S&P 500 index chart pattern
The daily bar chart pattern of S&P 500 had touched a high of 2916.50 on Aug 29. In the process, the index had penetrated its upper Bollinger Band. As often happens after such an event, a corrective move followed.
The index received good support from its 20 day SMA (marked by blue dotted line) and bounced up to close above the 2900 level in bull territory. A convincing move above the Aug 29 top will restore control to bulls. A failure to do so will encourage bears to go on the offensive.
Daily technical indicators are looking bullish. MACD is about to cross above its signal line in bullish zone. RSI has bounced up after receiving support from its 50% level. Slow stochastic had dropped below its 50% level but has since moved above it.
On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are looking overbought. MACD is rising above its signal line inside its overbought zone. RSI is hovering just below its overbought zone. Slow stochastic is sliding down inside its overbought zone.
FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 had been correcting inside a downward-sloping trading channel after touching a lifetime high of 7903.50 on May 22 '18. On Sep 5, the index breached the lower edge of the channel, and dropped to close below 7300 on Sep 7.
On Sep 11, the index touched a low of 7220.50 but formed a 'dragonfly doji' candlestick pattern, which has bullish implications. However, the 7300 level is providing strong resistance. The imminent 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a return to a bear market.
Daily technical indicators are looking bearish. MACD is below its falling signal line in bearish zone. RSI has bounced up a bit after receiving support from the edge of its oversold zone. Stochastic is trying to emerge from its oversold zone.
On longer term weekly chart (not shown), the index closed below its 20 week and 50 week EMAs but above its 200 week EMA in a long-term bull market. Weekly MACD is below its falling signal line and has entered bearish zone. RSI is below its 50% level. Stochastic is moving up inside its oversold zone.
In a holiday-shortened trading week, FIIs were net sellers of equity on Mon., Tue., and Wed. (Sep 10-12), but net buyers on Fri. Sep 14. Their total net selling was worth Rs 22.9 Billion. DIIs were net sellers of equity on Mon. but net buyers on Tue., Wed. and Fri. Their total net buying was worth Rs 11.2 Billion, as per provisional figures.
India's CPI inflation dropped to a 10 months low of 3.69% in Aug '18 against 4.17% in Jul '18 - thanks to lower food prices. WPI inflation eased to 4.53% in Aug '18 from 5.09% in Jul '18.
The IIP number was a healthy 6.6% in Jul '18 - lower than the downwardly revised 6.8% in Jun '18 - on the back of good performance by the manufacturing sector and higher offtake of capital goods and consumer durables.
India's exports grew by 19.2% to US $27.8 Billion in Aug '18. Imports grew 25.4% to US $45.2 Billion, leaving a trade deficit of US $17.4 Billion. In Jul '18, trade deficit had soared to a five years high of US $18 Billion.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex had formed a 'reversal day' bar (higher high, lower close) after touching a lifetime high of 38990 on Aug 29. That triggered a correction within a downward-sloping channel.
The index bounced up after receiving twin support from its 50 day EMA and the lower edge of the channel to close above its three EMAs in a bull market, but lost about 300 points (0.8%) on a weekly closing basis.
Daily technical indicators are looking bearish, but showing signs of recovery. MACD is below its falling signal line in bullish zone. ROC and Slow stochastic have corrected oversold conditions, but remain in bearish zones. RSI is trying to cross above its 50% level after falling below it. ROC, RSI and Slow stochastic are showing negative divergences by falling below their Jun '18 lows.
Sensex is likely to attempt a breakout above the downward-sloping channel. Keep a watch on trading volumes. Any upward breakout should be accompanied by a significant increase in volumes. Otherwise, a pullback may follow.
A depreciating Rupee and rising oil prices are not conducive to a bull rally. The Finance Minister tried to 'talk up' the market by proposing measures to defend the Rupee. The 'measures' appear to be nothing more than a wait-and-watch policy. So, stay invested but remain watchful and cautious.
NSE Nifty index chart pattern
After touching a high of 11760 in the week ending on Aug 31 '18, the weekly bar chart pattern of Nifty has been correcting within a downward-sloping channel.
The index received good support from the lower edge of the channel and closed above its two rising weekly EMAs - forming a 'hammer' candlestick with bullish implications - but lost 74 points (0.6%) on a weekly closing basis.
Weekly technical indicators are inside their respective overbought zones, but showing downward momentum. MACD is sliding down above its signal line. ROC is about to cross below its 10 week MA. RSI and Slow stochastic are moving down.
Nifty's TTM P/E has slipped a bit to 28.0, but remains well above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) is correcting inside oversold zone. Some index upside is possible.
Bottomline? Sensex and Nifty charts are undergoing bull market corrections. Rising oil prices, a depreciating Rupee, widening trade and fiscal deficits comprise a wall of worries that bulls need to overcome. Be very choosy about where you invest, and keep a long-term outlook.
FIIs were net sellers of equity on Mon., Wed. & Thu. (Sep 3, 5 & 6), but net buyers on the other two days. Their total net selling was worth Rs 7.9 Billion. DIIs were net buyers of equity on Wed., Thu. & Fri. but net sellers on Mon. & Tue. Their total net buying was worth Rs 11.7 Billion, as per provisional figures.
During Apr-Jun '18, India's overall balance of payments slipped into deficit for the first time in six quarters due to large Dollar outflows. The deficit stood at US $11.3 Billion against a surplus of $11.4 Billion during Apr-Jun '17.
The Current Account Deficit (CAD) rose to US $15.8 Billion (2.4% of GDP) from $15 Billion (2.5% of GDP) in the year ago quarter. Outflows of US $8.1 Billion compared with inflows of $12.5 Billion a year ago led to a sharp depreciation of the Rupee.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex broke out below last two months' upward-sloping trading channel on Mon. Sep 3, and continued to correct during the next two days - closing below its 20 day EMA for the first time in two months.
A combination of short covering and some value buying led to a pullback and a close above the 20 day EMA by Fri. Sep 7. The index lost 255 points (0.7%) on a weekly closing basis, but remained above its three EMAs in bull territory.
Daily technical indicators have corrected overbought conditions. MACD has crossed below its signal line and descended from its overbought zone. RSI has bounced up after receiving support from its 50% level. Stochastic fell below its 50% level but is trying to cross above it.
Sensex may correct or consolidate some more before it can resume its up move. Note that the MSCI Emerging Markets ETF (EEM) has been in a bear market for more than two months, so FII outflows are expected to continue.
That means the Rupee will depreciate some more, and consequent higher cost of imported oil will stoke the inflation fire. Expect RBI to hike interest rates again at its Oct '18 monetary policy meeting. A deeper index correction is likely to follow.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty touched a slightly lower top of 11752 and broke out below the steep upward-sloping trading channel within which it had traded for more than two months.
After slipping below 11400 intra-week, the index retraced more than 50% of its 366 points fall from its previous week's high if 11760. All three weekly EMAs are rising, and the index is trading above them in a long-term bull market.
Weekly technical indicators are inside their respective overbought zones. MACD is still moving up above its signal line, but its upward momentum has reduced. RSI and Slow stochastic have started to move down.
Nifty's TTM P/E touched a high of 28.72 on Mon. Aug 27 but has corrected a bit to 28.17 - still well above its long-term average, and in overbought territory. The breadth indicator NSE TRIN (not shown) is in neutral zone. Some index consolidation is likely.
Bottomline? Bulls are still in control of Sensex and Nifty charts, but bears have signalled their willingness for a fight. Macro headwinds like high oil prices, a depreciating Rupee, widening trade and fiscal deficits, and US-China tariff war have enabled bears to stall two months long rallies. Stay invested but stay wary. This is not the time for making easy money.
(Note: I'm planning to take a short break - so there will be no blog posts next week. Regular readers may please bear with me till then.)
FIIs were net sellers of equity on Mon. & Wed. (Sep 3 & 5) but net buyers on Tue. (Sep 4). Their total net selling was worth Rs 3.7 Billion. DIIs were net sellers of equity on Mon. & Tue. but net buyers on Wed. Their total net selling was worth Rs 3.9 Billion, as per provisional figures.
India's manufacturing momentum slowed in Aug '18. Nikkei India's Manufacturing PMI eased to 51.7 from 52.3 in Jul '18 and 53.2 in Jun '18.
Nikkei India's Services PMI fell to 51.5 in Aug '18 from 54.2 in Jul '18 owing to weakest growth in new orders in three months. The Composite PMI (Manufacturing+Services) fell to 51.9 from 54.1 in Jul '18.
The following comments were made in last week's technical update on the daily bar chart pattern of Nifty: "For the past two months, the index has been trading within a steep upward-sloping channel. Such a steep rise - mainly led by a few large-cap stocks - is unsustainable for long."
The sharp rally within an upward-sloping trading channel has come to an end - as was expected. The index broke down below the channel on Mon. Sep 3 when both FIIs and DIIs turned sellers and continued downward on Tue. & Wed.
After correcting more than 350 points from the Aug 28 top of 11760 by slipping below 11400 today, the index recovered to 11477 - partly due to short-covering. The index has formed a 'hammer' candlestick pattern that can lead to a pullback towards the 20 day SMA (dotted green line).
On the downside, expect support from the lower Bollinger Band (at around 11300). Note that a penetration of the upper Bollinger Band - as had occurred on Aug 28 - is often followed by a corrective move.
The index is trading above its rising 50 day and 200 day EMAs, so there is no immediate threat to the bull market. However, some more correction can't be ruled out. In other words, don't jump into the market just yet.
Daily technical indicators are showing downward momentum after correcting overbought conditions. MACD has crossed below its signal line and is ready to drop from its overbought zone. RSI is seeking support from its 50% level. Slow stochastic is falling below its 50% level. All three are showing negative divergences by falling below their Aug 13th low of 11340.
Nifty's TTM P/E has moved down to 27.90 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply from its overbought zone, and is hinting at some more correction.
Macro headwinds - particularly, high oil prices and a falling Rupee - now include lower manufacturing and services PMIs. Demonetisation fiasco has severely dented NDA government's credibility. There seems to be a sense of foreboding in the market about the outcome of 2019 general elections.
Stay invested, but remain cautious. Continue with SIPs, but avoid new stock ideas till the correction plays out.
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Gold chart pattern
Oversold technical indicators triggered a pullback rally on the daily bar chart pattern of Gold. After crossing above its 20 day EMA and 'Support/Resistance zone 3 (1200-1210)', gold's price touched a high of 1217 on Aug 28 but formed a 'reversal day' bar (higher high, lower close).
That seems to have brought the pullback rally to an end. Gold's price dropped below its 20 day EMA and closed inside 'Support/Resistance zone 3'. (After a dip below 94.50 on Aug 28, the US Dollar index has moved up above 95 - cooling bullish fervour.)
Daily technical indicators are turning bearish. MACD is above its signal line in bearish zone, but its upward momentum has stalled. RSI has moved down after facing resistance from its 50% level. Slow stochastic has turned down after facing resistance from the edge of its overbought zone.
Gold's price is trading below its three EMAs in a bear market that was technically confirmed by the 'death cross' of the 50 day EMA below the 200 day EMA (marked by light grey circle) back in Jun '18. Expect bears to continue to 'sell on rise'.
On longer term weekly chart (not shown), gold’s price closed well below its three weekly EMAs in long-term bear territory. The 50 week EMA is about to cross below the 200 week EMA. Weekly technical indicators have corrected oversold conditions but remain in bearish zones.
Silver chart pattern
Bears were expected to sell on every rise on the daily bar chart pattern of Silver - and so they did. A brief pullback rally fizzled out when silver's price faced strong resistance from its falling 20 day EMA and formed a 'reversal day' bar on Aug 28.
Silver's price has resumed its downward journey and may fall below 14.20 in the near term.
Daily technical indicators are in bearish zones and showing downward momentum after correcting oversold conditions. Silver's price is trading well below its three falling EMAs in a bear market. Expect bears to remain in control.
On longer term weekly chart (not shown), silver’s price closed well below its three falling weekly EMAs in a long-term bear market. Weekly technical indicators are looking oversold.
S&P 500 index chart pattern
The daily bar chart pattern of S&P 500 brushed aside technical headwinds by opening with a small upward 'gap' on Mon. Aug 27, and rose to touch a new high of 2916.50 on Wed. Aug 29.
A bit of profit booking dropped the index below the 2900 level, but by end of trade on Fri. Aug 31, the index closed just above 2900 with a weekly gain of 0.9%. The index is trading above its three rising EMAs in a bull market.
There can be three possible index moves here onwards - two bullish and one bearish. The index can remain above Monday's small 'gap' and continue upwards. It can correct a bit more to fill the 'gap' and then resume its up move.
However, the index can correct to form a downward 'gap' that overlaps Monday's upward 'gap'. In which case, the entire trading above the small 'gap' will form a bearish 'island reversal' pattern. Such a pattern is rare - hence has a low probability of forming.
Nevertheless, investors should be aware of the possibility. Daily technical indicators are in the process of correcting overbought conditions. MACD is above its signal line in overbought zone, but has stopped rising. RSI has slipped down after entering its overbought zone. Slow stochastic has started correcting inside its overbought zone.
On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are showing upward momentum but looking overbought. The index penetrated its upper Bollinger Band (not shown). The last time it did that was in the last week of Jan '18. A sharp corrective move had followed.
FTSE 100 index chart pattern
The daily bar chart pattern of FTSE 100 continued with its sideways consolidation within a downward-sloping trading channel.
The index dropped below the 7500 level and closed below its 200 day EMA in bearish zone. (At the time of writing this post, the index is pulling back towards 7500.)
Daily technical indicators are looking bearish. MACD is below its falling signal line in bearish zone. RSI is falling below its 50% level. Stochastic has dropped inside its oversold zone, and may trigger a technical bounce.
On longer term weekly chart (not shown), the index closed below its 20 week and 50 week EMAs but above its 200 week EMA in a long-term bull market. Weekly MACD is falling below its signal line in bullish zone. RSI is falling towards its 50% level. Slow stochastic has dropped inside its oversold zone.
FIIs were net buyers of equity on Mon. & Thu. (Aug 27 & 30), but net sellers on the other three days. Their total net selling was worth Rs 5.8 Billion. DIIs were net buyers of equity on Mon. Wed. & Fri. but net sellers on Tue. & Thu. Their total net buying was worth Rs 6.1 Billion, as per provisional figures.
India's GDP growth during Q1 (Apr-Jun) of FY 2018-19 was an impressive 8.2% - above expectations of most economists - albeit due to a lower base effect. However, the fiscal deficit during Apr-Jul '18 touched Rs 5.4 Trillion, which is 86.5% of the budgeted target for FY 2018-19.
Maruti sales in Aug '18 declined 3.6%. Hyundai (3.4%) and Ford (3.4%) showed moderate sales growth. Sales of M&M (14%), Toyota (17%) and Tata Motors (27%) showed strong double-digit growth.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex touched a new high of 38990 on Aug 29, but formed a 'reversal day' bar (higher high, lower close) that triggered a correction towards the lower edge of the upward-sloping channel within which the index has been trading for two months.
All three EMAs are rising, and the index is trading above them in a bull market. However, the widening space between the 20 day and 200 day EMAs is a sign of overbought conditions that can lead to a stronger correction.
Daily technical indicators are showing signs of correcting overbought conditions. MACD is poised to cross below its signal line and drop from its overbought zone. RSI has fallen from its overbought zone. Slow stochastic is about fall from its overbought zone. ROC is above its rising 10 day MA and trying to re-enter its overbought zone.
All four indicators are showing negative divergences by failing to move up with the index. The good GDP number may give a boost to bullish sentiments. It remains to be seen whether it will be sufficient to sustain the bull rally much further.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty touched a new high of 11760 and gained 120 points (1.1%) on a weekly closing basis. The index closed higher for the 6th straight week, and is trading well above its two weekly EMAs in a bull market.
Nifty has been trading within an upward-sloping channel for the past two months, and has been receiving good support from the lower edge of the channel.
Weekly technical indicators are inside their respective overbought zones. MACD and ROC are climbing higher with the index. RSI and Slow stochastic are showing negative divergences by moving sideways.
Nifty's TTM P/E touched a high of 28.72 on Mon. Aug 27 but has corrected to 28.40 - still well above its long-term average in overbought territory. The breadth indicator NSE TRIN (not shown) is trying to turn around after falling inside its overbought zone, and can limit index upside.
Bottomline? Bulls are in control of Sensex and Nifty charts. Overbought conditions and divergences on technical indicators are preventing the rallies from running away. Macro headwinds like high oil prices, a depreciating Rupee, widening trade and fiscal deficits, US-China tariff war, and F&O expiry kept bullish sentiments slightly subdued last week. Stay invested but maintain trailing stop-losses.
