Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 04, 2015

S&P 500 Index Chart

The daily bar chart pattern of S&P 500 briefly crossed above the 2100 level but fell short of the Nov ‘15 top of 2116. The index received good support from its 200 day EMA on the way down.

After  bouncing up with good volumes, the index closed above all three EMAs in bull territory but barely gained a point for the week.

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.

Daily technical indicators are in bullish zones but giving mixed signals. MACD and RSI are showing some upward momentum, but Slow stochastic is showing downward momentum.

On longer term weekly chart (not shown), the index closed flat for the second week in a row, but well above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones.

FTSE 100 Index Chart

The daily bar chart pattern of FTSE 100 crossed above the 6400 level but faced strong resistance from the 6450 level.

The index closed below all its three EMAs in bear territory and lost 137 points (more than 2%) for the week.

Daily technical indicators are looking bearish. MACD is about to cross below its signal line in positive zone. RSI has dropped below its 50% level. Slow stochastic is falling rapidly towards its 50% level.

On longer term weekly chart (not shown), the index moved above its entangled 20 week and 200 week EMAs, but formed a ‘reversal bar’ (higher high, lower close) and closed below all three EMAs.

The ‘death cross’ of the 50 week EMA below the 200 week EMA will technically confirm a long-term bear market. Weekly MACD and RSI are in bearish zones but Slow stochastic is showing positive divergence by rising above its 50% level.

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 04, 2015

FIIs resorted to heavy selling during the week gone by. Their net selling in equity was worth Rs 3450 Crores, as per provisional figures. Net buying by DIIs crossed Rs 2300 Crores, and failed to prevent both Sensex and Nifty from closing 2% lower for the week.

Did India’s economy take a sudden turn for the worse? Hardly. In fact, the economy is showing signs of improvement. Bearish sentiments got a boost due to hawkish comments by the US Fed and a slip in India’s services PMI number.

The deluge in TamilNadu that flooded Chennai has caused serious disruptions in industrial activity, with losses estimated at upwards of Rs 15000 Crores.

The important GST bill is stuck in negotiations. NDA government’s conciliatory stance towards Opposition demands has been too little and too late. Implementation of GST from Apr 2016 appears unlikely.

BSE Sensex index chart

The daily closing chart pattern of Sensex lost its upward momentum after briefly crossing above its 20 day EMA. The index has dropped down to seek support from the extended neckline (NL) of the ‘inverted head and shoulders’ pattern.

Will the support hold? Seems unlikely. The 25450 level (marked by dotted horizontal line) can provide some support. But the way FIIs are selling, it won’t be a surprise if the Sep ‘15 low of 24894 is tested - and even breached.

Daily technical indicators are turning bearish. MACD is about to touch its signal line in negative zone. ROC has crossed below its 10 day MA and entered negative zone. RSI and Slow stochastic have dropped to their respective 50% levels.

Front line stocks are under pressure due to selling by FIIs. Many mid-cap and small-cap stocks are flying around. Investors should be cautious about which stocks to pick.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty succumbed to heavy volume of FII selling and lost most of the gains made in the previous two weeks.

A test - and possible breach – of the Sep ‘15 low of 7540 may be on the cards. The index continues to trade below the down trend line and its two weekly EMAs in bear territory.

Weekly technical indicators remain in bearish zones. MACD is sliding down below its signal line in negative zone. ROC is about to cross below its 10 week MA in negative zone. RSI and Slow stochastic are moving sideways below their respective 50% levels.

The long-term bull market is intact, as the index is more than 700 points above its rising 200 week EMA. Sometime next year, when (not if) the index moves above its Mar ‘15 top, the current Nifty level will seem very attractive.

Bottomline? Chart patterns of Sensex and Nifty are facing renewed bear attacks. Long-term bull markets are intact because both indices are trading well above their respective 200 week EMAs (not shown in above charts). This is as good a time as any to add to your stock portfolio. New investors, planning to enter the market for the first time, should stick to a balanced fund.

How To Pick A Stock

Stock picking is a skill. As with most skills, it is practice that makes you perfect.

You can learn to ride a bicycle in a day or two. The bicycle may cost Rs 3000. You just hop on to it, and try riding it – with the help of training wheels, or a friend. The chance of seriously hurting yourself in a fall is low (unless you decide to ride in Delhi or Mumbai traffic without adequate practice).

Learning to operate and ride a motorcycle is more complicated. The machine costs Rs 50000. You will need to learn a lot more about how to operate it, memorise road signs and obtain a licence after passing a test. If you don’t use a helmet, any accident can be fatal.

What does this have to do with stock picking? I’m coming to it.

In the investment context, buying a bicycle is a lot like investing in a mutual fund. Fill out a KYC form, a form from a fund house, write a cheque for Rs 1000 and you become an investor. You don’t need to know much about the stock market. The fund manager will take care of buying and selling of stocks.

Stock picking is more complicated. If you think opening a demat account and a trading account is all there is to buying stocks, it will be like riding a motorcycle in traffic without a helmet and being clueless about road signs.

In a recent article in investopedia.com, the various steps necessary to pick stocks have been explained.

You may also want to read a three-part series of posts I had written on stock picking for long-term investment. The links are given below.

Related Posts

How to pick Stocks for Investment - Part I

How to pick Stocks for Investment - Part II

How to pick Stocks for Investment - Part III

Nifty chart: a midweek update (Dec 02 ‘15)

FIIs were net sellers of equity worth Rs 9000 Crores during Nov 2015, as per provisional figures. DIIs were net buyers of equity worth Rs 8500 Crores. Nifty lost about 135 points (1.6%) on a monthly closing basis.

RBI Governor left interest rates unchanged during the policy meeting on Dec 1. The decision was widely expected, and therefore, came as no surprise for the market.

Auto sales for Nov ‘15 were a mixed bag. Maruti, Hyundai, M&M showed double-digit growth on a YoY basis. Toyota, Honda, Tata Motors showed de-growth. Tractor sales picked up after several months.

The daily bar chart pattern of Nifty touched a higher bottom and rallied past its 20 day EMA, but is facing resistance from its falling 50 day EMA.

The bear phase from Mar ‘15 – marked by the blue down trend line – continues to dominate the chart. Nifty is trading almost 400 points below the down trend line.

The ‘death cross’ of the 50 day EMA below the 200 day EMA in early Sep ‘15 had confirmed a short-term bear market.

However, the index is trading nearly 900 points above its rising 200 week EMA (not shown). The long-term bull market remains intact.

Daily technical indicators are giving mixed signals. MACD has crossed above its signal line in negative zone. RSI is seeking support from its 50% level. Slow stochastic has entered its overbought zone.

Will the US Fed hike the interest rate next week? Will that have an adverse impact on market sentiments?

Nifty may tread water till those doubts get satisfactorily resolved.

Gold and Silver charts: fall to 6 year lows

Gold chart pattern

The daily bar chart pattern of gold shows the effect of a strong US Dollar on gold’s price.

After a struggle to stay in the zone between 1070 and 1080, gold’s price dropped to 1050 – a level not seen since Nov ‘09.

There was a bounce back and a close above the 1060 level, but on weak volumes. Probably some shorts got covered.

All three EMAs are falling, and gold’s price is trading well below them in a bear market.

Daily technical indicators are in the process of correcting oversold conditions, but remain deep inside bearish zones.

Is this an opportunity to do some bottom fishing? The fall during Nov ‘15 has been a bit steep. That can lead to a short covering rally.

There are no signs of a bottom formation yet.

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 below its 50% level. Slow stochastic is inside its oversold zone.

Silver chart pattern

The following comments appeared in the previous post on the daily bar chart pattern of silver:

“Silver’s price is trying to cling on to its Sep ‘15 low of 14.25 – but not for much longer. A test and breach of the 14 level seems imminent.”

Silver’s price dropped below the 14 level intra-day, and briefly tested the Aug ‘15 low of 13.90 before managing to close just above 14.

Silver is trading below its three EMAs in a bear market. Daily technical indicators are trying to correct oversold conditions, but remain inside bearish zones. 

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 sideways below its 50% level. Slow stochastic has entered its oversold zone.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 27, 2015

S&P 500 Index Chart

In a trading week truncated by Thanksgiving holiday, the daily bar chart pattern of S&P 500 consolidated sideways and closed flat for the week.

The index is trading above all three EMAs, but needs to climb above the Nov 3 top of 2116 to maintain a bullish pattern of ‘higher tops and higher bottoms’.

A drop below the Nov 16 low of 2019 – which may seem unlikely at this stage - will bring bears back to the fore.

Daily technical indicators are in bullish zones. MACD and RSI are moving sideways. Slow stochastic has entered its overbought zone.

Volumes tapered off in the week gone by. But that is often the case during Thanksgiving week.

On longer term weekly chart (not shown), the index closed flat for the week, but above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones.

FTSE 100 Index Chart

The daily bar chart pattern of FTSE 100 climbed above its 20 day and 50 day EMAs after a brief fall during the first two days of the week, but faced resistance from the 6400 level.

The index closed 40 points higher for the week but remains 120 points below its sliding 200 day EMA in a bear market.

Daily technical indicators are in bullish zones, but MACD and RSI are not showing any upward momentum. However, Slow stochastic has climbed sharply inside its overbought zone.

On longer term weekly chart (not shown), the index continued its pullback towards its 200 week EMA, but failed to close above it. The 20 week EMA is about to cross below the 200 week EMA. The ‘death cross’ of the 50 week EMA below the 200 week EMA is still awaited. Weekly MACD and RSI are in bearish zones but showing upward momentum. Slow stochastic has bounced up after receiving support from its 50% level.

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 27, 2015

Bulls were active in a truncated F&O settlement week. Both Sensex and Nifty closed 1% higher for the second week in a row – ending the intermediate down trend within a larger down trend.

FIIs remained bears – as they have been for most of the month. Their net selling during the week was nearly Rs 1500 Crores, as per provisional figures. DIIs were bulls. Their net buying was almost Rs 2500 Crores, and propelled the market higher.

Prime Minister’s efforts at a reconciliation with the opposition Congress party – with a view to getting the contentious GST bill passed in both houses of Parliament – seemed to boost bullish sentiments.

BSE Sensex index chart

The daily closing chart pattern of Sensex touched a higher bottom – breaking the bearish pattern of ‘lower tops and lower bottoms’ that had dominated the chart since Mar ‘15.

Is the 9 months long corrective phase over? It would seem so – though it may be a bit early to call. The clearly formed ‘inverse head and shoulders’ pattern gave the first hint of an end to the down trend.

The fact that the index took support at the extended neckline (NL) and touched a higher bottom is another bullish signal. But bulls still have a lot of work left.

The index is facing resistance from its 20 day EMA. It needs to cross above its three EMAs and the blue down trend line (which is 1400 points away) for the bull market to resume.

For that to happen, FIIs need to become buyers of equity. They may not do so before Jan ‘16.

Daily technical indicators are beginning to turn bullish. MACD has just crossed above its signal line in negative territory. ROC has entered positive zone above its 10 day MA (which has formed a ‘rounding bottom’ pattern). RSI and Slow stochastic are moving up towards their respective 50% levels.

This is as good an opportunity as any to add fundamentally strong stocks to your portfolio.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty had formed a ‘reversal bar’ (lower low, higher close) with strong volume support in the previous week. That was the first sign of an end of the three weeks long intermediate down trend from the Oct ‘15 top.

By closing higher for the 2nd week in a row – thereby confirming the higher bottom of the previous week – the index may be finally shaking off the 9 months long bear grasp on the chart.

Bears have not been vanquished yet. The index is trading below its 20 week and 50 week EMAs, and the blue down trend line. It needs to convincingly cross above all three for the bull market to embark on the next leg of its rally.

Weekly technical indicators are in bearish zones. MACD and Slow stochastic have stopped falling and are moving sideways. ROC has dropped back into negative zone, and showing some downward momentum. RSI bounced up from the edge of its oversold zone, and is rising towards its 50% level.

Bottomline? Chart patterns of Sensex and Nifty appear to have reversed intermediate down trends. Long-term bull markets are intact because both indices are trading well above their respective 200 week EMAs. This is a good time to pick up good stocks. If you are unsure about your stock picking skills, invest in a balanced fund.