"There are two prices that are critical for any investor to know: the current price of the investment he or she owns, or plans to own, and its future selling price. Despite this, investors are constantly reviewing past pricing history and using it to influence their future investment decisions.
Some investors won't buy a stock or index that has risen too sharply, because they assume it's due for a correction, while other investors avoid a falling stock because they fear it will continue to deteriorate.
Does academic evidence support these types of predictions, based on recent pricing? In this article, we'll look at four different views of the market and learn more about the associated academic research that supports each view. The conclusions will help you better understand how the market functions, and perhaps eliminate some of your own biases."
Read more here.
FIIs were net buyers of equity on Mon. May 14, but net sellers on the next two days. Their total net selling was worth Rs 5 Billion. DIIs were net buyers of equity on all three days this week. Their total net buying was worth Rs 14.5 Billion, as per provisional figures.
Inflation is inching up again. India's CPI inflation in Apr '18 moved up to 4.58% from 4.28% in Mar '18. Core inflation - comprising non-food and non-fuel components - hit a 34 months high of 6%.
India's WPI inflation touched a 4 months high of 3.18% in Apr '18 against 2.47% in Mar '18 due to higher fuel and vegetable prices. Any further rise may force RBI's hand in increasing interest rates.
The following comments were made in last week's update on the daily bar chart pattern of Nifty: "The interesting pattern to observe is that the index has failed to close above the trend line despite intra-day upward breaches on Mon. & Tue. (May 7 & 8). That may encourage bears to mount a stronger attack if the index tries to move up further."
The index did move up further to touch an intra-day high of 10929 on Tue. May 15, but closed more than 125 points lower on profit booking to form a 'shooting star' candlestick pattern that often marks an intermediate top.
Note that the index failed to close above the (purple) up trend line even for a single day after falling below it on May 4. Bears used the hung Karnataka assembly as an excuse to mount a strong attack today.
Bulls gave up ground reluctantly. The index slipped below the downward 'gap' (formed on Feb 5) intra-day, but recovered to close just above it - forming a 'long-legged doji' candlestick pattern that indicates indecision among bulls and bears.
Daily technical indicators have started correcting. MACD is just below its overbought zone and is about to cross below its signal line. RSI has started to fall after facing resistance from the edge of its overbought zone. Slow stochastic has dropped from its overbought zone.
Though Nifty is trading above its three rising EMAs in a bull market, some more correction can't be ruled out. The May 4 low of 10602 can be maintained as a stop-loss by those holding long positions.
Nifty's TTM P/E is at 26.66 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising towards its oversold zone, and can limit index down side.
The breach of a steep up trend line does not mean that the trend has changed. However, today's fall away from the trend line is a warning for bulls to close long positions. A fall below 10602 can lead to a deeper correction.
Gold chart pattern
The daily bar chart pattern of Gold continued its sideways consolidation between the 'Support zone' (between 1300 and 1310) and the 'Resistance zone' (between 1360 and 1370).
The 200 day EMA, which is inside the 'support zone', provided good downside support and kept bullish hopes alive. However, the sliding 50 day EMA provided resistance to a technical bounce.
Daily technical indicators are giving conflicting signals - which is often the case during periods of consolidation. MACD is facing resistance from its falling signal line in bearish zone. RSI has slipped down after facing resistance from its 50% level. Slow stochastic corrected oversold conditions, triggering a brief technical bounce, and moved above its 50% level into bullish zone.
For the past three weeks, gold's price has traded below its 20 day and 50 day EMAs, but above its 200 day EMA in a bull market. Some more consolidation is possible.
On longer term weekly chart (not shown), gold’s price faced resistance from its 20 week EMA but closed above its 50 week and 200 week EMAs in long-term bull territory. Weekly technical indicators are looking neutral to bearish. MACD is falling below its signal line in bullish zone. RSI is in neutral zone. Slow stochastic is falling towards its oversold zone.
Silver chart pattern
The following remark was made in the previous post on the daily bar chart pattern of Silver: "More sideways consolidation between the 'support zone' and the 'resistance zone' is likely."
After an intra-day fall below, and a close inside, the support zone (between 16.10 and 16.20) on May 1, silver's price embarked on a sharp rally past its 20 day and 50 day EMAs.
On May 11, it briefly crossed above its 200 day EMA into bull territory intra-day but fell short of the resistance zone (between 16.90 and 17).
The sideways consolidation for the past 15 weeks has mostly occurred below the sliding 200 day EMA in bear territory.
Daily technical indicators are looking neutral to bullish. Slow stochastic is rising towards its overbought zone. MACD and RSI are in neutral zones and not showing any upward momentum
On longer term weekly chart (not shown), silver’s price closed above its 20 week EMA but below its 50 week and 200 week EMAs in a long-term bear market. Weekly MACD and Slow stochastic are in bearish zones. RSI is in neutral zone.
S&P 500 index chart pattern
Note the following comment in last week's post on the daily bar chart pattern of S&P 500: "Daily technical indicators are looking bearish to neutral, but showing slight upward momentum that is hinting at some more upside."
The index corrected a bit on Tue. May 8 but bounced up after finding good support from its 20 day EMA. On Thu. May 10, the index crossed above the (green) down trend line with an upward 'gap' and closed above 'GAP 3' (refer last week's post).
The bulls still have a lot of work left, as 'GAP 2' is likely to provide resistance. The index appears to be consolidating within a bearish 'Flag' pattern whose upper edge can also provide resistance.
All three EMAs are rising, and the index is trading above them in a bull market. However, sliding volumes during last week's rally should be a concern for bulls - more so because recent down-day volumes have been quite high.
Daily technical indicators are looking bullish and showing upward momentum. Slow stochastic is well inside its overbought zone, and can trigger a correction, or at least a pullback towards the down trend line.
Bulls are regaining lost ground, but bears are making their life as difficult as possible.
On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market. Weekly MACD has stopped falling below its signal line in bullish zone. RSI has moved above its 50% level. Slow stochastic is poised to do the same.
FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 easily crossed above the long-term resistance zone between 7565 and 7582, and closed the week at 7724 with a 2.1% weekly gain. It was the highest closing level in more than 3 months.
FTSE's lifetime closing high of 7779 (on Jan 12) is within handshaking distance of 55 points. The 'golden cross' of the 50 day EMA above the 200 day EMA (marked by blue circle) has technically confirmed a return to a bull market.
All three daily technical indicators are well inside their overbought zones. Though an index can remain overbought for long periods, caution is advised near a lifetime high as profit booking can ensue at any time.
Any pullback towards the resistance zone between 7565 and 7582 will improve the technical 'health' of the chart, and can be used as a buying opportunity.
On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market. Weekly MACD is rising in bullish zone. RSI is about to cross above its 50% level. Slow stochastic is well inside its overbought zone and can trigger a correction.
FIIs were net sellers of equity on all five trading days. Their total net selling during the week was worth Rs 21.3 Billion. DIIs were net buyers of equity on all five trading days. Their net buying was worth a huge Rs 46.9 Billion, as per provisional figures.
Heavy DII buying ensured that Sensex and Nifty closed above the downward gaps formed on Feb 5 after previous week's corrections. Both indices gained 1.8% on a weekly closing basis.
India's IIP slowed to 4.4% in Mar '18 - a 5 month low due to contraction in capital goods and sluggish manufacturing output - against a downward-revised 7% in Feb '18. The cumulative figure for Apr '17 - Mar '18 was 4.3%.
BSE Sensex index chart pattern
Contrary to expectations, the daily bar chart pattern of Sensex resumed its counter-trend rally - proving once again that the stock market behaves like a voting machine in the near term.
DIIs were obviously voting for a rally despite macro headwinds - like high oil prices, weak Rupee, low IIP number, widening trade deficit and jobless economic growth.
All three EMAs are rising, and the index is trading above them in a bull market. The index has also moved above the Fibonacci retracement level of 61.8% of the entire corrective fall of 3960 points from the Jan 29 top to the Mar 23 bottom.
So, it should be 'all systems go' for bulls to take the index to a new high. However, daily technical indicators are looking overbought, and not showing much upward momentum. Three of them - ROC, RSI, Slow stochastic - are showing negative divergences by failing to move higher with the index.
Also, the index has closed below the (blue) up trend line twice - once on Fri. May 4 and again on Thu. May 10. Neither were convincing breaches of the trend line - so the up trend line remains intact for now.
Sensex is just 900 points (2.5%) below its lifetime Jan 29 high of 36444. Caution is advised. If Karnataka state election results are not favourable to BJP, a correction may ensue. Even if BJP wins, there could be 'selling on news'.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty shrugged off fundamental and technical headwinds to close above the Feb 5 downward 'gap' after closing below it for 13 weeks (3 months).
Weekly technical indicators are turning bullish. MACD is about to cross above its signal line in bullish zone. RSI is poised to move above its 50% level. ROC and Slow stochastic are rising towards their respective overbought zones.
The index is trading above its rising weekly EMAs in a bull market. Bulls are regaining control of the chart. Or, are they? The volume bars are touching lower tops. Steady or rising volumes are required to sustain a rally.
Also, the number of advancing stocks were less than the number of declining stocks on Fri. May 11 - when the index rose to a 3 months high. Small investors should be cautious rather than feel euphoric.
Nifty's TTM P/E has increased to 26.82 - which is 2 standard deviations above its long-term average. That is a clear sign of an overbought index. The breadth indicator NSE TRIN (not shown) is oscillating above its overbought zone, and can limit index upside.
Bottomline? Counter-trend rallies on Sensex and Nifty continued despite technical and fundamental headwinds. Some correction or consolidation will help improve the technical 'health' of both charts. Ride the rallies with trailing stop-losses. Alternatively, book partial profits.
"SEBI has recently proposed a change in the name of balanced funds into six categories -
- Equity savings fund
- Aggressive Hybrid Fund
- Balanced Hybrid Fund
- Conservative Hybrid Fund
- Multi-asset allocation funds and
- Dynamic asset allocation fund"
Read more about them here.
(Note: Those who invested in HDFC Prudence Fund may want to switch to HDFC Balanced Fund.)
FIIs were net sellers of equity worth Rs 14.4 Billion during the three days of trading this week. DIIs were net buyers of equity worth Rs 26.2 Billion, as per provisional figures.
After first filling and then falling below the downward 'gap' and the up trend line last week, Nifty pulled back to close above the 'gap' today.
Walmart has acquired 77% stake in Flipkart for US $16 Billion, making it the largest eCommerce acquisition in the world.
This can be a game-changer for Indian retail industry if Walmart replicate their African strategy of incentivising farmers to produce better quality vegetables and fruit, and then selling those products online.
The following remarks made in last week's update on the daily bar chart pattern of Nifty are worth noting: "The up trend line - typical of a counter-trend rally - is a bit too steep and unlikely to sustain much longer...Some consolidation or correction is possible, but a deep correction appears unlikely."
On Fri. Mar 4, the (purple) up trend line was breached, as expected. But the index didn't fall further. Instead, it has pulled back past the filled 'gap'.
The interesting pattern to observe is that the index has failed to close above the trend line despite intra-day upward breaches on Mon. & Tue. (May 7 & 8). That may encourage bears to mount a stronger attack if the index tries to move up further.
Daily technical indicators are just below their respective overbought zones, but not showing much upward momentum. The index is trading above its three rising EMAs in a bull market. However, a fall below Friday's (May 4) low of 10602 may shift the advantage back to bears.
Nifty's TTM P/E has moved up to 26.66 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is falling towards its overbought zone, and can limit index up side.
Trump's pullout from the Iran nuclear deal will push oil prices higher. The stock market may have already discounted a BJP win in Karnataka state elections. Expect petrol pumps across India to raise prices next week.
If you are long in this market, either keep a tight stop-loss or, book some partial profits.
