Nifty chart: a midweek update (Dec 16 ‘15)

As the calendar year 2015 draws to a close, selling by FIIs is tapering down. Their net selling in equity just about crossed Rs 600 Crores during the first three days of trading this week, as per provisional figures.

DIIs continued their bullish stance, and were net buyers of equity worth nearly Rs 1700 Crores. That helped Nifty to jump up to its falling 20 day EMA.

The macroeconomic outlook remains weak. WPI inflation crept up, but remained negative. CPI moved above 5% - thanks to higher food prices.

Exports fell 24% in Nov '15 - its 12th straight month of degrowth. Imports fell more than 30%, which reduced the trade deficit for the Apr-Nov '15 period to $87.5 Billion from $102.5 Billion in the same period in 2014.

The daily bar chart pattern of Nifty bounced up smartly after testing its Sep '15 low of 7540, but is facing resistance from its falling 20 day EMA.

Has the index formed a 'double bottom' reversal pattern - ending the 9 months long down trend? It's too soon to call. Why? Because a 'double bottom' needs technical confirmation - which will require the index to cross above its Oct '15 top of 8336.

That means the index needs to overcome resistances from its 3 falling EMAs, and climb almost 600 points from its current level. Not impossible, but bears may make it a difficult task.

That's the bad news. The good news is that all three technical indicators have also formed 'double bottom' patterns, which is a bullish sign.

MACD is about to cross above its signal line in negative zone. RSI bounced up after receiving support from the edge of its oversold zone. Slow stochastic has emerged strongly from its oversold zone.

The long-term bull market remains intact. The 200 week EMA (not shown on chart) is still rising, and Nifty is trading almost 700 points above it. However, weekly technical indicators aren't showing any upward momentum.

Identify fundamentally strong stocks, and accumulate them gradually.

Gold and Silver charts: an update

Gold chart pattern

The following remarks were made in the previous post on the daily bar chart pattern of gold: "The fall during Nov ‘15 has been a bit steep. That can lead to a short covering rally."

Gold's price dropped below 1050 intra-day on Dec 3, and bounced up sharply on strong volumes to close above its falling 20 day EMA the next day. Bears quickly smothered the rally.

Despite a couple of intra-day moves above the 20 day EMA, gold's price resumed its downward slide to close just below the 1060 level.

Daily technical indicators are looking bearish, and showing downward momentum. Fears of an interest rate hike by the US Fed had caused huge selling in Oct and Nov '15. It will be interesting to see what happens if the Fed does increase the interest rate.

On longer term weekly chart (not shown), gold’s price is trading well below its three weekly EMAs in a long-term bear market. MACD is falling below its signal line in negative zone. RSI is falling below its 50% level. Slow stochastic is trying to emerge from its oversold zone.

Silver chart pattern

After touching an intra-day low of 13.80 on Dec 3, the daily bar chart pattern of silver bounced up to close above its 20 day EMA on the following day. On Dec 7, silver's price crossed above the 14.60 level intra-day but faced resistance from its falling 50 day EMA.

It formed a 'reversal day' pattern (higher high, lower close) that ended the brief rally. Silver's price touched a new intra-day low of 13.60 on Dec 14.

Daily technical indicators are in bearish zones and looking oversold. However, they are showing positive divergences by not falling to new lows. Another technical bounce is possible.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMA in a long-term bear market. MACD is sliding down below its signal line in negative zone. RSI is moving down below its 50% level. Slow stochastic is inside its oversold zone.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 11, 2015

S&P 500 Index Chart

The following comments appeared in last week's post on the daily bar chart pattern of S&P 500: "The entire trading since the beginning of Nov ‘15 has been a sideways consolidation within a ‘symmetrical triangle’ pattern, from which a break out can occur at any time. Since triangles tend to be continuation patterns, the break out is expected to be upwards. But triangles are unreliable – so one should wait for the break out before initiating a buy/sell action."

The index broke down below the triangle on the last day of the week, and dropped below all three EMAs into bear territory. A bearish pattern of lower tops and lower bottoms has been formed.

Strong volumes on 4 of the 5 down days last week clearly show bear domination. All three daily technical indicators are in bearish zones, and showing downward momentum - hinting at a deeper correction.

Is the index getting ready to enter another bear phase? It may be a bit early to call, as the technical pattern is still evolving. If the index bounces up strongly from its current level - like it did in mid-Nov '15 - there is a possibility of formation of a bullish 'flag' pattern. 

On longer term weekly chart (not shown), the index closed below its 20 week and 50 week EMAs, but well above its 200 week EMA in a long-term bull market. Weekly technical indicators are turning bearish.

FTSE 100 Index Chart

The daily bar chart pattern of FTSE 100 closed lower on all 5 trading days last week, and dropped below the 6000 level - losing 4.5% on a weekly closing basis. All three EMAs are moving down and the index is trading well below them in a bear market.

Daily technical indicators are in their oversold zones, which can lead to a technical bounce at any time. But it should not be used as a bottom-fishing opportunity. Why? Because there is no sign of a bottom formation as yet.

On longer term weekly chart (not shown), the index stayed below all three weekly EMAs during the week. Weekly technical indicators have turned bearish. The ‘death cross’ of the 50 week EMA below the 200 week EMA will technically confirm a long-term bear market. 

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 11, 2015

Net selling in equities by FIIs tapered down during the past week, but exceeded Rs 1400 Crores, as per provisional figures. DIIs’ net buying touched Rs 2100 Crores. Yet, Sensex and Nifty lost about 2.2% on weekly closing basis.

The IIP number for Oct ‘15 shot up to a 5 year high of 9.8% – albeit on a lower base. The Oct ‘14 figure was –2.7%. For the Apr-Oct ‘15 period, IIP was 4.8% compared with 2.2% in the same 7 months during the previous year.

Domestic passenger vehicle sales rose more than 10% during Nov ‘15 – aided by festive season sales. It was the 13th consecutive month of growth in sales.

The stock market won’t be able to ignore such good news much longer. Both Sensex and Nifty are near long-term support levels. Bulls may get encouraged to put up a fight.

BSE Sensex index chart

The daily closing chart pattern of Sensex tested the Sep ‘15 intra-day low of 24834 (marked by dotted horizontal line), but bounced up to close above the 25000 level.

Note that the Sep ‘15 closing low of 24894 was also tested on a closing basis (as mentioned in last week’s post), but not breached.

The blue down trend line continues to dominate the chart. All three EMAs are falling, and Sensex is trading below them in bear territory.

A convincing breach of the 24834 level can cause a sharp drop to the 150 points ‘gap’ formed on the chart in May ‘14 due to the NDA election victory euphoria.

All four daily technical indicators are looking bearish, and oversold. None of the four have fallen lower than their Nov ‘15 lows – unlike the index. The positive divergences may have set the stage for a technical bounce.

Will it be just a short-covering bounce? Or, will the index form a ‘double bottom’ reversal pattern and resume its up trend?

The answer to the first question is: ‘Yes – as per current technical set-up’. Only if FIIs resume buying of index stocks –  unlikely before the beginning of the New Year – can the second question be answered in the affirmative.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty closed lower for the 2nd straight week due to selling in index stocks by FIIs. The Sep ‘15 low of 7540 – which also happens to be a longer-term support/resistance level – was tested.

The index continues to trade below the blue down trend line and its two weekly EMAs in bear territory. If the 7540 level gets breached convincingly, Nifty can fall another 10%.

Weekly technical indicators are in bearish zones. MACD and ROC are showing downward momentum. Slow stochastic is moving sideways with a downward bias.

RSI is showing positive divergence by rising during the past four weeks, while the index has fallen lower. That may provide bulls with enough incentive to fight back.

Bottomline? Chart patterns of Sensex and Nifty have dropped to long-term support levels. Long-term bull markets are intact because both indices are trading above their respective 200 week EMAs (not shown in above charts). Prolonged corrections test the patience and mettle of small investors. Those who have the courage to swim against the tide will make bigger gains. But do wear a life jacket (i.e. keep suitable stop-loss levels).

When To Sell Stocks

Anecdotal evidence - from occasionally watching business TV channels – shows that many small investors get attracted to the market when stock prices are rising.

They end up buying stocks at comparatively high prices. When a bear phase starts and stock prices start plummeting, they compound their problems by ‘averaging down’.

When stock prices fall even more, small investors panic and sell at a big loss. The emotional upheaval and loss of self esteem often turn them away from the stock market forever.

The moral of the story? It is important to choose stocks carefully, and buy them at a fair price. It is more important to know when to sell. Your investing success depends on it.

Remember that buying – even at a significant discount to the intrinsic value of a stock – doesn’t make anyone any money. You only make a profit (or loss) when you sell.

The fear of making a loss, and irrational behaviour (viz. thinking that by not selling a falling stock you are not incurring an actual loss) leads to even bigger losses.

In a recent article at investopedia.com, the reasons for selling a stock have been explained. Small investors – even experienced ones – may find the article interesting.

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Nifty chart: a midweek update (Dec 09 ‘15)

FIIs remain bearish on emerging markets. Their net selling in equities during this week crossed Rs 1100 Crores, as per provisional figures. For the first 7 trading days in Dec ‘15, their net selling has exceeded Rs 3500 Crores.

DIIs have been bullish. Their net buying in equities this week was Rs 1400 Crores, but failed to prevent Nifty from seeking lower levels. Their net buying in Dec ‘15 so far has been Rs 3100 Crores.

Why are FIIs on such a selling spree? Several reasons can be attributed. Appreciation of the US Dollar against the Rupee; likely interest rate hike in the US later this month; withdrawal of sovereign Middle East funds because of falling oil prices.

The daily bar chart pattern of Nifty closed lower for the 6th day in a row, after facing strong resistance from its falling 50 day EMA.

All three EMAs are falling, and the index is trading below them in a bear market. The Sep 8 low of 7540 is in danger of being tested, and even breached.

The blue down trend line continues to dominate Nifty’s chart.

Daily technical indicators are in bearish zones, but only Slow stochastic has entered its oversold zone. Some more correction is possible.

Note that three of the four indicators – MACD, ROC, RSI – are showing positive divergences by touching higher lows (marked by blue arrows).

A technical bounce can occur at any time. Will that lead to a reversal of the 9 months long down trend soon? Doesn’t seem so.

FII selling negated the ‘inverse head and shoulders’ reversal pattern that formed during Aug-Sep ‘15. There is no indication of a bottom formation as yet.

The long-term bull market is intact. The 200 week EMA (not shown on chart) is still rising, and Nifty is trading more than 550 points above it.

Many small investors have shown maturity – as evidenced by the steady inflows into mutual funds.

Many good mid-cap and small-cap stocks are facing selling pressure. This may be a good time to utilise your stock picking skills.

WTI and Brent Crude Oil charts: fall to 7 year lows

WTI Crude chart

The following comments appeared in the previous post on the daily bar chart pattern of WTI Crude oil:

“Another attempt at a rally may be in progress – thanks to the continued turmoil in the Middle East. A glut in global supply is likely to play spoil sport.”

Oil’s price briefly crossed above the 43 level but failed to overcome strong resistance from its falling 20 day EMA.

After drifting down and finding some support at the 40 level, oil’s price crashed on strong volumes to close below 38 – a level not seen since early 2009.

Daily technical indicators are bearish and looking oversold. MACD is falling below its signal line in negative zone. RSI is seeking support from the edge of its oversold zone.

Slow stochastic has slipped inside its oversold zone, but showing positive divergence by touching a higher bottom. That doesn’t mean oil’s price won’t fall even lower.

On longer term weekly chart (not shown), oil’s price is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are bearish and looking oversold.

Brent Crude chart

The following comments appeared in the previous post on the daily bar chart pattern of Brent Crude oil:

“Oil’s price is yet to cross above its falling 20 day EMA, and is trading below its three EMAs in a bear market. Any rally may be short-lived.”

Oil’s price managed to cross above the 46 level two days in a row, but could not overcome resistance from its falling 20 day EMA and dropped to close below the 41 level.

All three daily technical indicators are in bearish zones and looking oversold, but Slow stochastic is showing positive divergence by touching a higher bottom.

On longer term weekly chart (not shown), oil’s price is trading well below its three weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones, and looking oversold.