WTI and Brent Crude Oil charts: bulls taking complete control

WTI Crude Oil chart

Overbought conditions visible on technical indicators had led to the following comment in the previous post on the daily bar chart pattern of WTI Crude Oil: "Some consolidation can be expected around current prices before oil's price can move higher."

For the next 8 trading sessions, oil's price consolidated sideways as expected. It received strong support from its rising 20 day EMA and the 'support/resistance zone' between 66 & 67 before breaking out past 70.

The three EMAs are rising, and oil's price is trading above them in a bull market. However, the widening gap between the 20 day EMA and the 200 day EMA is a sign of an overbought condition. 

Daily technical indicators are looking overbought and showing upward momentum. Some more upside is possible. However, a correction or consolidation may be around the corner. 

On longer term weekly chart (not shown), oil's price closed above its three rising weekly EMAs. The 50 week EMA is ready to cross above the 200 week EMA. The 'golden cross' will technically confirm a return to a long-term bull market.  Weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with oil's price.

Brent Crude Oil chart

Please note the following comments from the previous post on the daily bar chart pattern of Brent Crude Oil: "All three daily technical indicators are inside their respective overbought zones. Some correction or consolidation is likely."

Oil's price consolidated sideways for the next 8 trading sessions. It bounced up after receiving good support from its rising 20 day EMA and rose to touch a new 3 yr high of 76.34 before closing above 76.

Daily technical indicators are looking overbought, and showing negative divergences by failing to touch new highs with oil's price. Some correction or consolidation is expected.

On longer term weekly chart (not shown), oil's price closed above its three weekly EMAs in long-term bull territory. The imminent 'golden cross' of the 50 week EMA above the 200 week EMA will technically confirm a return to a long-term bull market. Weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with oil's price.

S&P 500 and FTSE 100 charts (May 04, 2018): bears fight to retain their advantage

S&P 500 index chart pattern

The following comments were made in last week's post on the daily bar chart pattern of S&P 500: "The index has stayed above its 200 day EMA in bull territory for three straight weeks. But as long as it trades below 'GAP 1' and 'GAP 2', bears may continue to 'sell on rise' to retain their advantage."

On Mon.Apr 30, the index rose above its falling 50 day EMA intra-day, but bear selling caused a drop below the 50 day and 20 day EMAs. A 'reversal day' bar (higher high, lower close) got formed, which triggered a sharp correction and an intra-day fall below the 200 day EMA and the 2600 level on Thu. May 3.

On Fri. May 4, the index recovered smartly but faced resistance from the falling 50 day EMA and closed 6 points lower for the week. Bulls will take solace from the fact that the index closed above its 200 day EMA for the 4th straight week. 

However, resistances from the (purple) down trend line and the three 'gaps' (GAP 1, GAP 2 and the filled GAP 3) need to be overcome convincingly before the index can return to its bullish glory days of last year.

Daily technical indicators are looking bearish to neutral, but showing slight upward momentum that is hinting at some more upside. 

On longer term weekly chart (not shown), the index bounced up after receiving support from its 50 week EMA and closed just below its 20 week EMA - forming a 'hanging man' candlestick for the second week in a row. It closed above its 50 week and 200 week EMAs in a long-term bull market. Weekly MACD is falling below its signal line in bullish zone. RSI is in neutral zone. Slow stochastic has bounced up from the edge of its oversold zone but remains in bearish zone. 

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 tested resistance from the long-term resistance zone between 7565 and 7582 on Wed. Mar 2 and Fri. Mar 4. It closed near the lower edge of the resistance zone with a weekly gain of 0.8%.

The 20 day EMA has crossed above the 200 day EMA. The 50 day EMA is about to do likewise. The 'golden cross' will technically confirm a return to a bull market. 

All three daily technical indicators are inside their overbought zones. An index can remain overbought for long periods. However, a likely correction or consolidation will improve the technical 'health' of the chart and enable the index to rise to a new high. 

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market. Weekly MACD and RSI are rising in bearish zones. Slow stochastic is rising in bullish zone.

Sensex, Nifty charts (May 04, 2018): ready to resume downward corrective moves

In a holiday-shortened week, FIIs were net sellers of equity on all four trading days. Their total net selling during the week was worth Rs 26.9 Billion. DIIs were net buyers of equity on three of the four trading days. Their net buying was worth Rs 9.3 Billion, as per provisional figures.

Both Sensex and Nifty have formed reversal patterns after 5 weeks long counter-trend rallies, and appear ready to resume their downward corrective moves.

Nikkei India's Services PMI improved to 51.4 in Apr '18 against 50.3 in Mar '18 (a figure >50 means expansion). The Composite (Manufacturing + Services) PMI rose to a 3-month high of 51.9 in Apr '18 from 50.8 in Mar '18.

BSE Sensex index chart pattern

Note the following comments from last week's post on the daily bar chart pattern of Sensex: "...filling a 'gap' is usually followed by a resumption of the previous move. In this case, the move before the 'gap' got formed was downward...a retreat from the 'gap' zone and some consolidation is quite possible."

The 132 points downward 'gap' formed on Feb 5 had been completely filled by the index on Apr 27. It had also retraced 61.8% of its entire fall from the Jan 29 top to the Mar 23 low. 

The 61.8% Fibonacci retracement level is often used by technical traders as a trend reversal signal. But bulls were advised not to celebrate the end of the corrective move too soon.

After touching an intra-day high of 35357 on Wed. May 2, the index started to retreat and closed lower for three straight trading sessions. In the process, it formed a bearish reversal candlestick pattern called 'three black crows'.

The index dropped below the 'gap' intra-day on Fri. May 4 and closed above the lower edge of the 'gap' but just below the (blue) up trend line drawn from the May 23 low.

Sensex is trading above its three rising EMAs in a bull market, but technical indicators are turning bearish. MACD is above its signal line, but forming a small bearish 'rounding top' pattern in bullish zone. ROC is below its sliding 10 day MA, and has dropped from its overbought zone. RSI and Slow stochastic have corrected overbought conditions, and are poised to fall from their respective overbought zones.

Some more correction is expected. A 'sell on rise' strategy ought to work well in the near-term. The 'support/resistance zone' between 32550 and 33800 may soon have an important role to play once again.  

NSE Nifty index chart pattern

The following remarks were made in last week's post on the weekly bar chart pattern of Nifty: "Part (or complete) filling of a 'gap' is usually followed by a resumption of the previous move - which was downwards. Lower tops on volume bars is also giving a hint that a correction or consolidation may follow."

The index touched an intra-week high of 10785 - completely filling the 33 points downward 'gap' formed on Feb 5 - but corrected and closed at 10618. 

A bearish weekly 'reversal' bar (higher high, lower close) got formed, signalling the end of the 5 weeks long counter-trend rally.

Weekly technical indicators are turning bearish. MACD is facing resistance from its falling signal line in bullish zone. ROC has formed a bearish 'rounding top' reversal pattern in bearish zone. RSI is falling below its 50% level after failing to move above it. Slow stochastic moved above its 50% level but its upward momentum has stalled.

The index is trading above its two weekly EMAs in a bull market, but a correction towards the 20 week EMA is likely. In case the 20 week EMA gets breached, expect stronger support from the 50 week EMA.

Nifty's TTM P/E has eased down to 26.36 - but remains well above its long-term average. The breadth indicator NSE TRIN (not shown) is oscillating in neutral zone, and hinting at some consolidation. 

Bottomline? Counter-trend rallies that completely filled downward gaps (of Feb 5) on Sensex and Nifty have ended. Some more correction is likely. High oil prices, a weakening Rupee, a widening trade deficit and uncertainty about outcome of Karnataka state elections have taken a toll on bullish sentiment. 

The Art of Cutting Your Losses

One of the most enduring sayings on Wall Street is "Cut your losses short and let your winners run." Sage advice, but many investors still appear to do the opposite, selling stocks after a small gain only to watch them head higher, or holding a stock with a small loss, only to see it worsen.

No one will deliberately buy a stock they believe will go down in price and be worth less than what they paid for it. However, buying stocks that drop in value is inherent to investing. 

The objective, therefore, is not to avoid losses, but to minimize the losses. Realizing a capital loss before it gets out of hand separates successful investors from the rest.

Read more here.

Nifty chart: a midweek technical update (May 02, 2018)

For the month of April '18, FIIs were net sellers of equity worth Rs 99.6 Billion. DIIs were net buyers of equity worth Rs 85.1 Billion, as per provisional figures. Nifty gained 6.2% on a monthly closing basis.

Many car makers had double-digit YoY growth in sales during April '18. Tata Motors (34%), M&M (22%), Maruti Suzuki (14%) led from the front. Hyundai (4.4%), Honda Cars (-35%), Ford (-40%) were the laggards. 

Nikkei India's Manufacturing PMI rose to 51.6 in Apr '18 against 51.0 in Mar '18 (a number >50 indicates growth). However, export orders slipped to a 5-month low.

On Mon. Apr 30, the counter-trend rally on the daily bar chart pattern of Nifty had completely filled the 33 points downward 'gap' formed on Feb 5. After a day's holiday, the index rose further to touch an intra-day high of 10785 today. 

However, it corrected and dropped below the 'gap' to an intra-day low of 10690 before recovering to close at 10718 - right in the middle of the 'gap' - and formed a 'reversal day' bar (higher high, lower close).

Note the following comment from last week's update: "As per 'gap theory': even if the 'gap' is filled partly or completely, the down move should resume thereafter." 

Will the 'reversal day' bar, which often signals an intermediate top, trigger the expected resumption of the down move? The next two days' trading should give us a clear hint.

All three EMAs are rising, and the index is trading above them in a bull market. The (purple) up trend line from the Mar 23 low is intact. Daily technical indicators are in bullish zones. Bulls have been successful in following a 'buy the dip' strategy.

There are a couple of warning signals that have been flashing red for a while. The up trend line - typical of a counter-trend rally - is a bit too steep and unlikely to sustain much longer. Daily technical indicators are looking overbought. RSI faced resistance from the edge of its overbought zone, and is turning down.

Nifty's TTM P/E has moved up to 26.60 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is treading water in neutral zone. Some consolidation or correction is possible, but a deep correction appears unlikely.

Macro signals aren't conducive to a sustained rally either. Rising oil prices, falling exports and a depreciating Rupee has led to a widening of India's trade deficit. High bond yields are another concern.

Outcome of Karnataka state elections may also have a negative impact on market sentiment if BJP fails to form a government. 

Regular flow of liquidity into domestic mutual funds has given a vote of confidence to the market, and may continue to do so in the near term. If India Inc's Q4 (Mar '18) earnings do not show expected growth - results have been mixed so far - the market will start behaving like a weighing machine. 

Gold and Silver charts: remain range-bound

Gold chart pattern

For the past 4 months, the daily bar chart pattern of Gold has consolidated sideways between the 'Support zone' (1300-1310) and the 'Resistance zone' (1360-1370). 

As the entire consolidation has occurred above the rising 200 day EMA in a bull market, the likely breakout should be upwards. It may be prudent to wait for the breakout before deciding to buy/sell.

Gold's price had shot up to the upper edge of the 'resistance zone' with a volume surge on Apr 11 - its highest level in 18 months. Negative divergences visible on the technical indicators, which failed to touch new highs, triggered a correction down to the upper edge of the 'support zone'. (The possibility was mentioned in the previous post.)

Daily technical indicators are in bearish zones. MACD is falling below its signal line. RSI is moving sideways below its 50% level. Slow stochastic is inside its oversold zone.

RSI and Slow stochastic are showing positive divergences by not falling lower with gold's price. A technical bounce towards the converging 20 day and 50 day EMAs may follow.

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 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 below its 50% level. More sideways consolidation is likely.

Silver chart pattern

Contrary to expectations, the daily bar chart pattern of Silver broke out above its 200 day EMA and the 'resistance zone' (between 16.90 and 17) on Apr 18 with a volume surge that often signals a 'buying climax'.

The next day, a 'reversal day' bar (higher high, lower close) with good volume support triggered a sharp correction all the way down to the upper edge of the 'support zone' (between 16.10 and 16.20).

Despite occasional forays into bull territory, silver's price remains in the firm grip of bears. More sideways consolidation between the 'support zone' and the 'resistance zone' is likely.

Daily technical indicators are looking bearish. MACD has fallen to its neutral zone. RSI is below its 50% level. Slow stochastic has entered its oversold zone.

On longer term weekly chart (not shown), silver’s price closed below its three weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones.

S&P 500 and FTSE 100 charts (Apr 27, 2018): bears give up some ground

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 had broken out below the 'rising wedge' pattern intra-day on Fri. Apr 20, but managed to close exactly at the lower edge of the 'wedge'. 

On Mon. Apr 23, the index attempted a pullback that faced twin resistances from the lower edge of the 'wedge' and the 50 day EMA. The index slipped down to close below the 'rising wedge' at Friday's closing level of 2670.

That was a signal for bears to attack. The index dropped sharply towards its 200 day EMA intra-day on Tue. Apr 24, before recovering to close at 2635. On Wed. Apr 25, the index dropped lower intra-day - testing support from its 200 day EMA - and bounced up to close slightly  higher at 2639.

The 'reversal day' bar (lower low, higher close) triggered a brief rally that faced strong resistance from the 50 day EMA. The index ended absolutely flat on a weekly closing basis.

Daily technical indicators are looking neutral to bearish, and are not showing any upward momentum. MACD is trying to rise above its signal line in bearish zone. RSI and Slow stochastic are at their respective 50% levels after brief dips into bearish zones.

The index has stayed above its 200 day EMA in bull territory for three straight weeks. But as long as it trades below 'GAP 1' and 'GAP 2', bears may continue to 'sell on rise' to retain their advantage.

On longer term weekly chart (not shown), the index formed a 'hanging man' candlestick and closed exactly at its 20 week EMA for the second week in a row, but above its 50 week and 200 week EMAs in a long-term bull market. Weekly MACD is falling below its signal line in bullish zone. RSI is in neutral zone. Slow stochastic has bounced up from the edge of its oversold zone but remains in bearish zone. 

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 tested resistance from the 7440 level on Tue. Apr 24 but failed to cross above it. Bears forced a temporary pullback to the 200 day EMA on Wed. Apr 25.

The index found strong support at its long-term average and rallied past 7440 and the psychological 7500 level on Fri. Apr 27 - gaining 1.8% on a weekly closing basis. 

By closing at 7502 - above the Fibonacci 61.8% retracement level of its entire 916 points fall (refer last week's post) - the index is on the verge of reversing the down trend from the Jan 12 top.

The 20 day EMA is about to cross above the 200 day EMA. The 'golden cross' of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market.

All three daily technical indicators are inside their overbought zones and showing upward momentum. The index rally is not over yet. However, some consolidation or correction will improve the technical 'health' of the chart. (At the time of writing this post, the index is trading 40 points higher.)

On longer term weekly chart (not shown), the index closed above its merged 20 week and 50 week EMAs, and well above its 200 week EMA in a long-term bull market. Weekly MACD and RSI are rising in bearish zones. Slow stochastic is in bullish zone.