Should you look at stocks from the Consumer Durables sector?

The short answer to the question is: Yes. The business models of most consumer durables sector companies are reasonably easy to understand.

With economic growth, disposable income in the hands of consumers is increasing. That leads to buying of higher-priced products and more frequent replacement purchases.

However, not all companies in the sector are doing equally well. So, stock picking and chart reading skills will separate the men from the boys. Given below are the 2 years closing charts of 8 stocks from the sector.

Bajaj Electricals

The stock closed at a 2 years high of 377 in May ‘14 but formed a ‘double top’ reversal pattern by closing at a lower top of 372 in Jul ‘14. A 5 months long correction dropped the stock below all three EMAs into bear territory.

The stock successfully tested support from the 200 level in Nov ‘14 and has been in a gradual up move since then. The resistance level of 300 needs to be crossed convincingly for the bull market to resume. Daily technical indicators are turning bullish.

Blue Star

The stock has been in a bull market since Mar ‘14. After a sharp rally to a closing high of 369 in Sep ‘14, the stock has been consolidating sideways within a ‘rectangle’ pattern. It recently tried to break out above the ‘rectangle’ with decent volume support and closed at a 2 years high of 378, but the break out hasn’t been a convincing one yet.

Daily technical indicators are bullish but looking overbought and showing some negative divergence. Expect the stock to consolidate some more before resuming its up move.

Hawkins Cookers

 

All good things eventually come to an end. The stock price of Hawkins is no exception. After a stellar bull rally to a closing high of 4598 in Jan ‘15, the stock plummeted by more than 50% to a low of 2106 in Jun ‘15. Daily technical indicators are bearish and looking oversold.

The stock may test and even break the 2100 level. Any upward bounce from the 2100 level – if supported by strong volumes – will form a ‘double bottom’ reversal pattern. Sharp volume spikes on down days indicate bears are unlikely to give up control.

Symphony

 

This stock was also in a relentless one-way bull run till it reached a 2 years high of 3151 in Apr ‘15. All four technical indicators were in overbought zones and three of them – ROC, RSI, Slow stochastic – showed negative divergences by failing to touch a new high.

That provided bears with the right incentive to attack. The stock appears to have formed a ‘double bottom’ reversal pattern at 1720 (after correcting 45% from the top). A feeble attempt was made to cross above the blue down trend line. More downside is possible.

Titan Industries

Titan was a darling of the stock market because of RaRe bull’s presence. After closing at 442 in Jan ‘15 and correcting down to its 20 day EMA, the stock rose to a lower top of 435 a month later – forming a ‘double top’ reversal pattern.

That was the trigger for a correction, which is still in progress. The stock has dropped below all three EMAs into a bear market. Daily technical indicators have corrected oversold conditions. Some more correction is likely.

Videocon

 

The stock has been in a bear market for the past 2 years. Several attempts to escape from bear territory have been inevitably followed by heavy selling.

Daily technical indicators are looking bearish and oversold. This stock is best avoided.

VIP Industries

The stock has tested the patience of long-term investors. After closing at a 2 years high of 126 in Jan ‘15, the stock price dropped to 90 in Mar ‘15. It has been moving sideways below its 200 day EMA in a small range since then, and is technically in a bear market.

Three of the technical indicators are in neutral zones. Slow stochastic is inside its oversold zone. Check Q1 (Jun ‘15) results before initiating any action.

Whirlpool

 

The stock has been in a bull market since Feb ‘14, but its upward momentum has slowed down considerably since Jan ‘15. However, it continues to touch higher tops and higher bottoms – which is a sign that bulls are in control.

Stay invested with a trailing stop-loss.

The Number One Reason Why Most Traders Fail

The stock market has come out of a 3 months long correction and heading upwards again. Mid-cap and small-cap stocks are flying high. The temptation must be strong for first-timers to enter the market and become rich quickly.

Whenever anything looks tempting and really good there is a psychological urge to indulge. Doesn’t matter if it is a lunch buffet at a popular restaurant or an electronics sale from an online e-tailer or a fast-rising stock market.

The sensible thing to do would be to take a deep breath and step back. An irrepressible urge to do something is often followed by deep regret – specially when the only thing in your possession is an entry in your demat account that is sharply losing its value.

An oft-quoted statistic is that 90% of traders fail to make money in the stock market. The same statistic probably applies to most first-time investors as well.

The reason is simple. A recent article in investopedia.com not only explains the reason, but charts out the steps required for success in the stock market.

Nifty chart: a mid-week update (Aug 05 ‘15)

RBI Governor kept interest rates unchanged during Tuesday’s policy meeting. A sell-off ensued as some market players were hoping against hope for a 25 bps rate cut.

The overall monsoon rainfall during Jun & Jul ‘15 have been deficient by about 5%. If rains during Aug ‘15 is also deficient, expect food prices to rise and stoke inflation.

As per provisional figures, FIIs have been net buyers of equity worth Rs 920 Crores during the first three trading days of Aug ‘15. DIIs have been net sellers of equity worth Rs 330 Crores.

Q1 (Jun ‘15) results continue to show bottom line pressure, though there have been a few exceptions. Manufacturing growth has just begun to pick up.

The daily bar chart pattern of Nifty dropped down below its 20 day EMA intra-day on Tue. Aug 4 but bounced up on strong volume support to close higher today.

The index is approaching the resistance zone between 8630 and 8670 (mentioned in a previous post). Expect bears to put up a fight. Once 8670 is crossed convincingly, the index may run away to touch a new high.

Daily technical indicators are painting a mixed picture. MACD has moved up to touch its falling signal line in positive zone – which is mildly bullish. ROC faced resistance from its sliding 10 day MA and failed to enter positive zone – which is slightly bearish.

RSI is also looking a bit bearish by slipping below its 50% level. Slow stochastic has climbed above its 50% level, which is a bullish sign, but its upward momentum is decelerating.

All three EMAs are rising and Nifty is trading above them in a bull market. The index appears to be forming a ‘rounding bottom’ or a ‘cup and handle’ pattern.

If either pattern plays out, Nifty can touch 10000 in the near future. Any fall below the Jun ‘15 low of 7940 can lead to a drop to 7500 – however remote the possibility may seem now.

In other words, be very cautious about betting the ranch on ‘sure shot’ or ‘can’t fail’ type of stocks.

Gold and Silver charts: bears trying to stop the rot

Gold chart pattern

The daily bar chart pattern of gold had touched a high-volume ‘panic bottom’ of 1080, which led to the following comment in the previous post: “A ‘panic bottom’ seldom holds. That means the Jul 20 ‘15 low of 1080 is likely to be breached.”

A ‘dead cat bounce’ to 1110 on the next day was followed by an intra-day drop to a 3 years low of 1072 and then a high-volume bounce to 1100 on Jul 24.

Gold seems stuck in a sideways consolidation within a small ‘symmetrical triangle’. Since triangles are usually continuation patterns, a downward break out is likely.

All three EMAs are falling, and gold’s price is trading below them in a bear market. Daily technical indicators have corrected oversold conditions but remain bearish. Any rally will provide a selling opportunity.

On longer term weekly chart (not shown), all three weekly EMAs are falling and gold’s price is trading well below them in a long-term bear market. Weekly technical indicators are in bearish zones. MACD is falling below its signal line. RSI and Slow stochastic are moving sideways.

Silver chart pattern

The daily bar chart pattern of silver touched an intra-day low of 14.30 on Jul 24 and then bounced up to touch an intra-day high of 15 a week later.

Resistance from the falling 20 day EMA proved too strong for the brief rally. Silver’s price closed below 14.50 deep inside bear territory – a 3 years low on a closing basis.

Daily technical indicators have corrected oversold conditions but remain in bearish zones.

Bears are desperately trying to stop the rot. Still there is no sign of bottom formation.

On longer term weekly chart (not shown), silver’s price is trading well below its three weekly EMAs in a long-term bear market. Technical indicators are in bearish zones and showing downward momentum.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jul 31, 2015

S&P 500 Index Chart

The daily bar chart pattern of S&P 500 dropped to test support from the rising 200 day EMA on Mon. Jul 27, and then bounced up sharply above its 20 day and 50 day EMAs with good volume support.

The index closed just above the 2100 level – gaining 1% on a weekly closing basis. The 200 day EMA continues to rise, which is a sign of a bull market.

But the index has been stuck in a 100 points range (between 2040 and 2140) for the past 6 months. Reminded me of Dylan’s song “You ain’t going nowhere.”

Daily technical indicators are in bullish zones, but their upward momentum is waning.

On longer term weekly chart (not shown), the index closed above its three weekly EMAs in a long-term bull market. However, the 20 week EMA may be forming a bearish ‘rounding top’ pattern. Weekly technical indicators are in bullish zones and showing some upward momentum.

Stay invested, with a stop-loss at 2040.

FTSE 100 Index Chart

The daily bar chart pattern of FTSE 100 touched a higher bottom of 6496 on Mon. Jul 27 and bounced up smartly with good volume support (not shown on chart) to close above its 20 day EMA – gaining about 1.8% on a weekly closing basis.

However, the index remains below its sliding 50 day and 200 day EMAs in bear territory. A convincing move above the Jul 20 intra-day high of 6813 will reverse the bearish pattern of ‘lower tops and lower bottoms’.

Daily technical indicators are showing bullish signs. MACD has crossed above its signal line in negative zone. RSI and Slow stochastic have just managed to move above their respective 50% levels.

On longer term weekly chart (not shown), the index is trading below its sliding 20 week and 50 week EMAs but closed well above its 200 week EMA, and technically remains in a long-term bull market. Weekly technical indicators are in bearish zones.

BSE Sensex and NSE Nifty 50 index chart patterns – Jul 31, 2015

Auto sales of several manufacturers showed healthy double-digit growth during Jul ‘15, with M&M being an exception. That was the good news. Now, some bad news.

India’s fiscal deficit during Q1 (Jun ‘15) touched almost $45 Billion, more than 50% of the target set for the whole year. 16% surplus monsoon rains in Jun ‘15 was followed by 17% deficit across the country in Jul ‘15.

However, rainfall was fairly widespread (except in South India) with several states receiving heavy rainfall.

After 2 months of net selling, FIIs were net buyers of equity worth Rs 2300 Crores during Jul ‘15 (as per provisional figures). DIIs became marginal net buyers of equity worth Rs 72 Crores – thanks to heavy buying on the last day of the month.

BSE Sensex index chart

A steep up trend line drawn on the daily bar chart pattern of Sensex last week (marked 1) got breached by heavy selling during the first 2 days of the week.

Steep up trend lines tend to get breached easily (the possibility was mentioned in an earlier post) so it should not have come as a surprise.

The index found strong support from the lower edge of the ‘support-resistance zone’ and the 200 day EMA, and bounced up sharply above its 20 day and 50 day EMAs into bull territory.

A second (less steep) up trend line has been drawn, which is expected to support the index during the next leg of the up move.

What if Sensex is undergoing a pullback to up trend line 1? Wouldn’t that become a selling opportunity? Technically, no. Why? Because Sensex is clearly undergoing a bull market correction/consolidation.

How can one be sure? By looking at the 50 day and 200 day EMAs. The 50 day EMA moved down towards the 200 day EMA, but has started moving up again – preventing a ‘death cross’.

The rising 200 day EMA flattened out during May and Jun ‘15, but has started to rise again. Also, the index appears to be forming a ‘rounding bottom’ or a ‘cup-and-handle’ pattern.

Either pattern – if it plays out – will lead to upward break outs. The strategy should be to ‘buy on dips’ and not to ‘sell on rises’ (which is a bear market strategy).

Daily technical indicators are turning bullish, though ROC and Slow stochastic are still in bearish zones. Stay invested.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty dropped below its 20 week EMA intra-week, but bounced up strongly with good volume support to make marginal weekly gains.

Likely resistance from the zone between 8630 (top edge of the ‘support-resistance zone’) and 8670 (the 61.8% Fibonacci retracement level of the entire fall from the Mar ‘15 top of 9119 to the Jun ‘15 bottom of 7940) will be the next hurdle for bulls.

Three of the four weekly technical indicators are looking bullish. MACD is rising above its signal line in positive zone. RSI has crossed above its 50% level. Slow stochastic has climbed to the edge of its overbought zone. Only ROC is looking bearish by falling towards the ‘0’ line.

Nifty is trading above its two weekly EMAs in a bull market. Bulls are regaining their control over the chart.

Bottomline? The bar chart patterns of Sensex and Nifty may be in the process of forming bullish continuation patterns. Long-term trends remain bullish, so dips can be used as adding opportunities. Choose ‘good’ stocks and maintain suitable stop-losses. Stick to MFs if stock picking is not your cup of tea.

Focus back on Banking Sector stocks?

Ask any analyst covering the banking sector and you will hear a common refrain: “Buy private sector banks – avoid public sector banks.” I endorse this view.

PSU banks are often forced by the government to extend services to sectors that private banks scrupulously avoid. They run up huge NPAs in the process.

A recent decision by the government to inject Rs 70,000 Crores over the next 4 years into PSU banks have switched the focus back on the banking sector.

Does that make PSU banks better buys? Have a look at the charts of 10 banking sector stocks below and make up your mind.

Punjab National Bank

PNB’s stock started a bull phase in Mar ‘14 that culminated with a closing high of 225.95 in Dec ‘14 (adjusted for 5:1 stock split marked by light blue bell).

As often happens after a stock split, sellers dominated and the stock has dropped into a bear market. The funds infusion news has seen buyers coming to the fore.

Technical indicators are looking bullish, so the stock can rally some more. A convincing move above the sliding 200 day EMA may shake off bears.

Bank of Maharashtra

The stock touched a 2 years closing high of 54.20 in Jun ‘14, but formed a ‘double-top’ reversal pattern and started a 9 months long down trend.

The stock has been consolidating sideways for the past 4 months, but is trading below its 200 day EMA in a bear market.

Daily technical indicators are looking bearish. A convincing move above 42 may change the trend to bullish.

Central Bank

This is the chart of a PSU bank that resembles that of private banks. It is clearly in a bull market.

After closing at a 2 years high of 114.60 in Feb ‘15, the stock price has been consolidating sideways with a slight downward bias.

Technical indicators are showing signs of turning bullish. This can be a good entry point.

Corporation Bank

The stock price closed at a 2 years high of 82.40 in Jun ‘14, but formed a ‘double top’ reversal pattern and started to correct. News of a 5:1 stock split took the stock to a lower top of 77.60 in Jan ‘15.

Bears reasserted themselves, and the stock has been sliding deeper into bear territory. Technical indicators are showing some upward momentum. Any rally should be used to sell.

Indian Overseas Bank

The chart structure of IOB stock is similar to that of Corp. Bank – minus the price spurt in Jan ‘15. After closing at a 2 years high of 88.80, the stock has been on a downhill ride with a break of 4 months (during Oct ‘14 to Jan ‘15) for a sideways consolidation.

Technical indicators are showing signs of upward momentum, but the stock should be avoided.

HDFC Bank

One look at the chart should convince any investor why HDFC Bank’s stock is a favourite of FIIs. After a brief bear phase during Aug-Sep ‘13, the stock price rallied strongly to close at 1094 in Jan ‘15.

A 3 months corrective phase followed. The stock dropped to seek support from its rising 200 day EMA, and then bounced up to touch a 2 years closing high of 1115.60 in Jul ‘15.

Daily technical indicators have corrected from overbought conditions. The stock looks set to resume its up move.

ICICI Bank

After closing at a 2 years low of 156.80 in Sep ‘13, the stock price rose almost one-way to a 2 years closing high of 383.85 (adjusted for the 5:1 stock split in Dec ‘14 marked by light blue bell).

The stock has been in a correction since then, but appears to have formed a ‘double bottom’ reversal pattern. Technical indicators are in the process of correcting oversold conditions.

The bear phase may have come to an end.

Axis Bank

From a 2 years closing low of 164.70 (touched in Sep ‘13), the stock rose to a 2 years closing high of 649.50 (in Mar ‘15 – adjusted for 5:1 stock split in Jul ‘14) – gaining almost 300% in 18 months.

The stock has been consolidating sideways within a ‘pennant’ pattern for the past 5 months, and is trading above its rising 200 day EMA in a bull market.

Technical indicators are in bearish zones, but trying to turn around. An upward break out from the ‘pennant’ is likely

IndusInd Bank

The stock has given very good returns to investors – rising from a 2 years closing low of 338 (in Aug ‘13) to a 2 years closing high of 977.60 (in Jul ‘15) and gaining almost 190% in 2 years.

In between, a 3 months corrective phase (during Apr-Jun ‘15) ended with a ‘double bottom’ reversal pattern that successfully tested support from the 200 day EMA.

Technical indicators are looking overbought and showing negative divergences. A correction may be around the corner.

Yes Bank

The stock of Yes Bank provided excellent returns to shareholders – gaining 290% from a 2 years closing low of 225.90 (in Aug ‘13) to a 2 years closing high of 883.35 (in Jan ‘15).

Squabbles within the promoter family has prevented the stock from going anywhere since then. The stock has consolidated within a ‘rectangle’ with a 100 points range for the past 6 months.

Technical indicators are showing some upward momentum. A likely upward break out from the ‘rectangle’ can help the stock price touch 4 figures.