Sensex, Nifty charts (Mar 13, 2020): panic selling hints at end of long-term bull market

The Festival of Colours failed to enthuse FIIs, who were net sellers of equity on all four trading days of a holiday-shortened week. Their total net selling was worth a massive Rs 196.14 Billion. DIIs were net buyers of equity on all four days. Their total net buying was worth Rs 175.96 Billion, as per provisional figures. 

India's Current Account Deficit (CAD) declined to 0.2% of GDP during Oct-Dec '19 from 0.9% during Jul-Sep '19 and 2.7% during Oct-Dec '18. The contraction in CAD was due to lower trade deficit and higher services receipts.

CPI-based inflation eased to 6.58% in Feb '20 from 7.59% in Jan '20. It was the first decline in 7 months, thanks to lower food prices.

BSE Sensex index chart pattern

The following comments from last week's post on the daily bar chart pattern of Sensex are worth noting:

"The impending 'death cross' of the 50 day EMA (blue) below the 200 day EMA will technically confirm a bear market."

"If Sensex breaches 36000, it can fall to its 200 week EMA (currently at 34800)."

The 36000 level, which had acted as a support during Aug-Sep '19, was easily breached on Mon. Mar 9. As often happens, the breached support level turned into a resistance level during a pullback on the next trading day (Mar 11).

Sensex formed a downward gap of 790 odd points on Thu. Mar 12, as bears pressed home their advantage. Panic selling on Fri. Mar 13 caused a circuit breaker and a 45 min. trading halt. On reopening of trade, huge short covering led to a sharp technical bounce that partly filled Thursday's 'gap'.

A partly or completely filled downward 'gap' is usually followed by a resumption of the down move. Note that the current level of the 200 week EMA (not shown) is 34450, which is just above Thursday's downward 'gap'. The zone between 34450-36000 should act as a strong resistance.

Friday's panic selling that dropped the index below 30000 - its lowest level in 3 years - may be a sign of capitulation by bulls that marks the end of a bull market. The 'death cross' of the 50 day EMA below the 200 day EMA - marked by grey oval - has technically confirmed a bear market. Thursday's closing level of 32778 was a 22.5% fall from Jan 20th top of 42274. A fall of 20% from the top is another technical sign of a bear market.

Can Friday's sharp fall below 30000, and the subsequent sharp recovery, be termed as a 'selling exhaustion'? The short answer is: No. A 'selling exhaustion' is a sign of capitulation by bears that typically happens after a prolonged downward move. Also, trading volumes should be significantly higher - which was not the case on Friday (Mar 13).    

Daily technical indicators are in bearish zones and looking oversold. MACD is falling deeper inside its oversold zone. RSI is trying to emerge from its oversold zone. Slow stochastic has emerged from its oversold zone after re-entering it. 

Since 'panic bottoms' seldom hold, expect Friday's intra-day low of 29389 will be tested and breached. Any continuation of Friday's short-covering pullback can be used to exit non-performing stocks in portfolios. 

NSE Nifty index chart pattern

What a difference a week makes! The weekly bar chart pattern of Nifty formed a 76 points downward 'gap', crashed through its 200 week EMA and plummeted below 8600 - its lowest level in 3 years. 

A circuit breaker and trading halt of 45 mins on Fri. Mar 13 led to a sharp short-covering pullback that stopped short of the support level of 10000. The support level should now become a resistance level. A bullish pattern of 'higher tops, higher bottoms' - formed during the past 18 months - has been negated.

The index fall below the 200 week EMA with a downward 'gap' is a sign that the long-term bull market has come to an end. The rapidly spreading corona virus has spooked global stock markets and FIIs, who have pulled out more than Rs 300 Billion during the past two weeks.

Weekly technical indicators are looking bearish and oversold. MACD is falling sharply in bearish zone. RSI and Slow stochastic have entered their respective oversold zones. Friday's short-covering bounce may last a bit longer before bears resume their selling. 

Nifty's TTM P/E has moved down to 22.66, but still remains above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) is falling inside its oversold zone. Some more near-term index pullback or some consolidation is possible.

Bottomline? Sensex and Nifty charts have closed well below their respective 200 week EMAs - signalling the end of long-term bull markets. A rapidly spreading corona virus has exacerbated uncertainty  and concerns about weak economic growth and fiasco in the financial sector. Small investors should stay on the sidelines and use pullback rallies to move out of non-performing stocks.

Sensex, Nifty charts (Sep 28, 2018): corrective moves approach support zones

FIIs were net buyers of equity on Thu. (Sep 27), but net sellers on the other four days. Their total net selling was worth Rs 37.1 Billion. DIIs were net sellers of equity on Thu. but net buyers on the other four days. Their total net buying was worth a huge Rs 84.4 Billion, as per provisional figures.

Demand for services and manufactured goods slowed in Aug. '18, while a cross-section of high-frequency indicators compiled by Bloomberg News suggest economic growth may moderate in the coming months from an 8%-plus pace in the Apr-Jun '18. 

A recent report by the United Nations Conference on Trade and Development (UNCTAD) stated that trade tariff tussle between USA and China is a symptom of a "deeper malaise". The report added that four BRICS nations, including India, are doing better because of their domestic demands.

BSE Sensex index chart pattern

After the panic selling on Fri. Sep 21, the daily bar chart pattern of Sensex got some respite from bears by consolidating sideways in a range during the week. On Fri. Sep 28, the index slipped 8 points below the low of 35993 touched on Sep 21 - proving the market adage 'Panic bottoms seldom hold'.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line in bearish zone. ROC is below its falling 10 day MA in oversold zone. RSI and Slow stochastic have re-entered their respective oversold zones. Any technical bounce may encounter more bear selling.

The support zone mentioned in last week's post - based on 50% and 61.8% Fibonacci retracement levels of the rally from the Mar '18 low and Aug '18 top - has been marked on the chart. The 200 day EMA is inside the support zone. 

Bulls can be expected to put up a fight to defend the support zone. Note that heavy buying by DIIs during the week failed to prevent the index from touching a lower low. That is a clear indication that HNIs and small investors have joined FIIs in rushing through the exit door.

Stay calm and sit on the sidelines. If you have spare savings that you are waiting to invest, wait a little longer. The prudent thing to do would be to buy when the market is on the way up than when it is on the way down.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed lower for the fourth straight week, touching a low of 10850 before bouncing up to close within the downward-sloping trading channel. The index closed below its 20 week EMA for the first time in 6 months.

Nifty closed above its 50 week EMA in long-term bull territory. Any further correction should get support from the zone between 10850 and 10550. In case the index falls below 10550, it can drop to test its Mar '18 low.

Weekly technical indicators have corrected overbought conditions and are showing downward momentum. MACD has crossed below its signal line and has fallen from its overbought zone. ROC has crossed below its 10 week MA and has dropped to its neutral zone. RSI and Slow stochastic have also dropped to their respective neutral zones.

Nifty's TTM P/E has come down to 26.44, but remains above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) is falling in neutral zone, and can trigger a pullback.

Bottomline? The corrective downward moves on Sensex and Nifty charts have dropped near strong support zones. Technical bounces are likely, but bears may use them to sell again. Macro headwinds - like rising oil prices, a depreciating Rupee, widening trade and fiscal deficits, ongoing debt woes of IL&FS - remain concerns for bulls. Time to sit on the sidelines and wait for the indices to find bottoms.

Nifty chart: a midweek technical update (Sep 26, 2018)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 25.6 Billion. DIIs were net buyers on all three days. Their total net buying was worth a whopping Rs 53.7 Billion, as per provisional figures.

The government has approved a Rs 55 Billion package for the sugar industry that includes a two-fold increase in production assistance to cane growers, and transport subsidy to sugar mills for exporting up to 5 million tonnes of surplus domestic stock of sugar.

India's fiscal deficit for the period Apr-Aug '18 touched 94.7% of the estimate for the full year. However, it was slightly lower than the 96.1% figure during the same period in the previous year.

The daily bar chart pattern of Nifty has corrected sharply below its 20 day and 50 day EMAs, but appears to have found some support from the 'Support/Resistance zone 1' (between 10800 and 10900).

Though the index is trading above its 200 day EMA in bull territory, a fall towards 'Support/Resistance zone 2' (between 10400 and 10600) can't be ruled out. By touching a 'panic bottom' of 10866 with strong volumes on Sep 21, the index retraced almost 50% of its rally from the Mar '18 low to the Aug '18 top.

A 61.8% Fibonacci retracement will drop the index to around 10650. That means, it will be imperative for bulls to mount a rally should the index fall towards the 'Support/Resistance zone 2'. Otherwise, a change of trend will become inevitable.

Daily technical indicators are looking bearish and a bit oversold. MACD is falling below its signal line and is ready to enter its oversold zone. RSI has bounced up weakly after receiving support from the edge of its oversold zone. Slow stochastic is oscillating at the edge of its oversold zone. Some consolidation or a pullback towards the falling 50 day EMA is possible.

Nifty's TTM P/E has moved down to 26.87, but still remains much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is hovering below the edge of its overbought zone, and is hinting at some consolidation.

Macro headwinds like high oil prices, a falling Rupee and widening twin deficits now include chaos and uncertainty about the financial stability of private banks, housing finance companies and NBFCs. 

Lack of transparency about the Rafale aircraft deal, and Supreme Court's decision against linking of Aadhar cards to bank accounts and cell phones have cast a huge shadow of doubt about the credibility of the NDA government.

The stock market detests uncertainty and usually votes with its feet. That seems to be the real reason behind the indiscriminate selling of even fundamentally strong stocks.

Stick to existing SIPs, but avoid any lump sum investments or adventurous forays into unknown small-caps. Nifty hasn't bottomed out yet.

"There's Never Just One Cockroach in the Kitchen" - Warren Buffett

Buffett had made that comment in an interview following an accounting scandal in Wells Fargo. He may as well have made that comment about corruption in ICICI Bank and misreporting of NPAs by Axis Bank.

Yes Bank was the third 'cockroach'. (PSU banks are not being discussed here because collectively they are a massive 'anaconda' that is threatening to swallow India's financial system as a whole!)

The latest 'vermin' is IL&FS, whose MD has quit on his own. (The MD of ICICI Bank remains in suspended animation - for reasons best known to her. RBI has shown the door to the MDs of Axis Bank and Yes Bank, but is powerless to do likewise with the MDs of PSU banks.)

Moody's recently said that rising liquidity worries at IL&FS are credit negative for banks and debt market. The stock market reacted by indiscriminately pummeling the stocks of banks, NBFCs and housing finance companies.

It is interesting to note that despite a hurriedly-called concall with denials about any near-term liquidity problems, DHFL's stock failed to recover much from its lows on Friday (Sep 21). Which is the next 'cockroach'? 

There will be more than one. The business model of banks, NBFCs and HFCs requires borrowing short-term to lend long-term. If short-term liquidity dries up (or, gets costlier due to rising interest rates) the proverbial you-know-what will hit the fan - as it seems to be doing now. 

One market expert tried to reassure investors by stating that Friday's huge selloff was due to 'technical reasons'. One presumes he meant that fundamentally everything is hunky-dory in the financial system. Really?!

Talking about 'technical reasons', the market made a 'panic bottom' - with a sharp surge in transaction volumes - before bouncing up on short covering and some value buying. 

Typically, such a 'panic bottom' occurs during the second leg of a bear phase. 
However, the fact that it has occurred at an early stage of a corrective move is a clear warning to perma-bulls. 

Remember the stock market adage: Panic bottoms seldom hold. That means the market is headed lower than Friday's low. By how much? Likely support levels will be discussed in tomorrow's post on Sensex and Nifty.

Related Post
How to tackle a ‘panic bottom’

Sensex and Nifty charts have formed intermediate bottoms (Nov 25 '16)

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.

BSE Sensex and NSE Nifty charts (Nov 18, 2016): slipping into bear phases?

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.

Nifty chart: a midweek update (Feb 17 '16)

There has been no let up in FII selling. In the first three days of the week, their net selling in equities crossed Rs 2800 Crores. DIIs more than matched them with net buying in equities worth Rs 2950 Crores.

WPI inflation for Jan '16 was -0.9% - its 15th straight month of contraction. WPI was -0.73% in Dec '15 and -0.95% in Jan '15. However, rising food prices that led to an increase in CPI inflation remain a concern.

Exports fell by 13.6% to $21.1 Billion in Jan '16 against $24.4 Billion a year ago. It was the 14th straight month of contraction. Imports also fell - by 11% to $28.7 Billion in Jan '16 against $32.2 Billion in Jan '15. Trade deficit was at an 11 month low of $7.6 Billion.

The daily closing chart pattern of Nifty 50 seems to be in the throes of a 'dead cat bounce' after falling to a high-volume 'panic bottom' last Friday (Feb 12 '16). All three EMAs are falling, and the index is trading below them in a bear market.

Two of the three daily technical indicators - RSI and Slow stochastic - have corrected oversold conditions but remain in bearish zones. MACD is sliding deeper inside its oversold zone.

On longer term weekly chart (not shown), the index has pulled back to its 200 week EMA after falling below it on Friday.

The breadth indicator NSE TRIN (not shown) has dropped from its oversold zone. Some more correction and a re-test and possible breach of last Friday's low of 6869 is on the cards. 'Panic bottoms' seldom hold.

This isn't the time to be aggressive - as a bull or a bear. Just stick to your asset allocation plan and let the plan help you to decide what you should be doing.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Sep 04, 2015

S&P 500 Index Chart

A sharp upward bounce from the previous week’s ‘panic bottom’ on the daily bar chart pattern of S&P 500 failed to attract much follow-up buying. In a volatile trading week, the index dropped down to close almost 3.5% lower for the week.

All three daily EMAs are falling and the index is trading below them. The 50 day EMA has crossed below the 200 day EMA – the ‘death cross’ technically confirming a bear market.

The index had a spectacular bull run – making a lot of money for investors. Long bull runs don’t end suddenly. The first warning was provided back in Oct ‘14, when the index suddenly collapsed below its three EMAs, only to bounced back immediately.

It then went through a sideways consolidation within a ‘rectangle’ for 6 months, touching a lifetime high but giving enough indications of a topping out process. The eventual break down should not have come as a surprise to readers of this blog.

All three technical indicators are in bearish zones and showing downward momentum. Expect the correction to continue. The index is likely to test and breach the Aug ‘15 low of 1867.

On longer term weekly chart (not shown), the index closed well below its falling 20 week and 50 week EMAs but is trading above its rising 200 week EMA in a long-term bull market. Weekly technical indicators are in bearish zones and showing strong downward momentum. The long-term bull market may get reversed.

FTSE 100 Index Chart

The daily bar chart pattern of FTSE 100 consolidated sideways with a downward bias during the week, losing more than 200 points (3.3%) on a weekly closing basis.

All three daily EMAs are falling and the index is trading below them in a bear market. The Aug ‘15 low of 5768 is likely to be tested and breached.

All three daily technical indicators are in bearish zones. RSI and Slow stochastic have corrected oversold conditions, but MACD is still inside its oversold zone. At the time of writing this post, the index has moved up above the 6100 level.

On longer term weekly chart (not shown), the index closed well below its three weekly EMAs for the third straight week, and has probably entered a long-term bear market. Weekly technical indicators are in bearish zones.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 28, 2015

S&P 500 Index Chart

The daily bar chart pattern of S&P 500 plunged to a low of 1867 on a huge volume surge on Mon Aug 24 – which indicates a ‘panic bottom’ well below the downward target of 1945 (mentioned in last week’s post).

Since ‘panic bottoms’ seldom hold, the probability of the index dropping even lower – perhaps to test the Oct ‘14 low – is quite high.

The index formed a small ‘double bottom’ pattern by testing the low of 1867 on Tue. Aug 25, and then bounced up sharply to close with a weekly gain of about 1%.

However, the upward bounce was accompanied by sliding volumes, which raises questions about the sustainability of the recovery.

Note that the 50 day EMA is about to cross below the 200 day EMA – the impending ‘death cross’ will technically confirm the start of a bear phase.

Two of the daily technical indicators – RSI, Slow stochastic - have corrected oversold conditions, but remain in bearish zones. MACD is deep inside its oversold zone, but showing signs of recovery.

Any further pullback towards the ‘rectangle’ is likely to attract bear selling.

On longer term weekly chart (not shown), the index dropped well below its 20 week and 50 week EMAs but formed a ‘reversal week’ pattern (lower low, higher close) and closed above its rising 200 week EMA in a long-term bull market. The 20 week and 50 week EMAs have started moving down. Weekly technical indicators are in bearish zones.

FTSE 100 Index Chart

The daily bar chart pattern of FTSE 100 crashed to a 52 week low of 5768 on Mon. Aug 24 – accompanied by a strong volume surge (not shown on chart), indicating the formation of a ‘panic bottom’.

‘Panic bottoms’ seldom hold. The possibility of FTSE falling even lower can’t be ruled out.

The index bounced up sharply to close the week with a gain of almost 1%, but is well below its three falling EMAs in bear territory.

Two of the daily technical indicators – RSI, Slow stochastic - have corrected oversold conditions, but remain in bearish zones. MACD is deep inside its oversold zone, but showing signs of turning around.

Any attempt at a pullback towards the ‘symmetrical triangle’ will encourage bears to sell.

On longer term weekly chart (not shown), the index dropped well below its three weekly EMAs but formed a ‘reversal week’ pattern (lower low, higher close) that may encourage bulls. The index has probably entered a long-term bear market. Weekly technical indicators are looking bearish and oversold.

Gold and Silver charts: bears trying to stop the rot

Gold chart pattern

The daily bar chart pattern of gold had touched a high-volume ‘panic bottom’ of 1080, which led to the following comment in the previous post: “A ‘panic bottom’ seldom holds. That means the Jul 20 ‘15 low of 1080 is likely to be breached.”

A ‘dead cat bounce’ to 1110 on the next day was followed by an intra-day drop to a 3 years low of 1072 and then a high-volume bounce to 1100 on Jul 24.

Gold seems stuck in a sideways consolidation within a small ‘symmetrical triangle’. Since triangles are usually continuation patterns, a downward break out is likely.

All three EMAs are falling, and gold’s price is trading below them in a bear market. Daily technical indicators have corrected oversold conditions but remain bearish. Any rally will provide a selling opportunity.

On longer term weekly chart (not shown), all three weekly EMAs are falling and gold’s price is trading well below them in a long-term bear market. Weekly technical indicators are in bearish zones. MACD is falling below its signal line. RSI and Slow stochastic are moving sideways.

Silver chart pattern

The daily bar chart pattern of silver touched an intra-day low of 14.30 on Jul 24 and then bounced up to touch an intra-day high of 15 a week later.

Resistance from the falling 20 day EMA proved too strong for the brief rally. Silver’s price closed below 14.50 deep inside bear territory – a 3 years low on a closing basis.

Daily technical indicators have corrected oversold conditions but remain in bearish zones.

Bears are desperately trying to stop the rot. Still there is no sign of bottom formation.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones and showing downward momentum.

Gold and Silver charts: an update

Gold chart pattern

The daily bar chart pattern of gold collapsed on heavy volumes after breaching the previous support level of 1140, and formed a ‘panic bottom’ at 1080. A ‘dead cat bounce’ took gold’s price to the 1100 level, but the worst may not be over.

A ‘panic bottom’ seldom holds. That means the Jul 20 ‘15 low of 1080 is likely to be breached. Gold’s price has the next support at 1000. What if 1000 level gets breached also? The next support is at 700 – but the probability of going down there is low.

Why the sudden price crash? Some blamed it on the strong US Dollar index. Others pointed to rallies in global stock markets. Dumping by Chinese investors was another reason put forward. Technically, 1180-1200 was a strong support zone. Once that zone got breached, a drop to 1000 has been on the cards.

All three technical indicators are inside their oversold zones, but two of them – MACD, Slow stochastic – are showing positive divergences by touching higher bottoms than those touched in Mar ‘15.

Any attempt at a rally is going to invite bear selling. So, continue to avoid bottom fishing.

On longer term weekly chart (not shown), all three weekly EMAs are moving down, and gold’s price is trading well below them in a long-term bear market. Weekly technical indicators are in bearish zones, but MACD and RSI are showing positive divergences by touching slightly higher bottoms.

Silver chart pattern

The daily bar chart pattern of silver touched a low of 14.50 - breaching the high volume ‘panic bottom’ of 14.60 touched on Jul 7 ‘15, and proving the market adage that ‘panic bottoms seldom hold’.

Note that silver’s price had bounced up sharply after touching the ‘panic bottom’, and crossed above its falling 20 day EMA on Jul 13 – only to lose steam near its falling 50 day EMA. It has been all downhill since then.

Daily technical indicators have entered their respective oversold zones. RSI is showing positive divergence by touching a slightly higher bottom, but don’t expect a big price recovery.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones.

Gold and Silver charts: sliding lower in bear markets

Gold Chart Pattern

Three weeks back, gold’s 6 months daily bar chart was consolidating sideways in a bear market and had closed a little below the 1400 level. The following warning was given to investors of the yellow metal: “A similar sideways consolidation in a price range between 1550 and 1625 during Feb-Mar ‘13 had ended with a high volume ‘panic bottom’ pattern. Since a ‘panic bottom’ seldom holds, gold’s price is likely to seek levels lower than its Apr ‘13 low.”

Not only did gold’s price fall below its Apr ‘13 low, it dropped below the first lower target of 1250, and briefly below the psychological 1200 level before weakly bouncing up. All three daily EMAs are falling, and gold’s price is trading below them – a classic bear market in progress. Is it game over for bulls? Looks that way.

Both MACD and RSI are just above their oversold zones, but are showing positive divergences by touching slightly higher bottoms in Jun ‘13 than the ones touched in Apr ‘13 while gold’s price dropped lower. Slow stochastic is not confirming the positive divergence. So, a rally can be ruled out. Some consolidation is possible before the next down move.

In the longer-term 3 years weekly bar chart (not shown), the 200 week EMA has started to fall and the 20 week EMA has just crossed below it. If the 50 week EMA also falls below the 200 week EMA – it is showing every sign of doing so – the gold bull market may be well and truly over.

Silver Chart Pattern

The 6 months daily bar chart pattern of silver dropped below the target level of 20 last month, and has stayed below since then. After briefly dropping to 18, there was a brief bounce up towards 20 on decent volumes. But the bears used the opportunity to sell.

The gap between silver’s price and its falling 200 day EMA is widening by the day. Such a technical set-up usually precedes a rally. Positive divergences visible on the MACD and RSI indicators, which touched higher bottoms in Jun ‘13 while silver’s price fell lower, is another bullish sign.

However, bullish signs deep inside a bear market should be traded cautiously. What appears to be a rally can turn into a sideways consolidation, followed by another drop.

In the longer-term 3 years weekly bar chart (not shown), the 200 week EMA is falling and the 50 week EMA is about to cross below the 200 week EMA. That will technically confirm the beginning a long-term bear market. However, deeply oversold weekly technical indicators may lead to a sharp counter-trend rally.

Gold and Silver charts: an update

Gold Chart Pattern

The 6 months daily bar chart pattern of gold continues its sideways consolidation in a bear market. A similar sideways consolidation in a price range between 1550 and 1625 during Feb-Mar ‘13 had ended with a high volume ‘panic bottom’ pattern.

Since a ‘panic bottom’ seldom holds, gold’s price is likely to seek levels lower than its Apr ‘13 low. Daily technical indicators are looking bearish. MACD is rising above its signal line, but remains in negative territory. RSI is moving sideways below its 50% level. Slow stochastic is sliding down below its 50% level.

Higher volumes on down days is a sign of distribution. Avoid the temptation to do any bottom fishing. Enter only on a convincing move above 1500.

Silver Chart Pattern

The 6 months daily bar chart pattern of silver is consolidating sideways with a downward bias. The falling 20 day EMA is providing strong resistance to all attempted up moves since Feb ‘13.

Daily technical indicators are bearish. MACD is above its signal line, but inside negative territory. RSI continues to drift below its 50% level. Slow stochastic has bounced up weakly from the edge of its oversold zone.

Only a revival in worldwide industrial production can change the fortunes of silver bulls. Stay on the sidelines till then. Enter only if silver’s price convincingly crosses above 25.

Gold and Silver charts: consolidating before the next fall?

Gold Chart Pattern

The 6 months daily bar chart pattern of gold dropped to a high volume ‘panic bottom’ in April, and has since been consolidating within a broad range between 1300 and 1500. Note that the falling 20 day EMA has so far been providing resistance to all attempts by gold’s price to move up.

Gold’s price is clearly in a bear market – with the 200 day EMA and the 50 day EMA both falling. The strategy to follow in a bear market is to sell the rises, instead of hoping that gold’s price can’t/won’t fall any lower and therefore, this must be a good time to enter. ‘Panic bottoms’ seldom hold; gold’s price is likely to fall below the Apr ‘13 low.

Daily technical indicators are showing signs of bullishness. MACD is rising above its signal line, but remains in negative territory. RSI has been trying to move above its 50% level for the past 2 months, but without any success. Slow stochastic has climbed above its 50% level. However, any further up move from here may lead to bear selling.

Silver Chart Pattern

The 6 months daily bar chart pattern of silver shows consolidation within a narrow range between 22 and 23 during the past 2 weeks. Higher volumes on down-days indicates distribution. The likely break out from the narrow range is downwards.

Daily technical indicators are showing some signs of bullishness – particularly from the Slow stochastic, which is rising above its 50% level. However, MACD is negative, and RSI is below its 50% level.

For the past 4 months, silver’s price has faced resistance from its falling 20 day EMA. It is trading below all three EMAs and is in a bear market. Lower levels are likely.

Gold and Silver charts: an update

Gold Chart Pattern

In a post two weeks back, the 6 months daily bar chart pattern of gold was analysed with the help of certain technical patterns to explain the descent of gold’s price into a bear market. For a longer-term perspective, let us look at the 2 years weekly bar chart pattern of gold.

Note that the zone between 1500 and 1550 had been providing strong support to gold’s price. Last month, the 1500 level was breached decisively, followed by a high-volume drop (‘panic bottom’) below the 200 week EMA. The subsequent pullback moved above the 200 week EMA, but failed to regain the 1500 level.

Gold’s price dropped below the 200 week EMA last week, and looks ready to fall much lower. The 20 week EMA is falling like a stone below the 50 week EMA. Weekly technical indicators are looking bearish and oversold. MACD is falling deeper into negative territory below its signal line. RSI is trying to emerge from its oversold zone. Slow stochastic is sliding down towards its oversold zone.

Bears are using every rise to sell. The time for bottom-fishing hasn’t arrived yet.

Silver Chart Pattern

The 2 years weekly bar chart pattern of silver shows a support zone between 26 and 28 that was decisively breached in Apr ‘13. A high-volume ‘panic bottom’ formed at 22, and after a brief upward bounce, the ‘panic bottom’ was breached as silver’s price dropped to the target of 20 (mentioned in the previous post).

Silver’s price has spent 6 straight weeks below the 200 week EMA. The 20 week EMA has crossed below the 200 week EMA, and the 50 week EMA may follow soon. A long-term bear market is looming.

Weekly technical indicators are looking bearish and oversold. MACD is falling below its signal line in negative territory, and has entered its oversold zone. Both RSI and Slow stochastic have remained inside their oversold zones for a few weeks.

Looks like ‘game over’ for the bulls. Any attempt at a rally will probably be an opportunity to sell.

Gold and Silver charts: bounce after panic bottoms

Gold Chart Pattern

The 6 months daily bar chart pattern of gold clearly shows three distinct phases that characterise a descent into a bear market:

1. an initial drop below the 200 day EMA (in Dec ‘12);
2. a sideways consolidation that brought all three EMAs together, followed by a sharp drop below all three EMAs that led to the ‘death cross’ of the 50 day EMA below the 200 day EMA (in Feb ‘13);
3. another sideways consolidation followed by a sharp fall below the support level of 1525, and then a high-volume ‘panic bottom’ formation (on Apr 15 ‘13)

The subsequent bounce is facing resistance from the 20 day EMA. Note that volumes on the previous three down-days (Apr 23, 26, May 1) were higher than up-day volumes, which is a bearish sign. Since a ‘panic bottom’ seldom holds, gold’s price chart is likely to resume its downward move soon.

Daily technical indicators are giving mixed signals, which is to be expected during a sideways consolidation. MACD is rising above its signal line, but both are in negative territory. RSI is moving sideways below its 50% level. Slow stochastic has entered its overbought zone.

If you are holding on with the hope that gold will regain its lost glory, you will be disappointed. If you were lucky/brave to buy during the ‘panic bottom’, stop being greedy and book your profits. If you think this is a good time to enter – forget it.

There will be strong upside resistance from the falling 50 day EMA and the 1525 level. Downward target is 1250.

Silver Chart Pattern

The 6 months daily bar chart pattern of silver is showing a similar three step descent into a bear market explained in the analysis of gold’s chart (above): a fall below the 200 day EMA followed by a desperate effort to return to bull territory; a confluence of all three EMAs that usually precede a sharp fall (downwards in this case) and the ‘death cross’ technically confirming a bear market.

Finally, a breakdown below a rectangular consolidation zone between 28 and 29.50, followed by a pullback to the 28 level, and then a sharp fall below the support level of 26 and a ‘panic bottom’ on high volumes.

The subsequent bounce has been a weak one that has failed to cross above the falling 20 day EMA. Daily technical indicators are giving mixed signals. MACD is rising above its signal line, but inside negative territory. RSI is moving sideways below its 50% level. Slow stochastic has risen above its 50% level.

‘Panic bottoms’ seldom hold. Downward slide of silver’s price is likely to resume. The 20 day EMA should continue to provide upside resistance. Next downward target is 20.

Stock Chart Pattern - Bilcare Ltd (An Update)

The previous technical update to the stock chart pattern of Bilcare Ltd was posted back in May 2011. Small investors were again advised to avoid the stock. But there seems to be a fatal attraction for stocks with which the RARE bull’s name has been linked. Readers keep visiting the Bilcare posts on the blog.

That can mean one of two things. Those who had read the earlier posts may have hung on to their holdings – most likely purchased at higher levels – in the hope of recovering their ‘buy’ price. New readers may have been attracted by the recent high volume spurt in the stock’s price.

If you fall in either of those two categories, use the current rally to bail out. The company has recently sold its US and UK clinical businesses for Rs 300 Crores in an effort to clean up its balance sheet, as its financial expenses exceeded net profit in year-ending Mar ‘12. Q1 results showed a sharp drop in net profit. Much better stocks are available in the pharmaceutical sector.

A look at the one year daily bar chart pattern of Bilcare Ltd shows that bears are yet to release their strong grip on the stock:

There are a few important technical points to note on the above chart:-

• Back on Nov 14 ‘11, the Mar ‘09 bear market bottom of 279 was breached on a volume surge. A high volume penetration of a support level usually turns it into a strong resistance level during subsequent up moves.
• A high volume ‘panic bottom’ was formed at 190 on the next day. A high volume bounce was followed by a few days of sideways consolidation before the stock price dropped like a stone to a new low of 157 on Dec 22 ‘11 – proving the old saying: “A panic bottom seldom holds.”
• The stock price rallied along with the broader market to touch an intra-day high of 255 on Feb 21 ‘12 – gaining a substantial 62% from its Dec ‘11 low and providing a decent trading opportunity – but failed to test its Mar ‘09 level of 279.
• The down trend resumed and the stock dropped to a lower intra-day low of 132 on May 31 ‘12 – maintaining a bearish pattern of lower tops and lower bottoms and under-performing the Nifty which touched a higher bottom in Jun ‘12.
• The rally from the low of 132 touched a lower top of 194 on Sep 14 ‘12 – despite a surge in trading volumes. The stock price has started correcting after facing resistance from the falling 200 day EMA.

Technical indicators are bullish, but correcting overbought conditions. MACD is positive and above its signal line, but sliding down. ROC is also positive, but has dropped to touch its 10 day MA. RSI briefly entered its overbought zone, but looks ready to come down. Slow stochastic has moved down from its overbought zone.

The stock price may find support from its rising 20 day or 50 day EMAs and make another attempt to cross its 200 day EMA. Even if it is able to do so, it is unlikely to move above the 279 level in a hurry.

Bottomline? The stock chart pattern of Bilcare Ltd is still in a long-term bear market. After touching a high of 1830 in Jan ‘08, the stock lost a massive 93% to touch a low of 132 in May ‘12. Small-cap stocks rarely (no pun intended) recover from such huge falls. Those with a penchant for risk can play for a possible 100 point gain from current levels. But smart investors should stay far away from all RARE stocks.

Stock Chart Pattern - Exide Industries (An Update)

The previous update of the daily bar chart pattern of Exide Industries was posted back in Apr ‘11 (marked by grey vertical line on the left of chart below). The stock was recovering after a sharp correction from 180 (touched in Oct ‘10) to 112 (touched in Jan ‘11). The company is fundamentally strong, debt-free and a market leader in the auto-ancilliary space, but the concluding remarks in the post was: “Valuations are not cheap, plus margins are under pressure. Use dips to add.”

The stock price dropped after the previous post, but received good support from all three EMAs, which had converged together. As often happens when the EMAs converge, a sharp move followed. The stock price rose to a slightly lower top of 173 on Jul 20 ‘11, but formed a ‘reversal day’ pattern (higher high, lower close) that marked the end of the up move from the Jan ‘11 low of 112.

Note that during the last leg of the rally from May ‘11, all four technical indicators touched lower tops as the stock price rose higher. The combined negative divergences – marked by blue arrows – gave advance warning of an impending correction/consolidation.

What followed was another sharp correction that pushed the stock price below all three EMAs and into a bear market – from which it has been trying to extricate itself for a year. The stock price fell to a high-volume ‘panic bottom’ of 107 on Oct 25 ‘11 – falling lower than its Jan ‘11 low of 112.

An old stock market adage states: ‘A panic bottom seldom holds’. Sure enough, after a couple of attempts to bounce up, which faced resistance from the falling 20 day and 50 day EMAs, the stock price dropped to a new intra-day low of 99 on Dec 22 ‘11.

A couple of interesting patterns can be observed here. The stock made a ‘reversal day’ pattern (lower low, higher close) that marked the end of the intermediate down move, though volumes were not substantially higher. Three of the four technical indicators showed positive divergences by touching higher bottoms while the stock price dropped lower.

The subsequent uptrend is into its 9th month (marked by the blue uptrend line), but the stock price hasn’t been able to move convincingly above the long-term support/resistance level of 150. Why is a well-known market leader like Exide Industries struggling to get out of a bear market?

Apparently, the company botched up its sales strategy by concentrating on OEM supplies to auto makers and left the replacement market flank wide open for competitors. Since margins tend to be better in the replacement market, the company’s bottom line has suffered. Also, by entering the inverter manufacturing space, it has alienated other inverter manufacturers who used to source batteries from them. It may take a while before the company’s profits margins improve. The negative sentiment is providing an opportunity for small investors to buy the shares of this well-respected company.

Technical indicators are bullish, but correcting overbought conditions. MACD is rising above its signal line in positive territory. ROC is positive, but had climbed to far above its 10 day MA and is moving down. RSI has drifted down after touching the edge of its overbought zone. Slow stochastic is inside its overbought zone, but showing signs of slipping down.

Bottomline? The stock chart pattern of Exide Industries is trying to get out of the clutches of bears. It has hardly given any returns to investors over the past 12 months. The time to buy a good company is when some temporary setback has depressed the stock price. Accumulate with a strict stop-loss at the uptrend line (currently at 125). Add more on a convincing break out above 150.