due to hawkish comments by the US Fed and a slip in India’s services PMI number.

The deluge in TamilNadu that flooded Chennai has caused serious disruptions in industrial activity, with losses estimated at upwards of Rs 15000 Crores.

The important GST bill is stuck in negotiations. NDA government’s conciliatory stance towards Opposition demands has been too little and too late. Implementation of GST from Apr 2016 appears unlikely.

BSE Sensex index chart

The daily closing chart pattern of Sensex lost its upward momentum after briefly crossing above its 20 day EMA. The index has dropped down to seek support from the extended neckline (NL) of the ‘inverted head and shoulders’ pattern.

Will the support hold? Seems unlikely. The 25450 level (marked by dotted horizontal line) can provide some support. But the way FIIs are selling, it won’t be a surprise if the Sep ‘15 low of 24894 is tested - and even breached.

Daily technical indicators are turning bearish. MACD is about to touch its signal line in negative zone. ROC has crossed below its 10 day MA and entered negative zone. RSI and Slow stochastic have dropped to their respective 50% levels.

Front line stocks are under pressure due to selling by FIIs. Many mid-cap and small-cap stocks are flying around. Investors should be cautious about which stocks to pick.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty succumbed to heavy volume of FII selling and lost most of the gains made in the previous two weeks.

A test - and possible breach – of the Sep ‘15 low of 7540 may be on the cards. The index continues to trade below the down trend line and its two weekly EMAs in bear territory.

Weekly technical indicators remain in bearish zones. MACD is sliding down below its signal line in negative zone. ROC is about to cross below its 10 week MA in negative zone. RSI and Slow stochastic are moving sideways below their respective 50% levels.

The long-term bull market is intact, as the index is more than 700 points above its rising 200 week EMA. Sometime next year, when (not if) the index moves above its Mar ‘15 top, the current Nifty level will seem very attractive.

Bottomline? Chart patterns of Sensex and Nifty are facing renewed bear attacks. Long-term bull markets are intact because both indices are trading well above their respective 200 week EMAs (not shown in above charts). This is as good a time as any to add to your stock portfolio. New investors, planning to enter the market for the first time, should stick to a balanced fund.

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 27, 2015

Bulls were active in a truncated F&O settlement week. Both Sensex and Nifty closed 1% higher for the second week in a row – ending the intermediate down trend within a larger down trend.

FIIs remained bears – as they have been for most of the month. Their net selling during the week was nearly Rs 1500 Crores, as per provisional figures. DIIs were bulls. Their net buying was almost Rs 2500 Crores, and propelled the market higher.

Prime Minister’s efforts at a reconciliation with the opposition Congress party – with a view to getting the contentious GST bill passed in both houses of Parliament – seemed to boost bullish sentiments.

BSE Sensex index chart

The daily closing chart pattern of Sensex touched a higher bottom – breaking the bearish pattern of ‘lower tops and lower bottoms’ that had dominated the chart since Mar ‘15.

Is the 9 months long corrective phase over? It would seem so – though it may be a bit early to call. The clearly formed ‘inverse head and shoulders’ pattern gave the first hint of an end to the down trend.

The fact that the index took support at the extended neckline (NL) and touched a higher bottom is another bullish signal. But bulls still have a lot of work left.

The index is facing resistance from its 20 day EMA. It needs to cross above its three EMAs and the blue down trend line (which is 1400 points away) for the bull market to resume.

For that to happen, FIIs need to become buyers of equity. They may not do so before Jan ‘16.

Daily technical indicators are beginning to turn bullish. MACD has just crossed above its signal line in negative territory. ROC has entered positive zone above its 10 day MA (which has formed a ‘rounding bottom’ pattern). RSI and Slow stochastic are moving up towards their respective 50% levels.

This is as good an opportunity as any to add fundamentally strong stocks to your portfolio.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty had formed a ‘reversal bar’ (lower low, higher close) with strong volume support in the previous week. That was the first sign of an end of the three weeks long intermediate down trend from the Oct ‘15 top.

By closing higher for the 2nd week in a row – thereby confirming the higher bottom of the previous week – the index may be finally shaking off the 9 months long bear grasp on the chart.

Bears have not been vanquished yet. The index is trading below its 20 week and 50 week EMAs, and the blue down trend line. It needs to convincingly cross above all three for the bull market to embark on the next leg of its rally.

Weekly technical indicators are in bearish zones. MACD and Slow stochastic have stopped falling and are moving sideways. ROC has dropped back into negative zone, and showing some downward momentum. RSI bounced up from the edge of its oversold zone, and is rising towards its 50% level.

Bottomline? Chart patterns of Sensex and Nifty appear to have reversed intermediate down trends. Long-term bull markets are intact because both indices are trading well above their respective 200 week EMAs. This is a good time to pick up good stocks. If you are unsure about your stock picking skills, invest in a balanced fund.