WTI and Brent Crude Oil charts: bulls fight back strongly

WTI Crude chart

In an update three weeks ago about WTI Crude Oil’s 6 months daily bar chart pattern, bullish technical indicators had suggested the possibility of the bear market rally continuing a bit longer. But sliding volumes raised questions about the rally’s sustainability.

It wasn’t a great surprise that the rally stalled just short of the falling 200 day EMA. Oil’s price dropped to its 50 day EMA, consolidated sideways for a few days before making another attempt to test and cross above the 200 day EMA. Will the bulls succeed this time?

Technical indicators are looking bullish. Both RSI and slow stochastic are above their 50% levels. MACD is positive and above its signal line. But there are signs of weakness in momentum. Note that oil’s price touched a slightly higher bottom on Thurs. Aug 2 ‘12, but all three technical indicators touched lower bottoms. Also, down day volumes are strong – which means bears are using every opportunity to sell.

The 20 day EMA has moved up to touch the 50 day EMA, but both remain below the 200 day EMA. Technically, WTI Crude Oil remains in a bear market. Even if oil’s price manages to cross above its 200 day EMA, it is likely to face renewed selling pressure.

Brent Crude chart

The following concluding remarks were made three week’s back about the 2 years weekly closing chart pattern of Brent Crude Oil: “Technically, Brent Crude oil is in a long-term bull market. Bulls may regain control if oil’s price can climb above its 50 week EMA. Bears are unlikely to yield ground without a fight.”

Note that oil’s price hesitated briefly near its 20 week EMA, before rising sharply to cross above its 50 week EMA. Are the bulls back in control? Yes, and no. Oil’s price is trading above all three EMAs and the 200 week EMA is rising. That means the long term bull market is intact.

But the cross above the 50 week EMA hasn’t been a convincing one yet. Also, the entire rally from the Jun ‘12 low has been accompanied by sliding volumes – which means the rally can stall at any time.

Technical indicators are looking bullish. RSI is just above its 50% level, but its upward momentum is not strong. MACD has crossed above its signal line, but is in negative territory. Slow stochastic has climbed smartly above its 50% level.

The current rally has retraced about 50% of oil’s fall from its Mar ‘12 double-top to its Jun ‘12 bottom. In the daily closing chart of Brent Crude Oil (not shown), negative divergences are visible in RSI and slow stochastic, which failed to rise higher with oil’s price. Beware of lurking bears.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 03, ‘12

S&P 500 Index Chart

The 6 months daily closing chart pattern of the S&P 500 index is zig-zagging its way higher from its Jun ‘12 low, despite determined attempts by the bears to stall the rally. All three EMAs are rising and the index is trading above the EMAs. The bulls are back in control, or are they?

The index is trading well above its 20 day EMA, which in turn is trading high above its 200 day EMA. Expect some more zig-zag moves, as the bears may attack at any time. The index is approaching previous tops of Apr and May ‘12 – which can attract profit booking. Volumes have remained high on down days, which is a concern.

Technical indicators are bullish. RSI is above its 50% level, and rising. MACD is moving up in positive territory above its signal line. Slow stochastic is alternately entering its overbought zone and falling below its 50% level. Note that RSI and slow stochastic are showing negative divergences by touching flat or lower tops as the index has climbed higher.

S&P 500 has provided great trading opportunities in the last 2 months, but long-term investors may have spent a few sleepless nights. Hold on, and enjoy the ride while it lasts.

FTSE 100 Index Chart

The 6 months daily closing chart of the FTSE 100 index is trying to emulate the S&P 500 index by zig-zagging its way into bull territory despite a perceptible slow down in the UK economy. Just goes to show that the stock market doesn’t always follow logic.

The 20 day EMA has crossed above the 200 day EMA. The 50 day EMA may do so soon. The ‘golden cross’ will confirm a return to a bull market. All three technical indicators are bullish, but showing negative divergences by failing to reach higher tops with the index. Expect a correction in the near term, as the index is approaching its Apr and May ‘12 tops.

Bottomline? Chart patterns of the S&P 500 and FTSE 100 indices are forming bullish patterns of higher bottoms and higher tops. The bearish ‘rising wedges’ observed two weeks back appear to have been negated. Both indices are near previous tops, which could lead to profit booking. Both the US and UK economies are slowing down. It may be better to be cautious and safe than be bullish and sorry.

Notes from the USA (Aug 2012) – a guest post

In a guest post in Feb ‘12, KKP had presented a Consumer Survey Report from ChangeWave. US consumer spending was increasing then. Consumer confidence and expectations had shown improvement for the 6th straight month.

The improvement in the US economy hasn’t quite progressed according to plan. In fact, it has taken a turn for the worse. In his July 2012 guest post, KKP had introduced two less known indicators to suggest that the US economy was slowing down. The latest survey report from ChangeWave confirms the slow down.

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Time and Expectations

Time is fundamental to every strategy for investors and traders. In the markets today, time has become incredibly compressed by the “black hole” of technology and media – causing investors to often think and act in seconds and minutes rather than days and months. This state of affairs surely affects investor psychology in many ways, both good and bad.

ChangeWave’s weekly surveys contribute to a larger mosaic that in combination informs us of the dynamics of the US economy, specific sectors, and major corporations. The data is a snapshot in time, revealing the rate of change and momentum in many critical areas of the economy and its sectors. They also provide the context in which I evaluate all other data and events.

One thing that investors continue to ignore at their own peril is that the global and US economies are experiencing a massive, long-term process of balance-sheet deleveraging. This reflects both excessive consumer debt – as well as huge public sector issues – and the effects are particularly telling in ChangeWave’s consumer surveys. With such constraints on spending, any recovery will struggle to sustain 3.5% growth or better.

The Dow has climbed back above 13,000 on the wide belief that the economy is just lousy enough to prompt Ben Bernanke to initiate another round of quantitative easing and/or some other action to lift the economy or investor spirits. If the economic outlook is more dire than “just lousy enough,” then the US Federal Reserve will be even more limited in effectiveness.

The markets have learned something about Bernanke’s view on the economy and his likely intentions. Bernanke’s counterpart across the pond, European Central Bank chief Mario Draghi, last week vowed to do whatever it takes – assuring that it will be enough. Equity markets reacted very favorably to Draghi’s remarks, which may have set the tone for the U.S. chief.

Of course, reactions to the comments and actions by the central bankers will vary widely depending on one’s time frame and expectations.

Top and Bottom Lines

In April and May, ChangeWave’s consumer surveys indicated without a doubt that the US economy was losing momentum. Subsequent surveys on both the consumer and business sides revealed that the slowdown was taking root. The sideways direction for most of the economy has characterized the recovery since 2010, and it will take much more than the Fed to break this pattern.

Going back as far as Q4 2011, Wall Street analysts’ estimates were on the whole overly optimistic in their projections of corporate revenue and earnings. As we’ve seen since early 2012, analysts have repeatedly stumbled over each other to cut estimates as companies continue to offer downward guidance.

For the current season, after all the adjusted estimates, about 70% of the companies that reported earnings so far have beaten expectations. Yet a troubling 65% have missed the top line on sales. The latter is the result of the strain on demand as ChangeWave’s data has so well illustrated. Unfortunately, there is still relatively little being done to address the weakness in consumer spending.

Despite the lagging top line, investors have been bidding up stock prices. In fact, “the average stock that has reported since earnings season began on July 10th has gained 0.70% on its report day,” according to Bespoke Investment Group. “If the season were to end today, this would be the best performance stocks have seen on their report days since Q4 2010.”

It appears The Street had already lowered expectations enough that the numbers reported were viewed as fairly positive. During the same period last year, when the economic outlook was equally tepid, the average stock fell nearly 2% on its report day.

Now let’s delve into a few more highlights from ChangeWave’s latest consumer spending survey to identify some areas of strength and weakness.

Consumer Bellwethers Lose Momentum

ChangeWave’s July ‘12 consumer survey recorded the third consecutive monthly decline in consumer spending behavior. It also registered a significant decline in spending growth. Thus, it was no surprise when the government reported last week that in Q2 2012 US GDP grew at its slowest pace in a year – rising 1.5% after a revised 2% gain in the prior quarter.

The survey also reveals multiple categories being affected by the current spending slowdown, including restaurants, household repairs, electronics and durable goods. Even discount retailers like Target (TGT), Costco (COST) and Walmart (WMT) are feeling the effects.

During this earnings season, the results of several US retail bellwethers reflect the consumer trends identified by ChangeWave in recent months:

• Slowing sales in part led Procter & Gamble (PG) to cut profit forecasts three times this year.
• UPS (UPS), the world’s largest package-delivery company, cut its full-year profit forecast after a drop in Q2 international package sales. The company projects the US will grow 1% in the remainder of 2012.
• McDonald’s (MCD), Starbucks (SBUX) and Chipotle (CMG), which are typically resilient during tough economic times, saw a bit of a slowdown in US guest-count growth in Q2.

Starbucks’ CEO said he’s been speaking with other heads of consumer companies, and most everyone saw a similar pattern of deceleration in June and July, according to Bloomberg. “So, this is not a Starbucks issue, this is a macro problem.”

Coach (COH), the largest US luxury handbag maker, reported quarterly revenue that trailed analysts’ estimates. Sales at North American stores open at least a year rose 1.7%, compared with a gain of 10% a year earlier.

Easing Pressures

ChangeWave’s July ‘12 consumer survey showed a modest improvement in consumer expectations and confidence and signs that lower gas prices may be lifting spending in other areas. The findings even uncovered easing job concerns, a strong indicator that corporations, while not yet aggressively hiring, have tempered layoffs, downsizing and other cutbacks.

When asked how much they worry about someone in their family losing their job, 28% reported they worry A Great Deal (8%) or Quite a Bit (20%), while 28% said they Do Not Worry at All – a net 9 points better than previously.

Even though Reduced Income (36%) remains the number one reason why consumers are spending less, it declined 4 points in July ‘12 to its second lowest level of the past two years.

Overall, ChangeWave’s latest consumer survey indicates that the sideways movement of the economy is entrenched and shows no signs of breaking out to either the downside (i.e. recession) or upside (i.e. robust recovery). Of course, we’ll continue to monitor consumer spending and behavior and you’ll be the first to know when the US economy finally breaks out.

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KKP (Kiran Patel) is a long time investor in the US, investing in US, Indian and Chinese markets for the last 25 years. Investing is a passion, and most recently he has ventured into real estate in the US and also a bit in India. Running user groups, teaching kids at local high school, moderating a group in the US and running Investment Clubs are his current hobbies. He also works full time for a Fortune 100 corporation.

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 03, 2012

BSE Sensex index chart

FII buying, particularly during the early part of the week, pushed Sensex above all its three EMAs and into bull territory. DII selling ensured that the rally didn’t progress too far. Slim hopes of an interest rate cut by the RBI were belied. The market seemed to have discounted the possibility in advance.

The index is consolidating within a large ‘symmetrical triangle’ pattern. Since the triangle has been tested twice on the upper side and twice on the lower side, a break out may happen soon. Triangles are unreliable about the direction of the eventual break out. An upward break out should be supported by a significant increase in volumes. A downward break out does not require volume support.

All three EMAs are beginning to converge together. A sharp move could follow. Will the index move upwards and break out above the triangle, or will it move downwards? Since Sensex is in a bear market, the move is expected to be downwards. But it is better to wait for the actual move instead of trying to outguess it.

The one year daily closing chart of the Sensex shows that the 200 day EMA is almost flat and moving sideways – indicating that bulls and bears are almost equally matched. Remember that it isn’t necessary for an index or a stock to break out above or below a triangle – though a break out is a logical outcome. Some times, an index (or stock) may move sideways right through the apex of a symmetrical triangle – thereby negating the pattern.

Technical indictors are mildly bullish. MACD is touching its signal line, and both are just inside positive territory. ROC is barely positive, but above its 10 day MA. RSI is slightly above its 50% level. Slow stochastic has entered its overbought zone, but showing signs of turning down. The brief rally may be petering out.

NSE Nifty 50 index chart

A weak monsoon is threatening drought-like conditions in many parts of the country. In anticipation, some states have already started clamouring for central assistance. A drought will further dent the prospects of economic growth and lead to a spike in food inflation.

As if that isn’t bad enough, oil prices have started rising again – putting further stress on India’s balance of payments problems. With exports slowing down perceptibly, don’t expect depreciation of the Rupee to reverse direction any time soon. It will take a long while before India can dig itself out of the current economic morass.

 

The weekly closing chart of the Nifty 50 index has been consolidating within a symmetrical triangle pattern since touching its Dec ‘11 low. Last week, the index closed above its 20 week and 50 week EMAs after three straight weeks of lower closes. But have a look at the volume bars. This week’s volumes were less than the previous down week’s volumes. A rally needs volume support, without which it may not sustain very long.

Weekly technical indicators are looking bullish. MACD is above its signal line and just about positive. ROC is rising above its 10 week MA in positive territory. RSI is trying to move above its 50% level once again. Slow stochastic has moved down from its overbought zone.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are consolidating within large symmetrical triangle patterns. Break outs may happen in either direction from such patterns. It may be better to wait for the break out before plunging in feet first. India’s economy is in a period of declining growth and rising inflation – a double whammy that may lead to stagflation. Stock markets don’t thrive in such a situation. It is advisable to concentrate on less risky investment avenues.

Stock Index Chart Patterns – Hang Seng, Taiwan TSEC, Korea KOSPI – Aug 03, ‘12

In a previous post 4 weeks ago, Hang Seng, Taiwan TSEC and Korea KOSPI index charts had bounced up from higher bottoms touched in Jun ‘12 and were rallying towards their 200 day EMAs. But all three indices were trading in bear markets, so readers were advised to sell the rallies or short the indices with stop-loss at the respective 200 day EMAs.

Hang Seng index chart

The one year daily bar chart pattern of the Hang Seng index made a couple of attempts to move into bull territory. On the first occasion, selling pressure near the 200 day EMA pushed the index below all three EMAs. The same fate may befall the index as it has once again moved up to test its 200 day EMA.

Technical indicators are bullish, but showing signs of weakness in upward momentum. Slow stochastic has almost reached the lower edge of its overbought zone. MACD is barely positive and rising above its signal line. ROC is also positive, but turning down. RSI is above its 50% level, but moving down.

The 200 day EMA is sliding down and the index is trading below it. That means the bears still have the upper hand. However, a continuation of the rally into bullish territory is a possibility. Only a convincing move past the 22000 level will change the trend from bearish to bullish.

Taiwan TSEC index chart

Taiwan’s TSEC index is looking more bearish than the Hang Seng index. It is trading well below its falling 200 day EMA and all rallies are being used by bears to sell.

Technical indicators are mildly bullish, but showing weakening signs. Slow stochastic is above its 50% level, but its upward momentum is slowing. MACD is above its signal line, but both are in negative territory. ROC is positive but sliding towards the ‘0’ line. RSI is above its 50% level, but turning down.

The index closed 50 points lower today (Fri. Aug 3 ‘12). The down move may have resumed already.

Korea KOSPI index chart

Korea’s KOSPI index made a valiant effort to test its 200 day EMA, but fell short and started correcting. The index closed more than 1% lower and below the 1850 level today.

Technical indicators are mildly bullish, but showing signs of weakness. Slow stochastic is above its 50% level, but turning down. MACD is above its signal line and just entered positive territory. ROC is positive but slipping down. RSI is above its 50% level but falling.

A bearish pattern of lower tops and lower bottoms continue.

Bottomline? Chart patterns of the three Asian indices are trying desperately to free themselves from bear strangleholds – but without much success so far. Recovery in the global economies will be a painful and long drawn out process. Asian economies will not be immune to the slow growth in global markets. Fixed income instruments may provide better returns. Alternatively, stay in cash.

Stock Chart Pattern - Bharti Airtel (An Update)

In the previous update of the stock chart pattern of Bharti Airtel posted on May 25 ‘11 (marked by grey vertical line on the chart below), negative divergences in the technical indicators – which failed to touch new highs with the stock’s price (marked by blue arrows) – led to the following concluding comments:

“The stock chart pattern of Bharti Airtel is back in bull territory, but not yet out of the woods. Without a doubt, this is the best stock among the telecom service providers. But its glory days are behind it. As an investor, you always have choices. If you are going to invest in a slow growth, stalwart stock – would ITC or Dabur be better bets?”

If you are a die-hard fan of Bharti Airtel’s stock, you probably ignored my suggestion of a switch to ITC or Dabur. You may be suffering the consequences if you failed to sell when the stock hit its peak exactly a year ago. Incidentally, both ITC and Dabur would have been good candidates for a switch. While Bharti has lost 19% till date from its closing price of 369 on May 25 ‘11, ITC’s stock has gained 38% and Dabur’s stock gained a more modest 12%.

To grow one’s wealth, some times tough choices need to be made – specially when it involves getting rid of a hitherto outstanding performer in your portfolio. Many small investors must have faced a similar choice with the Infosys stock.

 

Despite the negative divergences marked in the daily bar chart pattern of Bharti Airtel, the stock kept rising for the next two months after my previous post and touched a two year high of 444.70 on Aug 1 ‘11. But it turned out to be a high volume ‘distribution day’ (open near day’s high and close near day’s low) that marked the end of a 14 months long bull rally. A small ‘rising wedge’ bearish pattern was formed as the stock touched its peak.

The subsequent bear phase in the stock’s price has completed a year. By touching an intra-day low of 280.10 on May 23 ‘12, the stock retraced 86% of its previous rally from the low of 254 (touched on Jun 2 ‘10). The ‘death cross’ of the 50 day EMA below the 200 day EMA in Dec ‘11 (marked by light blue oval) technically confirmed a bear market. The stock is trading below its falling 200 day EMA and the blue down trend line.

Technical indicators are bearish. MACD is falling below its signal line in negative territory. ROC is negative and below its 10 day MA, but trying to rise. RSI is moving sideways below its 50% level. Slow stochastic has entered its oversold zone.

Bottomline? The stock chart pattern of Bharti Airtel is falling deep into a bear market – touching lower tops and lower bottoms. The stock hasn’t found a bottom yet. There is no point in trying to catch a falling knife. If it falls below 280, it can test its Jun ‘10 low of 254. Avoid, till the stock price makes a reversal pattern. The company is under scrutiny by regulatory authorities for huge tax evasion.

Nifty and Defty charts: a mid-week update

Nifty chart

In last Saturday’s post, it was observed that the three EMAs had come close to each other and the following comments were made: “A sharp move usually follows. The only way for the move to be upwards is if FIIs start buying in huge volumes. Possible, but unlikely. So, brace yourself for a sharp down move at any time.” 

The unlikely seems to have happened. FIIs turned huge net buyers. DII selling could not prevent the Nifty from climbing above all three EMAs into bull territory. So, is it time to buy? Not yet, because the rally has been accompanied by sliding volumes. The technical indicators are also not very bullish. MACD is barely positive, and touching its signal line. ROC crossed above its 10 day MA into positive territory, only to turn down. RSI has just reached its 50% level. Slow stochastic has risen sharply to the edge of its overbought zone.

Nifty is consolidating within a large ‘symmetrical triangle’ pattern since touching its Dec ‘11 low. Triangles are notorious for being unreliable, because the eventual break out can be in either direction. The index is close to the upper edge of the triangle. An upward break out supported by strong volumes can change the trend to a bullish one.

But there is nothing to be bullish about as far as the economy is concerned. RBI Governor has lowered his GDP growth forecast for 2012-13 and expects inflation to move up. That means no interest rate cuts in the near term. FIIs (or is it round-tripping of very dark-coloured money from India?) may be setting up a bull trap. Be prepared for a sharp down move if the Nifty finds resistance from the upper edge of the triangle.

Defty chart

Unlike the Nifty, which has been moving in and out of bull territory in 2012, Defty remains in a bear market and continues to trade below its falling 200 day EMA. The index has managed to climb above its entangled 20 day and 50 day EMAs, but has a lot of ground to cover before testing its 200 day EMA. The support level of 2960 should be closely watched. A drop below will be very bearish.

Technical indicators are looking mildly bullish. MACD is barely positive, and touching its signal line. ROC has crossed above its 10 day MA and trying to enter the positive zone. RSI has risen to its 50% level. Slow stochastic has moved above its 50% level.

The rally may continue for a couple of more days, but is expected to face resistance from the 200 day EMA, if it doesn’t fizzle out sooner. Market players became enthusiastic when the PM took charge of the Finance Ministry. But nothing of note happened. Now there is excitement that Chidambaram as Finance Minister may announce some market-friendly policies. I’m not a betting man, but if I was, I would keep my wallet in my pocket.