Sensex, Nifty charts (Nov 17, 2017): bulls regaining control

FIIs were net buyers of equity on Tue. (Nov 14) & Fri. (Nov 17), but net sellers on the other three days. DIIs were net sellers of equity on Mon. (Nov 13) and Tue. but net buyers on the other three days.

For the week, FIIs were net buyers of equity worth Rs 27.9 Billion; DIIs were also net buyers of equity worth Rs 29.1 Billion, as per provisional figures. 

Sensex eked out a gain of 28 points while Nifty lost 38 points on a weekly closing basis. More importantly, both indices bounced up from important support levels - helping bulls to regain the initiative.

The initial euphoria of bulls on Fri. - due to the ratings upgrade of India's sovereign bonds by Moody's - appeared to diminish as trading drew to a close.

BSE Sensex index chart pattern

The following comments appeared in last week's post on the daily bar chart pattern of Sensex: "Some more correction towards the top of the downward-sloping channel is a possibility. Note that the 50 day EMA is just above the channel, and should provide additional support."

As expected, the index corrected below its 20 day EMA, but bounced up after finding twin supports from the 50 day EMA and the top of the downward-sloping channel.

By touching a low of 32684 on Wed. Nov 15, the index tested its Aug 2 top of 32686 and retraced 42.5% of its rally from the Sep 28 low of 31082 to the Nov 7 top of 33866. That is a little less than the 50% Fibonacci retracement level used by technical traders as a trend deciding level.

Daily ROC, RSI and Slow stochastic are in bearish zones, but showing signs of upward momentum. MACD is below its signal line in bullish zone, but has stopped falling.

The bull market correction - more of a time-wise correction than a price-wise correction - seems to be over. The index should rise to new highs soon, though India Inc.'s Q2 earnings growth is nothing to write home about.

If you hold fundamentally strong stocks in your portfolio, add to them instead of searching for new ideas near an index top. The 'easy money' in 'cheap' stocks has already been made. 

NSE Nifty index chart pattern

The following comments appeared in last week's post on the weekly bar chart pattern of Nifty: "The index may correct a bit more. Expect strong support from the 'support zone' between 10100 and 9700."

The index bounced up from the 'support zone' to close near its opening level for the week, forming a 'hammer' candlestick pattern with bullish implications. 

Note that the 10100 level, which had acted as a resistance level in Jul '17 and Sep '17 has now turned into a support level.

By touching an intra-week low of 10094, the index retraced 49.4% of its 802.9 points rally - from the low of 9687.55 (week ending Sep 29) to the high of 10490.45 (week ending Nov 10). That is almost equal to the 50% Fibonacci retracement level used by technical traders as a trend deciding level.

The index is trading above its three rising weekly EMAs in a bull market. Weekly technical indicators are looking bullish and overbought. Some consolidation is possible before the index rises to a new high.

Nifty's TTM P/E has slipped further to 26.14, but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is falling in neutral zone and hinting at some index upside.

Bottomline? Sensex and Nifty charts have bounced up from important support levels. The corrections provided adding opportunities. Bulls are regaining control. Stock picking skills will now be tested, so be very choosy about what you buy.

Reality check about Moody's ratings upgrade and Why investors should avoid IPOs

Moody's Ratings Upgrade - a reality check

"Moody's Investors Service upgraded its ratings on India's sovereign bonds for the first time in nearly 14 years on Friday (Nov 17 '17), saying continued progress on economic and institutional reform will boost the country's growth potential.

The agency said it was lifting India's rating to Baa2 from Baa3 and changed its rating outlook to stable from positive as risks to India's credit profile were broadly balanced."

The Finance Minister and various government functionaries wasted no time in appearing on various TV channels to tom-tom the 'achievement' as an endorsement of the NDA government's financial reforms and fiscal prudence by an 'internationally reputed ratings organisation'.

Now, here is the reality check (from a Reuter's article):

"Moody's upgrade, its first since January 2004, moves India's rating to the second lowest level of investment grade. Standard & Poor's has kept India at the lowest investment grade just above junk status for a decade and Fitch Ratings for one year longer."

There is no guarantee that S&P or Fitch will follow Moody's in upgrading India's sovereign bonds ratings. In other words, as of now, two out of three 'internationally reputed ratings organisations' have kept India's sovereign bonds ratings just above junk status.

The ratings upgrade by Moody's is definitely a positive sign - but not a huge deal just yet. Expecting FDI to pour in may be a bit premature. However, FIIs did join DIIs as net buyers of equities on Friday (Nov 17). The rally in the stock market is likely to continue next week. 

Why investors should avoid IPOs

A recent article in bloombergquint.com mentioned that 32 companies have cumulatively raised Rs 50,000 Crores from IPOs so far this year - the highest on record. "Promoters and (existing) shareholders walked away with the bulk of the gains by offloading stakes."

"Shares of 23 of the 32 companies that have gone public this year either declined or gave low returns since the close on the first day of trading." 

20 companies have provided negative returns from the closing level on the first day of listing till Nov 15. 3 companies have gained less than 5%. 5 companies have gained between 10% & 49%. The balance 4 companies - Avenue Supermarts, PSP Projects, Apex Frozen Foods and Shankara Building Products - have gained between 72% & 132%.

If you have been thinking about jumping on to the IPO bandwagon in the hope of making gains on listing, think again. The odds are not in your favour. 

Technical updates – Gayatri Projects and IRB Infrastructure

With the economy showing signs of settling down after absorbing the double-whammy of demonetisation and GST implementation, focus of investors and analysts is shifting towards the neglected infrastructure sector once again.

Fortunes of shareholders of two companies from the construction sector - Gayatri Projects and IRB Infrastructure - have taken divergent paths. The stock of Gayatri Projects has gained 47% in the past two years, while the stock of IRB Infra has lost 7%.

On the financial front, Gayatri Projects has a debt/equity ratio of 2.22 and its financial expenses are 200% higher than its net profit. IRB Infra has a lower debt/equity ratio of 1.23 and its financial expenses are 50% higher than its net profit.

Gayatri Projects is trading at a P/E of 9.2. IRB Infra is trading at a four times higher P/E of 39.9. 

Gayatri Projects

The closing stock price of Gayatri Projects formed a 'triple bottom' reversal pattern below its three EMAs during Feb '16 and May '16. That triggered a price recovery that faced strong resistance from its Nov '15 top of 151.50.

A breakout with good volume support above 151.50 on Apr 17 '17 failed to sustain above the resistance level. Another breakout on Jun 5 '17 managed to keep the stock price above the resistance level, which was subsequently tested on Jul 5 '17 and Aug 10 '17 and turned into a support level.

The stock rose to touch a new high of 201.75 on Nov 16 '17 (note that the stock's face value was split from Rs 10 to Rs 2 in Feb '17). Daily technical indicators are looking bullish but showing negative divergences by failing to touch new highs with the stock's price.

Some correction or consolidation may occur. For the past two months, bulls are buying every dip, so corrections have been shallow.

IRB Infrastructure

The closing stock price chart of IRB Infrastructure has frustrated long-term investors but given plenty of opportunities to short-term traders. The chart shows three bearish phases and three bullish phases during the past two years.

Light blue ovals have marked every crossing of the 50 day EMA below (death cross) or above (golden cross) the 200 day EMA. The 200 day EMA itself has meandered sideways for the past two years - giving no advantage to bulls or bears.

Daily technical indicators are looking bearish after correcting overbought conditions. The stock price touched a higher bottom of 200.60 on Aug 10 '17, and may attempt to rise past its May 2 '17 top of 266.80.

(If you wish to enter either of these stocks, or any other stocks from the construction sector, you are on your own. The sector typically has high debt and uneven cash flows and profits.)

Nifty chart: a midweek technical update (Nov 15 ‘17)

FIIs and DIIs were both net buyers of equity during the first three days of trading this week - worth Rs 19.6 Billion and Rs 6 Billion respectively as per provisional figures. Still Nifty lost 204 points (almost 2%).

Interestingly, FIIs were net sellers on Mon. (Nov 13) & Wed. (Nov 15), while DIIs were net sellers on Mon. & Tue. (Nov 14).

Inflation is inching up again because of higher food and fuel prices. CPI rose to 3.58% - a 7 months high - in Oct '17 against 3.28% in Sep '17. WPI rose to 3.59% - a 6 months high - in Oct '17 against 2.6% in Sep '17. RBI is likely to maintain status quo on interest rates.

Exports declined 1.12% to US $23 Billion while imports grew 7.6% to US $37.1 Billion in Oct '17. The trade deficit widened to $14.1 Billion from $11.1 Billion in Oct '16.

The daily bar chart pattern of Nifty continued its correction from the Nov 6 top of 10490. The index has fallen below its 20 day and 50 day EMAs and is near the lower edge of the 'support/resistance zone' between 10100 & 10200.

Bullish hopes of an intermediate bottom formation have been raised because the index touched an intra-day low of 10094 today - retracing almost 50% of its entire 802 points rally from the Sep 28 low of 9688. (The 50% Fibonacci retracement level is treated by many technical traders as a trend deciding level.)

The facts that two small upward 'gaps' formed on Oct 13 & 25 have been filled and the 10100 level wasn't breached on a closing basis have improved the chances of a recovery by the index.

Daily technical indicators are looking bearish and showing strong downward momentum. MACD is falling below its signal line in bullish zone. RSI is falling below its 50% level. Slow stochastic is well inside its oversold zone, and may trigger a pullback.

Nifty's TTM P/E has moved down to 25.72 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply in its neutral zone and looks ready to enter its oversold zone. That may limit index downside.

The index is trading well above its rising 200 day EMA in a bull market, and has corrected less than 4% from its Nov 6 top. Many fundamentally sound stocks have corrected much more because their Q2 (Sep '17) results disappointed the market. Those are the ones to put on a 'buy list'.

Investors would do well to remain circumspect. If the 10100 level gets breached - and the possibility can't be ruled out entirely - the index can fall another 100 points, where support from the 61.8% Fibonacci retracement level may kick in. A fall below 10000 can drop the index to 9700 (its previous support level in Aug '17 & Sep '17).

Gold and Silver charts: battle between bulls and bears reach a stalemate

Gold chart pattern

The following comments appeared in the previous post on the daily bar chart pattern of Gold: "Another test of support from the 200 day EMA seems on the cards. A possible breach of the 200 day EMA can drop gold's price to the zone between 1240 & 1250."

There were several tests of support, and even a few intra-day breaches of the 200 day EMA between Oct 26 and Nov 6. However, bulls put up a good fight as gold's price failed to close below the 200 day EMA even for a single day.

Technically, the 200 day EMA did not get breached, giving bulls the upper hand. On Nov 9, gold's price rose above its 20 day and 50 day EMAs to touch a lower top of 1289.50. Bears used the 'sell on rise' strategy, and are not showing any signs of giving up. 

Daily technical indicators are sending mixed signals - which is often the case during periods of consolidation. MACD is above its signal line - moving sideways in bearish zone. RSI is also in bearish zone - just below its 50% level. Slow stochastic is in bullish zone, but showing downward momentum.

On longer term weekly chart (not shown), gold’s price closed below its 20 week EMA but above its 50 week and 200 week EMAs in long-term bull territory.  Weekly MACD and Slow stochastic are looking bearish and showing downward momentum. RSI is in neutral zone.

Silver chart pattern

The following comments appeared in the previous post on the daily bar chart pattern of Silver: "It (silver's price) has been oscillating about its three EMAs, which have converged together. A sharp move is likely to follow. Odds are better for a downward move."

On Oct 27, the expected downward move touched a higher intra-day low of 16.62 and bounced up above its three EMAs. Bears used the 'sell on rise' strategy, pushing down silver's price below its 200 day EMA and gaining a slight advantage.

For the past 5 weeks, silver's price has been consolidating sideways within a 'symmetrical triangle' pattern, from which a breakout can occur upwards or downwards.

Since silver's price entered the 'triangle' after a corrective move, the likelihood of a downward breakout is greater. However, it may be prudent to wait for the breakout before deciding to buy or sell.

Daily technical indicators are giving conflicting signals. MACD has merged with its signal line and is moving sideways in bearish zone. RSI is at its neutral zone. Slow stochastic is falling towards its 50% level.

On longer term weekly chart (not shown), silver’s price closed between its 20 week and 50 week EMAs, and below its sliding 200 week EMA in a long-term bear market. Weekly MACD and RSI are in neutral zones. Slow stochastic is in bearish zone.

S&P 500 and FTSE 100 charts (Nov 10 '17): bears stall bull rallies

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 touched another new high of 2597 on Tue. Nov 7, but formed a small 'reversal day' pattern (higher high, slightly lower close).

Negative divergences on daily technical indicators triggered a correction below a bearish 'rising wedge' pattern (the possibility was mentioned in last week's post) that dropped the index below its 20 day EMA and the 2570 level intra-day on Nov 9. 

The index pulled back to close at the lower edge of the 'wedge' - forming a bearish 'hanging man' candlestick pattern. The stock closed the week below the 'wedge' but above its three EMAs and the 2580 level, losing just 5 points (0.2%) for the week.

Daily technical indicators are showing downward momentum in bullish zones. Some more correction is possible. Bulls have been 'buying the dips' - so the advantage remains with them.

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market, but formed a weekly 'reversal bar' (higher high, lower close). Weekly technical indicators are showing signs of correcting from their respective overbought zones. 

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 touched a 5 months high of 7583 on Tue. Nov 7 but formed a 'reversal day' bar (higher high, lower close) that triggered a sharp correction.

Negative divergences visible on the daily technical indicators (which touched lower tops while the index rose higher) helped the cause of bears. The index closed below its 20 day and 50 day EMAs and the (purple) down trend line - losing 1.7% for the week.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. RSI and Slow stochastic are falling in bearish zones. Some more correction is likely.

The index is trading above its rising 200 day EMA. That means the bull market is intact despite the correction.

On longer term weekly chart (not shown), the index received support from its 20 week EMA and closed above its 50 week and 200 week EMAs in a long-term bull market. Weekly MACD and Slow stochastic are showing downward momentum in bullish zones. Weeky RSI is seeking support from its 50% level.

Sensex, Nifty charts (Nov 10, 2017): bears make their presence felt

FIIs were net sellers of equity worth Rs 40.4 Billion during the week; DIIs were net buyers of equity worth Rs 28.8 Billion, as per provisional figures. Their roles were reversed during the first two days of the week, as FIIs were net buyers of equity while DIIs turned net sellers.

Sensex and Nifty touched new highs but faced profit booking and closed lower for the week - by 1.1% and 1.25% respectively. Some more correction can't be ruled out.

Continuing impact of demonetisation and GST slowed industrial growth in Sep '17. The IIP number was 3.8% against 4.5% (revised from 4.3%) in Aug '17 and 5.7% in Sep '16. For the Apr-Sep '17 period, IIP was down 11.7% from the same period last year.

BSE Sensex index chart pattern

The following remarks were made in last week's post on the daily bar chart pattern of Sensex: "...negative divergences in three of the four indicators should be treated as a warning sign. A pullback towards the top of the sideways consolidation channel is a possibility."

The index touched a new high of 33866 on Tue. Nov 7, but formed a 'reversal day' bar (higher high, lower close) that triggered a correction. The 20 day EMA is providing good support, raising bullish hopes of a shallow correction. 

Daily technical indicators have dropped from their overbought zones. MACD has crossed below its signal line. ROC formed a 'triple top' reversal pattern and crossed below its 10 day MA. RSI slipped down from its overbought zone but is trying to re-enter it. Slow stochastic is falling towards its 50% level.

Some more correction towards the top of the downward-sloping channel is a possibility. Note that the 50 day EMA is just above the channel, and should provide additional support.

The index is trading above its three rising EMAs in a bull market. The correction is providing an adding opportunity.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new intra-week high (10490) but formed a 'reversal bar' (higher high, lower close) that often signals an intermediate top.

The index is trading above its three rising weekly EMAs in a bull market. Weekly MACD and Slow stochastic are moving sideways inside their respective overbought zones. ROC and RSI are sliding down in bullish zones.

The index may correct a bit more. Expect strong support from the 'support zone' between 10100 and 9700. The rising 20 week EMA is inside the 'support zone' and should provide additional support.

Nifty's TTM P/E has slipped down to 26.35, but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is poised to re-enter its overbought zone and can limit immediate upside.

GST on several items have been brought down from the highest slab rate of 28%. That may lead to some buoyancy in the index next week.

Bottomline? Sensex and Nifty charts show the effects of profit booking after touching new highs again. The corrections are expected to be shallow, and can be used as adding opportunities. But don't bet the farm.