Nifty chart: a mid-week update (Oct 14 ‘15)

The IIP number of 6.4% in Aug ‘15 came as a positive surprise – much higher than 4.1% in Jul ‘15 and the highest since Oct ‘12 – showing clear signs of growth in manufacturing.

Inflation climbed up a bit, but was well under control. CPI inflation was 4.4% in Sep ‘15 against 3.7% in Aug ‘15. WPI inflation was –4.54% in Sep ‘15 against –4.95% in Aug ‘15. Higher food prices were offset by lower fuel prices.

Q2 (Sep ‘15) results from Infosys, TCS, HUL, IndusInd Bank were very good, but belied market expectations. FIIs have turned bulls. As per provisional figures, their net buying in equities has exceeded Rs 700 Crores this week. DIIs were net sellers worth Rs 650 Crores.

The daily bar chart pattern of Nifty completed an ‘inverse head and shoulders’ reversal pattern and broke out upwards to completely fill the ‘measuring gap’ formed on the chart on Aug 24 ‘15.

The upper edge (8225) of the ‘gap’ acted as a strong resistance level. The index is undergoing a pullback towards the lower edge (8060) of the ‘gap’ – which also happens to be the ‘neckline’ of the ‘inverse head and shoulders’ pattern.

There are three possible moves Nifty can make from here in the near term:

1. Continue its correction – as often happens after filling of a downward ‘gap’
2. Bounce up after receiving support from the lower edge (8060) of the ‘gap’ and resume its rally
3. Consolidate within the ‘gap’ area till Diwali – by which time most of the Q2 (Sep ‘15) results of India Inc. will be announced and digested by the market

So, which option will Nifty choose? Anyone who knows the answer to that question can make some serious money!

Let us try some ‘guesstimates’. Under ‘normal’ circumstances, my vote will go to option 1. But this is not a ‘normal’ circumstance due to the formation of a clearly visible reversal pattern immediately below the ‘gap’.

That increases the possibility of option 2 – or, option 3 followed by option 2. The long-term bull market is intact because Nifty is trading more than 1100 points above its rising 200 week EMA (not shown).

Daily technical indicators are in the process of correcting overbought conditions. MACD is moving sideways above its rising signal line in positive territory. ROC faced resistance from the edge of its overbought zone, and is about to cross below its rising 10 day MA.

RSI is facing resistance from the edge of its overbought zone. Slow stochastic is about to drop down from its overbought zone. Expect Nifty to consolidate or correct a little more.

If you are itching to enter the market, place small bets instead of going ‘all in’. The stock market will be there tomorrow and the day after and the week after and the month after. There will always be opportunities to make money.

WTI and Brent Crude Oil charts: false breakouts from triangles?

WTI Crude chart

The daily bar chart pattern of WTI Crude oil consolidated sideways within a ‘symmetrical triangle’ pattern for almost 5 weeks before breaking out upwards on Oct 6 ‘15.

Oil’s price rallied for the next 3 days to touch an intra-day high of 51 on Oct 9, but formed a ‘reversal day’ pattern (higher high, lower close) that appears to have terminated the rally from the Aug 24 low.

On Oct 12, oil’s price dropped sharply towards the top of the ‘triangle’, but managed to close above its 20 day and 50 day EMAs.

Is the pullback to the top of the ‘triangle’ a buying opportunity? Not really. Note that volumes on the two down-days last week exceeded the volumes on the three up-days. That shows strong bear presence.

Also, oil’s price closed well below its falling 200 day EMA in a bear market. The ‘gap’ that formed on the chart in early July has not been tested yet. Bears will dominate till the ‘gap’ is convincingly filled.

Daily technical indicators are in bullish zones, but turning bearish. MACD has turned down after facing resistance from the edge of its overbought zone. RSI formed a ‘double top’ reversal pattern and is falling towards its 50% level. Slow stochastic has dropped down from its overbought zone.

On longer term weekly chart (not shown), oil’s price managed to close above its falling 20 week EMA last week before slipping down, and is trading below its three weekly EMAs in a long-term bear market. Weekly MACD and RSI remain in bearish zones, and are showing negative divergences by failing to touch a new high with oil’s price. Slow stochastic has just crossed above its 50% level.

Brent Crude chart

The daily bar chart pattern of Brent Crude oil broke out sharply above a sideways consolidation within a ‘triangle’ pattern with good volume support on Oct 6 ‘15.

Oil’s price crossed above 54 intra-day on Oct 9, but formed a ‘reversal day’ pattern (higher high, lower close) that extinguished any bullish hopes and ended the rally from the Aug 24 low.

On Oct 12, oil’s price dropped sharply with a volume spike towards the top of the ‘triangle’, but found support from its 20 day EMA and managed to close above its 20 day and 50 day EMAs.

Note that oil’s price is trading well below its falling 200 day EMA in a bear market. So, the pullback towards the top of the ‘triangle’ is likely to become an ‘end run’ below the triangle.

Daily technical indicators are in bullish zones, but turning bearish. MACD is moving sideways in positive zone. RSI is falling sharply towards its 50% level. Slow stochastic has dropped down from its overbought zone.

On longer term weekly chart (not shown), oil’s price faced resistance from its 20 week EMA, and is trading below its three weekly EMAs in a long-term bear market. Weekly technical indicators corrected oversold conditions but remain in bearish zones.

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 09, 2015

Indirect tax collections (from service tax, customs and excise duties) rose nearly 36% during Apr-Sep ‘15 – to Rs 3.24 Lakh Crores from Rs 2.38 Lakh Crores during Apr-Sep ‘14 - giving a boost to the government’s coffers. The budget had estimated a 19% growth.

In another sign of improving economic activity, commercial vehicle sales rose 12% in Sep ‘15 on a YoY basis while passenger vehicle sales rose nearly 10%. However sales of utility vehicles, 2 and 3 wheeler sales dipped.

FIIs have resumed buying in equities. As per provisional figures, their net buying touched Rs 1500 Crores last week. DIIs turned net sellers of equity worth Rs 950 Crores.

BSE Sensex index chart

The daily closing chart pattern of Sensex is making an honest attempt to reverse a 9 months long down trend.

The index formed a complicated ‘inverse head and shoulders’ reversal pattern (whose left and right shoulders were small ‘double bottom’ reversal patterns and the head was itself a small ‘inverse head and shoulders’ pattern) with a downward-sloping neckline.

An expected upward breakout from the pattern was followed by a rally past its 20 day and 50 day EMAs (both of which have formed bullish ‘rounding bottom’ patterns) and a part-filling of the ‘measuring gap’ formed in Aug 24 ‘15 in the daily and weekly bar charts.

Note that the index is facing strong resistance from its 200 day EMA, which is just below the upper edge of the ‘measuring gap’. A complete filling of the ‘gap’ on closing basis will be the first requirement for bulls to regain some control over the chart.

However, bears will be in no mood to give up easily. Just above the ‘gap’ is the long-term ‘support-resistance zone’ between 27350 and 28800. Sensex has failed to close above this zone since Apr ‘15.

Daily technical indicators are looking bullish and a little overbought. MACD is rising above its signal line in positive zone. ROC has entered its overbought zone. RSI is moving sideways just below its overbought zone. Slow stochastic is well inside its overbought zone.

RSI and Slow stochastic are showing negative divergences by failing to touch a new high with the index. Expect the index to go through some consolidation or correction.

Can the index resume its down trend and fall below the ‘head’ of the ‘inverse head and shoulders’ pattern? The possibility can’t be ruled out – specially if you are an ardent follower of Elliott Waves.

But the probability of such an event is low because of the formation of (and an upward breakout from) a clearly visible reversal pattern. The closing level (24894 on Sep 7) of the ‘head’ should be a near-term bottom for the index.

Time to start picking up stocks from your ‘buy list’.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty had spent 6 straight weeks below the rare weekly ‘gap’ formed on the chart in the week ending on Aug 28 ‘15. It finally moved up to close the ‘gap’ last week.

Though the index failed to close above the ‘gap’, it managed to close just above the lower edge of the long-term ‘support-resistance zone’ between 8180 and 8360 – and above its 20 week and 50 week EMAs in bull territory.

In a full week of trading after three holiday-shortened weeks, volumes picked up considerably. Weekly technical indicators are still in bearish zones, but showing signs of upward momentum.

Bulls have their work cut out. Expect overhead resistances from the upper edge of the ‘measuring gap’, the blue down trend line and the 8630 level.

Bottomline? Chart patterns of Sensex and Nifty remain in down trends but bearish ‘measuring gaps’ are on the verge of getting filled. Further down sides can’t be ruled out entirely, but upward breakouts from reversal patterns formed on daily charts are indications that the corrections are over. Long-term bull markets are intact. This is a good time to add/enter.

Nifty chart: a mid-week update (Oct 07 ‘15)

After heavy selling in the previous 2 months, FIIs have turned net buyers of equity. During the first 4 trading days in Oct ‘15, their net buying has been worth Rs 1125 Crores, as per provisional figures. DIIs have been net sellers of equity worth Rs 125 Crores.

Monsoon has withdrawn from most parts of the country. Rainfall deficiency – though acute in a few pockets – has been more or less within the ‘normal’ range. Rural consumption should not get affected too much.

Anecdotal evidence suggests that government spending on infrastructure is picking up. It may be too late to get reflected in Q2 (Sep ‘15) results of India Inc. Expect better results in Q3 and Q4.

The daily bar chart pattern of Nifty had fallen below the long-term ‘support-resistance zone’ between 8180 and 8630 with a 165 points downward ‘measuring gap’ on Aug 24 ‘15.

The subsequent ‘death cross’ (marked by light blue circle) of the 50 day EMA below the 200 day EMA had technically confirmed a bear market.

The index has completed the formation of an ‘inverse head and shoulders’ reversal pattern – with the lower edge of the ‘measuring gap’ as its neckline.

By climbing above the neckline with good volume support, the index has partly filled the ‘gap’ - but is facing twin resistance from its 200 day EMA and the 8180 level (lower edge of the ‘support-resistance zone’).

Daily technical indicators are in bullish zones but beginning to show some weakness. MACD has entered positive zone. ROC is moving sideways in positive zone, and showing negative divergence by touching a lower top.

RSI has turned down after facing resistance from the edge of its overbought zone. Slow stochastic is well inside its overbought zone.

Is the 7 months long correction from the Mar ‘15 lifetime high of 9119 finally over? It would appear so. However, expect bears to remain in the picture till the index can completely fill the ‘measuring gap’ and convincingly cross above the 8630 level (upper edge of the ‘support-resistance zone’).

That can only happen after some consolidation - provided that FIIs continue their net buying.

Remain cautiously optimistic but try not to jump in feet first.

Gold and Silver charts: consolidating sideways in bear markets

Gold chart pattern

The daily bar chart pattern of gold has been consolidating sideways for the past 6 weeks within a ‘triangle’ pattern and oscillating about its 20 day and 50 day EMAs. Since a ‘triangle’ is an unreliable pattern, a breakout can occur in either direction.

Down days have outnumbered up days, but volumes have been strong on a couple of recent up days – indicating some buying interest at lower levels.

However, gold’s price continues to trade below its sliding 200 day EMA in a bear market. Every attempt at a rally has been facing bear selling.

Daily technical indicators are looking mildly bullish. MACD has crossed above its signal line in positive zone. RSI moved above its 50% level but its upward momentum has stalled. Slow stochastic has risen to its 50% level.

On longer term weekly chart (not shown), gold’s price faced resistance from its 20 week EMA, and closed below all three weekly EMAs in a long-term bear market. MACD and RSI are in bearish zones. Slow stochastic has moved above its 50% level, but its upward momentum is weakening.

Silver chart pattern

The daily bar chart pattern of silver broke out upwards with good volume support after spending 6 weeks in a sideways consolidation within a ‘triangle’ pattern.

The rally stalled after touching a high of 15.75. Silver’s price closed below its 200 day EMA in a bear market.

All three daily technical indicators are in bullish zones, and showing good upward momentum. Silver’s price may move up further to test resistance from its 200 day EMA. Expect bear selling to start at any time.

On longer term weekly chart (not shown), silver’s price closed above its 20 week EMA, but is trading below its 50 week and 200 week EMAs in a long-term bear market. RSI and Slow stochastic are in bullish zones, but MACD is still in bearish zone. All three are showing upward momentum.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Oct 02, 2015

S&P 500 Index Chart

After falling sharply below a bearish ‘rising wedge’ pattern, the daily bar chart pattern of S&P 500 touched an intra-day low of 1872 on Sep 29 (slightly higher than the Aug ‘15 low of 1867), formed a ‘reversal day’ bar and rallied on good volumes to close above its 20 day EMA and the 1950 level with a 1% gain on a weekly closing basis.

Bulls may have won last week’s battle, but continue to lose ground in the longer-term war. The index is trading well below its 50 day and 200 day EMAs in a bear market that was technically confirmed by the ‘death cross’ of the 50 day EMA below the 200 day EMA.

Daily technical indicators are in bearish zones but showing good upward momentum. MACD has crossed above its signal line and making another attempt to emerge from its oversold zone. RSI and Slow stochastic are rising towards their respective 50% levels. The rally may continue a bit longer – but bears may resume their selling soon.

On longer term weekly chart (not shown), the index closed below its falling 20 week and 50 week EMAs for the 7th week in a row, but is trading above its rising 200 week EMA in a long-term bull market. The 20 week EMA has crossed below the 50 week EMA for the first time in more than 3 years. Weekly technical indicators are in bearish zones, but their downward momentum have stalled.

FTSE 100 Index Chart

The 'rectangle' pattern, within which the daily bar chart pattern of FTSE 100 has been trading for more than a month, has been redrawn to reflect last week's trading and a broader consolidation zone. (Such redrawing is often necessary to represent the changing technical structure.)

The index breached the lower edge of the 'rectangle' on Sep 29 by touching an intra-day low of 5877, but bounced up on good volume support to close the week with a small 21 points gain.

A 'rectangle' is usually a continuation pattern. Since the index entered it from above, the eventual breakout should be downwards. However, 'rectangle' patterns are unreliable. It is advisable to wait for the breakout before initiating long or short positions.

Note that the index is trading well below its falling 200 day EMA in a bear market. So, the odds of a downward breakout are better.

Daily technical indicators are showing good upward momentum, but only Slow stochastic has managed to enter bullish zone. MACD is trying to emerge from its oversold zone. RSI has reached its 50% level. Any further rally is likely to face twin resistances from the upper edge of the 'rectangle' and the falling 50 day EMA.

On longer term weekly chart (not shown), the index closed well below its three weekly EMAs for the 7th week in a row, and has probably entered a long-term bear market. Weekly technical indicators are in bearish zones, but their downward momentum have stalled.

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 01, 2015

For the second month in a row, and in 4 of the past 5 months, FIIs were net sellers of equity due to a variety of reasons – poor monsoon, poor earnings of India Inc., possible interest rate hike in USA, poor growth in China. DIIs have been net buyers of equity in every month since Feb ‘15.

Can India become the next China for global investors? PM Modi is certainly hoping so, and timed his visit to Ireland and USA accordingly. India’s slow but steady growth based on domestic consumption, low inflation, a huge young workforce may finally get the global attention it deserves.

There was mixed news on the economic front. Passenger vehicle sales in Sep ‘15 grew 4.6% on a YoY basis, with Maruti, Hyundai, Honda and Ford being leaders and M&M, Toyota, Tata Motors being laggards. 2-wheeler sales were marginally lower. Manufacturing PMI in Sep ‘15 slipped to a 7 months low of 51.2 from 52.3 in Aug ‘15 (a figure above 50 indicates growth).

BSE Sensex index chart

The daily closing chart pattern of Sensex has been trading in a bear market since the sharp fall with a downward ‘gap’ on Aug 24 ‘15. The ‘death cross’ (marked by light blue circle) of the 50 day EMA below the 200 day EMA technically confirmed a bear market.

There is hope of a turnaround for bulls. The index has formed a complicated ‘inverse head and shoulders’ reversal pattern. Why complicated? Because the left and right shoulders (marked LS and RS respectively) are themselves small ‘double bottom’ reversal patterns and the Head is itself a small ‘inverse head and shoulders’ reversal pattern.

The downward-sloping neckline (marked NL) of the pattern has been breached upwards, but not convincingly yet. Overhead resistances from the falling 50 day and 200 day EMAs and the ‘measuring gap’ should prevent a bull rally from running away.

However, a ‘reversal pattern’ is clearly visible and should be respected. So, it will be advisable not to short the index.

Daily technical indicators are turning bullish, but three of them – ROC, RSI, Slow stochastic – are showing negative divergences by touching lower tops. MACD is above its signal line, and both are rising in negative territory. ROC has crossed above its rising 10 day MA in positive territory. RSI is showing a bit of weakness by turning down towards its 50% level. Slow stochastic is moving up towards its overbought zone.

Expect some consolidation or correction before the index can start rallying.

RBI Governor gave an early Diwali bonus with an unexpected 50 bps cut in interest rates. Banks have been coaxed to transmit the bulk of the cut to its base lending rates. Rate sensitive sectors, including capital goods, consumer discretionary and infrastructure should benefit.

This may be a good time to start accumulating fundamentally strong stocks.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty has spent 6 straight weeks below the rare weekly ‘gap’ formed on the chart in the week ending on Aug 28 ‘15. The 20 week and 50 week EMAs are touching each other and sliding down. The index is trading below them in bear territory.

However, the index closed nearly 1000 points above its rising 200 week EMA (not shown). That means the long-term bull market is intact, though bears continue to dominate the chart in the near term. (Awareness and appreciation of the effect of different time frames on price charts will enable better decision making.)

Weekly technical indicators are in bearish zones but their downward momentum is slowing down. MACD is falling below its signal line in negative territory. ROC is again trying to emerge from its oversold zone, but remains below its sliding 10 week MA. RSI has started to move down after facing resistance from its 50% level. Slow stochastic is moving up after receiving support from the edge of its oversold zone.

Transaction volumes appear low during the past three weeks due to holidays. Volumes should pick up soon.

Bulls have a lot of work to do before the index can resume its up move. The ‘gap’ needs to be filled and the blue down trend line needs to be crossed convincingly. That can happen only if the FIIs stop selling.

Bottomline? Chart patterns of Sensex and Nifty are in down trends and are trading below bearish ‘gaps’. Daily charts have formed trend reversal patterns. Long-term bull markets are still intact. The long correction has provided an opportunity to enter good stocks at fair prices. Use it.