BSE Sensex and NSE Nifty 50 index chart patterns – Sep 13, 2013

Global stock markets are anxiously awaiting the US Fed’s probable announcement of a tapering (i.e. reducing) of the QE3 bond-buying programme. Indian stock market is likely to be impacted if the US Fed announces a larger than US $10 Billion per month tapering. Why? Because markets have already ‘discounted’ the US $10 Billion figure. Anything more may lead to a partial sell-off by FIIs.

FIIs have turned net buyers of late, and that has helped the bulls to extricate themselves from a strong bear grip. However, the bears are not out of the game yet – as the Sensex and Nifty charts below will show. The IIP number came as a positive surprise. The economy may be finally turning up.

Narendra Modi received the much-expected official endorsement as the BJP’s Prime Ministerial candidate for the upcoming general elections, despite opposition from senior leaders within the party. India Inc. seem to have thrown their lot behind NaMo. It is a moot point whether BJP will be able to form a government or not.

BSE Sensex index chart

Some interesting technical patterns are visible on the daily bar chart pattern of Sensex. After crossing above all three EMAs during the recent rally, Sensex formed a small ‘upward gap’. Profit booking ensued. Charts don’t like gaps, and most gaps eventually get filled – though sometimes they remain unfilled for many months or even years. So, expect the ‘gap’ to be filled soon. Since it is an ‘upward gap’, the index may resume its up move subsequently.

The blue down trend line, connecting the May ‘13 and Jul ‘13 tops, is likely to provide upside resistance. Note that the 50 day EMA, after briefly falling below the 200 day EMA, is trying to cross above the long-term moving average. The 20 day EMA is doing likewise. All three EMAs have converged together (marked by light blue circle). A sharp move usually follows. Will the move be up or down?

That’s a good question. Daily technical indicators are bullish, but correcting from overbought conditions. Profit booking may continue next week. However, two of the four indicators are showing positive divergences. ROC has touched a higher top, and Slow stochastic touched its previous top while Sensex touched a lower top last week. Since the index is trading in bull territory above its three EMAs, it is quite possible that Sensex may first drop down to fill the small gap, and then move up sharply. The sharp move could be downwards if the US Fed announcement disappoints the market.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty returned back to bull territory after 6 weeks, by climbing above its 20 week and 50 week EMAs. The 20 week EMA has merged with the 50 week EMA without crossing below it – keeping the bull market intact. However, weekly volumes have dropped while the index moved up. The blue down trend line (marked DTL) is likely to provide upside resistance. Bears may not be ready to give up the fight.

Weekly technical indicators are turning bullish. MACD is negative, but looks ready to cross above its falling signal line. ROC is about to enter positive zone after crossing above its 10 week MA. RSI has moved up to its 50% level. Slow stochastic has just entered bullish zone above its 50% level.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have re-entered bull territories but are likely to experience some headwinds. Maintain a cautiously optimistic outlook. That means sticking to existing investment plans, and/or buying very selectively. Conservative investors may wait and watch the market’s reaction to the US Fed announcement.

Nifty chart: a mid-week update (Sep 11, ‘13)

The closing chart pattern of Nifty shows an interesting tussle between bulls and bears that has not been satisfactorily resolved yet. Why not? Because of contradictory technical signals favouring both sides. The bullish and bearish signs are mentioned below:

Bullish

1. The index is trading above all three EMAs – rallying sharply from oversold condition
2. After dropping below the long-term up-trend line, the index formed an inverted head-and-shoulders reversal pattern and rose sharply above the trend line
3. The sharp rally has been accompanied by rising volumes
4. 3 of the 4 technical indicators – ROC, RSI, Slow stochastic - are showing positive divergences by touching or crossing their Jul ‘13 tops, while the index reached a lower top

Bearish

1. Both 20 day and 50 day EMAs are below the 200 day EMA, though both are turning up; the ‘death cross’ was a ‘sell’ signal
2. The index made a classic pullback to the long-term moving average after its initial breakdown below it, which is a ‘sell’ signal; it may fall below the up-trend line again
3. The 5-days rally has been too sharp; such sharp rallies don’t sustain for long; the down-trend line (marked DTL) is likely to resist the rally
4. ROC and Slow stochastic are in their overbought zones; RSI is about to enter its overbought zone; only MACD isn’t looking overbought; the rally may soon be over

FIIs have recently turned net buyers again, while DIIs have turned net sellers. The Rupee has gained a little against the US Dollar. Current account deficit has shown some contraction due to reduced imports and a slight improvement in exports. Several FDI projects have been cleared in a hurry. The cumulative effect of all these steps has led to an improvement in sentiment, though the economy is far from returning to a growth trajectory.

Improved sentiment leads to bullishness in the near term. Nifty chart is reflecting that. This is not the time to jump in with both feet. Pick your stocks carefully with a long-term view.

WTI and Brent Crude Oil charts: bull markets face headwinds

WTI Crude chart

The 6 months daily bar chart pattern of WTI Crude oil – which was consolidating sideways for the past 2 months - broke out upwards and touched an intra-day high above the 112 mark accompanied by a volume spurt. But the bears refused to surrender without a fight, and pushed oil’s price down to its rising 50 day EMA that has provided good support during recent down moves.

Oil’s price is continuing its up move. All three EMAs are rising and oil’s price is trading above them, which is the sign of a bull market in progress. But sliding trading volumes is not conducive for a sustained rally.

Daily technical indicators are in bullish zones. However, all three indicators are showing negative divergences by failing to touch new highs.

The possibility of an attack on Syria by the USA, which had led to the recent spurt in oil’s price, seems to be diminishing. Some profit taking may emerge.

Brent Crude chart

The 6 months daily bar chart pattern of Brent Crude oil spiked upwards on strong volumes on the possibility of a US air-attack on Syria.  Oil’s price started forming a flag-like pattern from which it has broken downwards into the resistance zone between 112.50 and 115, after US Congress vetoed the President’s proposal.

All three EMAs are rising and oil’s price is trading above them, which is the sign of a bull market. But strong volumes on down days shows that bears continue to be active.

All three daily technical indicators are correcting from overbought conditions, but remain in bullish zones. MACD is about to cross below its signal line. RSI is falling towards its 50% level. Slow stochastic is showing negative divergence by failing to touch a new high. It has also formed a bearish head-and-shoulders pattern with the left ‘shoulder’ and ‘head’ inside its overbought zone.

Oil’s price may drop towards its rising 50 day EMA.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Sep 06, ‘13

S&P 500 Index Chart

Both good news and bad news for the bulls are visible on the daily bar chart pattern of S&P 500 index. First, the good news: the index was trying to find a bottom at the 1630 level a week ago; it seems to have done so. The index rallied in a holiday-shortened week, and briefly entered bull territory (above its three EMAs), but encountered twin resistances from its 20 day and 50 day EMAs.

There was decent volume support. The 200 day EMA is rising and the index is trading well above it – a sign of a bull market. Daily technical indicators are turning bullish, but haven’t done so yet. MACD is trying to cross above its signal line in negative territory. RSI has moved up towards its 50% level. Slow stochastic has climbed above its 50% level.

Now, the bad news. All three daily technical indicators are showing negative divergences by forming bearish patterns of lower tops and lower bottoms from May ‘13 onwards, while the index has formed a bullish pattern of higher tops and higher bottoms. The combined negative divergences may lead to a deeper correction.

The jobs report was a bit of a damp squib. Initial claims of unemployment benefits continued to slide. But jobs growth was lower than expected. Jun ‘13 and Jul ‘13 job growth rates were adjusted down. These are not good signs for an economy that is trying to return to a growth path.

FTSE 100 Index Chart

The 6 months daily bar chart pattern of FTSE 100 index is back in bull territory. It overcame resistance from its entangled 20 day and 50 day EMAs to close above the 6500 level. However, volumes have not been encouraging, which may hamper the sustainability of the rally.

Daily technical indicators are turning bullish. MACD is slightly negative but has moved above its signal line. Both RSI and Slow stochastic have risen above their respective 50% levels. The index is trading above its rising 200 day EMA, and is in a long-term bull market is intact though it has made no gains since touching its May ‘13 top.

UK’s economy seems to be recovering better than expected – going by rising car sales and home prices.

Bottomline? 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are trying to recover from bull market corrections, but are not quite out of the woods yet. Invest gradually, with strict stop-losses at the recent Aug ‘13 lows.

BSE Sensex and NSE Nifty 50 index chart patterns – Sep 06, 2013

The new RBI governor made a strong start by announcing a number of proposals that is likely to help the value of the Rupee to stabilise by ensuring more forex inflows. Banks will be given freedom to raise overseas funds. RBI will subsidise hedging costs incurred by banks in attracting NRI deposits. The value of the Rupee, which had fallen to almost 70 to the US Dollar, recovered to 66. The stock market celebrated. FIIs turned net buyers on the last two days of the week.

The Finance Minister is trying to reduce the current account deficit by curtailing import of gold, luxury and electronic goods by increasing import duty. However, such a stop-gap measure may be counter productive as it will encourage smuggling. The need of the hour is to promote production and export of quality goods without too many bureaucratic hurdles.

Sensex has managed to re-enter bull territory, which will be clear from the daily bar chart pattern of Sensex below. Nifty hasn’t quite regained bull territory yet, but has retraced more than 50% of its fall from its May ‘13 top of 6229 to its Aug ‘13 low of 5119, by touching an intra-week high of 5689. A retracement of more than 50% often means that the previous trend has been reversed.

BSE Sensex index chart

The Sensex chart shows a spirited fightback by bulls after a successful test of the long-term up-trend line connecting the Dec ‘11 and Jun ‘12 lows. The index is trading above all three EMAs in bull territory. The 50 day EMA had slipped below the 200 day EMA (‘death cross’), which technically confirms a bear market; but it has started to turn up again – as has the 20 day EMA.

The ‘gap’ formed back in Sep ‘12, which was partly filled in Apr ‘13, has been completely filled. Contrary to popular belief, filling of an ‘upward gap’ - formed when the index was moving up - is not bearish. The up move was expected to resume after the ‘gap’ got filled. Can the rally last a bit longer?

Daily technical indicators seem to suggest so. MACD is still negative, but is rising sharply above its signal line. ROC is above its 10 day MA, and about to enter its overbought zone. RSI has climbed above its 50% level. Slow stochastic has just entered its overbought zone. The lack of any significant profit booking before a long weekend is a bullish sign.

NSE Nifty 50 index chart

The weekly bar chart of Nifty rallied strongly, but is facing twin resistance from its 20 week and 50 week EMAs. Note that the 20 week EMA is almost touching the 50 week EMA, but hasn’t crossed below it – keeping the long-term bull market intact. The long-term up-trend line is also intact technically – despite three consecutive intra-week drops below it – because Nifty’s weekly closing level has been above the trend line since Dec ‘11.

Weekly technical indicators are beginning to turn bullish, but haven’t done so yet. MACD has started to rise, but remains below its signal line in negative zone. ROC is also negative, but has managed to cross above its 10 week MA. RSI and Slow stochastic have emerged from their respective oversold zones, but remain below their 50% levels.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have survived strong bull market corrections, and look all set to rise to new highs. It is not expected to be smooth sailing, as bears won’t give up without a fight. The gloom and doom analysts and their talk of much lower levels on both indices will keep investors cautious. That doesn’t mean investment should be avoided. This is a good time to pick fundamentally strong but beaten down stocks with a 2-3 years timeframe.

Gold and Silver charts: bear market rallies face resistance

Gold Chart Pattern

The 6 months daily bar chart pattern of gold shows a strong bear market rally for the past 2 months that took gold’s price above its 20 day and 50 day EMAs, and looked all set to test its falling 200 day EMA. But the rally stalled near the 1425 level for two technical reasons: (i) 1425 was the previous top touched in Jun ‘13 - prices tend to hesitate near a previous top; (ii) on long-term weekly chart (not shown), 1425 was the level of the falling 200 week EMA.

The price break out above the bearish ‘falling wedge’ pattern (mentioned in the previous post) was not accompanied by a volume surge, which is a pre-requisite for a valid break out. The ‘false’ break out was followed by a drop back inside the ‘falling wedge’. On the downside, support can be expected from the rising 20 day and 50 day EMAs. Remember that the bear market has not ended, as gold is trading below both its 200 day and 200 week EMAs.

Daily technical indicators are correcting from overbought conditions. MACD has turned down, though it is still above its signal line in positive territory. RSI has dropped down after a brief sojourn in overbought territory. Slow stochastic is about to slip below its overbought zone, after forming a bearish ‘double-top’ reversal pattern.

If gold’s price falls below its 50 day EMA (currently at 1350), it can fall to much lower levels – even below its Jun ‘13 low of1180. The good news for bulls is that mining companies are reportedly shelving expansion plans due to the 2 years long bear phase. Eventually that will cause a supply-demand mismatch causing gold’s price to rise.

Silver Chart Pattern

The 6 months daily bar chart pattern of silver continued its sharp bear market rally that tested its 200 day EMA, but formed a ‘reversal day’ pattern on strong volumes. Note that on Aug 19 also, a ‘reversal day’ pattern was formed, but volumes were not strong enough to reverse the rally. On longer-term weekly chart (not shown), silver’s price failed to reach its falling 200 week EMA.

Daily technical indicators are correcting from overbought conditions. MACD is reversing from its overbought zone. Both RSI and Slow stochastic formed ‘double-top’ reversal patterns inside their overbought zones and have started to fall. Looks like the bear market rally is over and the down move has resumed.

Silver is in a long-term bear market as it is trading below both its 200 day and 200 week EMAs.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 30, ‘13

S&P 500 Index Chart

The concluding comments in a technical analysis of the daily bar chart pattern of S&P 500 index two weeks back were: “A deeper correction is possible. Partial profit booking may be in order…” The index embarked on a small rally that almost reached the 1670 level but faced resistance from the falling 20 day EMA. It formed a ‘reversal day’ pattern (higher high, lower close), and dropped to the 1630 level.

The index is trying to find a bottom at the 1630 level. The 20 day EMA is ready to cross below the 50 day EMA, and both EMAs are falling. Higher volumes on down days means the bears are in no mood to give up yet. However, the index is trading well above the rising 200 day EMA, so the long-term bull market is intact.

Daily technical indicators are bearish, and not showing any signs of a turnaround yet. MACD is falling below its signal line in negative territory. RSI is moving sideways above its oversold zone. Slow stochastic is inside its oversold zone. More downside is likely.

Q2 GDP was revised upwards from 1.7% to 2.5% – thanks to higher exports of goods and services. Corporate profits are rising despite the slow economic recovery. Initial jobless claims continue to trend down. However, weak consumer spending, and negative growth in housing starts and existing home sales are worrying signs. Wait for the correction to play out.

FTSE 100 Index Chart

Two weeks ago, technical indicators of the daily bar chart pattern of FTSE 100 were looking bearish. A deeper correction was expected. Instead, the index entered a rectangular consolidation pattern between 6400 and 6500. Rectangles tend to be unreliable patterns, which means the break out from the pattern can be in either direction. But they tend to be continuation patterns, so the likely break out is downwards.

Daily technical indicators are bearish. MACD is negative and falling below its signal line. RSI is falling below its 50% level. Slow stochastic is about to re-enter its oversold zone. Wait for the break out to initiate action. Note that the 200 day EMA is still rising and the index is trading above it. The long-term bull market is still intact.

UK’s manufacturing sector is getting new orders, and business is booming at pubs and restaurants. These are encouraging signs of economic recovery.

Bottomline? 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are in the midst of bull market corrections. Wait for the corrections to play out before considering re-entry.