Technical updates – Exide and Hero Moto

The automobile industry has been going through a period of transition and upheaval due to the overall economic slowdown. Lower oil prices have helped the industry. But withdrawal of excise duty concessions haven’t.

Commercial vehicle sales have just started to improve after a prolonged slump. Passenger vehicle sales are struggling. Even 2-wheelers (Royal Enfield aside) are troubled by poor rural sales.

It is no surprise that the 2 years closing charts of Exide and Hero Moto are reflecting the challenges being faced by the auto industry.

Exide

Exide’s stock touched a 2 years closing low of 100 in Jan 2014, before embarking on a strong bull phase that took the stock to a 2 years closing high of 198.70 in Jan 2015 – almost doubling in a year.

The stock has been in a correction since then, dropping to a closing low of 141.90 on Jun 12 ‘15 – retracing almost 58% of its bull rally and falling into bear territory.

The stock price has bounced up from the 142 level, but is trading below all its three EMAs. The ‘death cross’ (marked by light blue oval) of the 50 day EMA below the 200 day EMA has technically confirmed a bear market, but the bear phase may not last long.

Technical indicators are turning bearish, which can lead to a test of support from the 142 level. Exide is a market leader. The dip can be used to add, with a stop-loss at 138.

Hero Moto

The stock price of Hero Moto formed a bearish ‘inverted saucer’ pattern from July 2013 to Feb 2014 and closed briefly below all three EMAs in bear territory.

Bulls used the dip to rally strongly. The stock price soared to a 2 years closing high of 3258 on Dec 1 ‘14 – gaining almost 70% from its Feb ‘14 low.

The subsequent correction dropped the stock price below all three EMAs into bear territory. The stock formed a ‘double bottom’ reversal pattern at 2300 and has closed above its three EMAs in bull territory.

All four technical indicators are in bullish zones, but showing negative divergences by touching lower tops (marked by blue arrows). The stock price may correct a bit before resuming its up move.

Nifty chart: a mid-week update (Jul 22 ‘15)

Greece’s debt problem has been temporarily resolved. Iran’s nuclear deal has brought forth mixed global reactions. Gold and oil prices are down again. These are all positive news for the Indian market.

All eyes are now on Q1 (Jun ‘15) results. Infosys positively surprised the market. Asian Paints and HUL declared in-line results. Sun Pharma projected weak numbers and its stock price collapsed.

FIIs are in buying mood again. As per provisional figures, their net buying in equity has touched Rs 3600 Crores in July. DIIs have been net sellers of equity worth Rs 2250 Crores.

The daily bar chart pattern of Nifty has been in an up trend since touching a low of 7940 on Jun 12 ‘15. By touching an intra-day high of 8647 on Jul 21 ‘15, the index has retraced 60% of its fall from the Mar 4 ‘15 top of 9119.

The retracement is close to the 61.8% Fibonacci retracement level (of 8670) – which is the ‘Lakshman rekha’ for a trend reversal. In other words, if Nifty crosses above 8670 with good volume support, bears may pack their bags and go for a vacation.

Note how bears are trying their best to defend the 8630 level, which is the upper boundary of the ‘support-resistance zone’. They know that once 8630 level gets breached, bulls will get encouraged to take the index past 8670.

Are Fibonacci level’s sacrosanct? The answer is: No. Why? Because price charts don’t understand arithmetic. Only technical analysts know the significance of Fibonacci levels, and they tend to buy/sell near those levels.

So, don’t be surprised if the index reaches 8670 and then drops down again. Specially, if volume support is lacking. Note that volumes have remained more or less flat during the up trend from the Jun 12 low of 7940.

Also, recent down days have taller volume bars than those on up days. That is an indication of strong bear presence.

Good news for bulls is that the index tested support from the up trend line for the second time and bounced up. Successful tests of support tends to strengthen a trend line.

Technical indicators are in bullish zones, and showing some upward momentum. All three EMAs are rising, and Nifty is trading above them in a bull market.

Battle lines are clearly drawn. It will be interesting to see who gets the upper hand – retreating bears or charging bulls.

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.

BSE Sensex and NSE Nifty 50 index chart patterns – Jul 17, 2015

FIIs have turned positive about the Indian market again. Their net buying in equities crossed Rs 2500 Crores during the past week, as per provisional figures. DIIs were net sellers of equity worth Rs 625 Crores.

Merchandise exports during Jun ‘15 slumped for the 7th month in a row, touching $22.29 Billion against $22.34 Billion in May ‘15 and almost 16% lower than in Jun ‘14. Imports also contracted – which is a sign of slower economic activity.

After widespread rains in Jun ‘15, the monsoon has been deficient during Jul ‘15. A few positive surprises aside, Q1 (Jun ‘15) results are continuing to disappoint. That may put a lid on bullish exuberance.

BSE Sensex index chart

The daily bar chart pattern of Sensex has been in an up trend for the past 5 weeks, which has reversed the down trend from the lifetime high of 30025 touched on Mar 4 ‘15.

All three EMAs have resumed their up moves, and the index has closed well above them at its highest level in 3 months. However, bears are refusing to throw in the towel.

The four technical indicators are in bullish zones, but are showing negative divergences by touching lower tops (marked by blue arrows) while Sensex touched a 3 months high.

Expect a correction towards the blue up trend line. Note that the up trend itself may be under a cloud. Why?

Firstly, the trend line appears a bit too steep. Steep trend lines often get breached easily. Secondly, the up trend may have formed a ‘rising wedge’ pattern, which has bearish implications.

Sensex is rising towards the upper boundary of the ‘support-resistance zone’ between 27350 and 28800. Bears are likely to put up a fight to defend the 28800 level.

The long-term trend remains bullish. Stay invested. Wait for a likely dip to add/buy.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty has extricated itself from a strong 4 months long bear hug, but bulls haven’t quite regained full control.

The index is facing resistance from the upper edge of the ‘support-resistance zone’ between 8180 and 8630. Also, higher volumes during recent down weeks is a sign of active bear presence.

Weekly technical indicators are turning bullish. MACD has entered positive zone and is touching its falling signal line. ROC has moved up to the edge of its overbought zone. Slow stochastic has climbed above its 50% level. RSI is looking a bit bearish by moving sideways below its 50% level.

Nifty is trading above its two weekly EMAs in a bull market. Bears are likely to remain active as long as the index trades below its lifetime Mar ‘15 high of 9119.

Bottomline? The bar chart patterns of Sensex and Nifty have been in 5 weeks long up trends, and look poised to touch new highs in the not-too-distant future. The upward path may not be smooth because of technical potholes and ditches. Long-term trends are bullish, so dips can be used to add.

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Nifty chart: a mid-week update (Jul 15 ‘15)

CPI inflation touched a 9 months high of 5.4% in Jun ‘15 - thanks to higher food prices. In May ‘15, CPI number was at 5.01%. In Jun ‘14, it was much higher at 6.77%.

WPI inflation remained flat at –2.4%, but the rising CPI number justified RBI Governor’s hawkish stance on not reducing interest rates further.

Narendra Modi’s ‘Make in India’ clarion call is beginning to show some traction. Mahindra group has signed a deal with AirBus for jointly manufacturing military helicopters. Tata group has signed an agreement with Boeing for jointly manufacturing drones and other products.

As per provisional figures till Jul 14 ‘15, FIIs have been net buyers of equity worth Rs 900 Crores, while DIIs have been net sellers of equity worth Rs 870 Crores. Nifty has broken out of its 4 months long down trend, and is consolidating before moving higher.

The following comment appeared in last week’s post on the daily bar chart pattern of Nifty: “Some more correction, and a drop below the trend line, may be on the cards but bulls can be expected to fight back soon.”

Nifty pulled back to the down trend line, but bounced up after receiving good support – providing an entry opportunity to those who did not (or could not) buy during the earlier break out above the down trend line.

All three EMAs are rising again, and Nifty is trading above them. Bulls are regaining control, but still have some work to do. The index is consolidating within the ‘support-resistance zone’ between 8180 and 8630. A convincing move above 8630 will restore full control to bulls.

Three of the four daily technical indicators are turning bullish again. MACD has started moving up after touching its signal line in positive zone. RSI has bounced up from its 50% level. Slow stochastic is climbing towards its overbought zone. Only ROC is looking bearish by sliding below its falling 10 day MA in positive zone.

Higher volumes on recent down days indicate that bears are still active – and may continue to remain so during Q1 (Jun ‘15) results season.

International concerns have been taken in its stride by Nifty. Some reports suggest a slowdown in monsoon progress across certain parts of the country.

Price fluctuations are part and parcel of the stock market environment. Be cautious, but not afraid.

Increasing the lot size of derivative contracts from Rs 2 Lakh to Rs 5 Lakh is a good move by SEBI. It should deter small investors from burning their hands in F&O trading.

Nifty may be in the midst of forming a bullish cup-and-handle pattern, which can take another 2-3 months to complete. If the pattern does play out (and there is no certainty that it will), the index will have a minimum upward target of 10300 by the end of this year.

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WTI and Brent Crude Oil charts: downward ‘gaps’ extinguish bullish hopes

WTI Crude chart

The daily bar chart pattern of WTI Crude had been consolidating sideways during May and Jun ‘15, raising bullish hopes of an upward break out.

A resolution of Greece’s debt problems – though delayed – led to a drop from the consolidation zone between 57 and 62 with a downward ‘gap’.

The ‘gap’ is likely to act as a resistance zone to future up moves. Even if the ‘gap’ gets filled – fully or partly – the down move is expected to resume thereafter.

Daily technical indicators are looking bearish and a bit oversold. MACD is falling below its signal line in negative zone. RSI is at the edge of its oversold zone. Slow stochastic is trying to emerge from its oversold zone.

A nuclear deal with Iran concluded today after protracted negotiations. With economic sanctions likely to be removed soon, Iranian oil supply is going to put downward pressure on prices in an already oversupplied market.

On longer term weekly chart (not shown), oil’s price dropped below its 20 week EMA with a downward ‘gap’, and is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones and showing downward momentum.

Brent Crude chart

The daily bar chart pattern of Brent Crude oil had been consolidating sideways with a downward bias during May and Jun ‘15 within a ‘falling wedge’ pattern which usually has bullish implications.

A resolution of Greece’s debt problem caused a drop from the pattern with a downward ‘gap’ on Jul 6 ‘15 that extinguished all bullish hopes.

Note that an earlier downward ‘gap’ on the chart – formed back in Nov ‘14 – remains unfilled till date. Such ‘gap’s tend to act as resistance zones to future up moves.

The Iranian nuclear deal announced today will be followed by removal of economic sanctions. Iranian oil supply will add to the existing glut in the oil market.

Daily technical indicators are in bearish zones but not showing any signs of upward momentum.

On longer term weekly chart (not shown), oil’s price formed a downward ‘gap’ below its 20 week EMA and is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones and showing downward momentum.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jul 10, 2015

S&P 500 Index Chart

The daily bar chart pattern of S&P 500 tested support from its 200 day EMA, and even closed for a day below it (for the first time since Oct ‘14) before bouncing up. At the time of writing this post, the index is trading above its three EMAs in bull territory.

Is the correction from the small ‘double top’ at 2134 (touched on May 20 & 21 ‘15) over? Not just yet.

The Greece debt problem has been swept under the carpet for the time being. China’s state intervention has averted a stock market crash. Less than impressive growth in USA means interest rates are unlikely to be raised in the near term.

That is enough impetus for bulls to fight back. Daily technical indicators are showing signs of upward momentum. RSI has managed to cross above its 50% level into bullish zone. MACD and Slow stochastic remain in bearish zones.

Sliding volumes during the recent bounce up doesn’t augur well for bulls. Without volume support, the rally may fizzle out. A convincing move above 2130 is required for the index to negate the bearish pattern of ‘lower tops and lower bottoms’.

On longer term weekly chart (not shown), the index dropped below its 20 week EMA but bounced up after receiving good support from its 50 week EMA, and is trading well above its rising 200 week EMA in a long- term bull market.

Weekly technical are looking a little bearish. MACD is falling below its signal line in positive zone. RSI is seeking support from its 50% level. Slow stochastic has dropped below its 50% level. Strong volumes on down weeks is an indication that bears remain active.

FTSE 100 Index Chart

The following comment appeared in the previous post on the daily bar chart pattern of FTSE 100: “A last-minute resolution of Greek’s sovereign debt problems may act as a positive trigger for bulls.”

The Greek debt resolution took longer than expected – long enough for the index to plunge below 6450 deep inside bear territory.

Expectations of a solution led to a smart upward bounce, and a pullback towards the 200 day EMA. Note that the 50 day EMA has crossed below the 200 day EMA. However, the ‘death cross’ that technically confirms a bear market hasn’t been a convincing cross yet.

That may encourage bulls to continue the rally. Sliding volumes (not shown on chart) during last week’s bounce is an indication that the index may not be able to overcome overhead resistances from the 50 day and 200 day EMAs.

Daily technical indicators are showing upward momentum. MACD has crossed above its signal line in negative zone. RSI and Slow stochastic have moved up to their respective 50% levels.

On longer term weekly chart (not shown), the index dropped sharply below its 50 week EMA and tested support from its rising 200 week EMA before bouncing up, and technically remains in a long-term bull market. Weekly technical indicators are in bearish zones.