Sensex, Nifty charts (Jul 07, 2017): forming bullish ascending triangle patterns?

FIIs were net sellers of equity worth Rs 19.5 Billion during the week. DIIs were net buyers of equity worth Rs 23.6 Billion, as per provisional figures.

Sensex and Nifty gained 1.4% and 1.5% respectively on a weekly closing basis, and are within handshaking distances of their lifetime highs.

Concerns regarding GST implementation are gradually dissipating. Over the medium to long-term, market share is expected to shift away from unorganised players (mainly micro, small and medium enterprises) to organised sectors.  

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex shows the effect of a week of strong buying by DIIs. 

The index bounced up after receiving good support from its 50 day EMA, and rose to touch an intra-day high of 31461 (just 0.2% lower than its Jun 22 top) and a lifetime closing high of 31369 on Thu. Jul 6 

By touching a higher bottom of 30681 on Jun 30, the index may be in the process of forming an 'ascending triangle' pattern, from which the likely breakout is upwards.

Daily technical indicators are in bullish zones, but only Slow stochastic is showing any upward momentum. All four are showing negative divergences (marked by blue arrows).

Some more consolidation within the 'triangle' is possible before the index eventually breaks out.

Remember that an upward breakout will be technically valid if accompanied by a volume surge. Without volume support, the likely breakout may be followed by a pullback towards the top of the 'triangle'.

Stay invested. Await Q1 (Jun '17) results to decide the next course of action.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty rose to test resistance from the 9700 level before closing just 2 points lower than its lifetime closing high of 9668 (in the week ending on Jun 9). 

For the past 7 weeks, the index has been consolidating sideways - forming a possible 'ascending triangle' pattern from which the likely breakout is upwards.

Weekly technical indicators are in bullish zones and looking overbought. Three of them are showing negative divergences (marked by blue arrows) by failing to touch higher bottoms with the index.

Nifty's TTM P/E has moved up to 24.6 - much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has dropped back inside its overbought zone after briefly emerging from it.

Some more consolidation around current levels is a possibility before the index can break out.

Bottomline? Sensex and Nifty charts are consolidating sideways near lifetime highs. Some more consolidation is likely. Stay invested. Await Q1 (Jun '17) results - to be announced from next week onwards. 

(Note: Don’t worry too much about index fluctuations! Learn how to choose fundamentally strong mid-cap and small-cap stocks. Become a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions are being offered till Jul. 21, 2017. Contact me for details: mobugobu@yahoo.com.) 

Technical updates – Colgate and HUL

Why do I like FMCG stocks? Predictability of earnings. Plus the fact that most companies are almost debt free, generate huge cash flows, pay regular dividends and grow steadily whether it is a bull or a bear cycle in the market.

But aren't they expensive? Sure they are. So are BMW cars and Harley Davidson motorcycles. Just as you can (and probably do) buy expensive vehicles using EMIs, you can buy expensive FMCG stocks using SIPs.

Colgate and HUL - two of the better known stocks in the FMCG sector - gave very little capital gains for nearly 18 of the previous 24 months. But they have 'caught fire' during the past 6 months - thanks to demonetisation and GST. 

The balance of power is shifting from the unorganised to the organised sector. The FMCG sector will be one of the biggest gainers of this shift. If you have avoided the sector because it is 'too expensive', it is time for a rethink.

Colgate

Colgate's stock has tested the patience of long-term investors. But long-term investors know the benefit of patience.

After moving sideways in a broad range of about 200 points - giving longer term trading opportunities, the stock has rallied sharply to close at a high of 1128 on Jul 3 '17.

Overbought technical indicators that showed negative divergences by failing to touch new highs with the stock have triggered some profit booking. The dip is providing an entry opportunity.

HUL

HUL's stock moved sideways within a 160 points range - testing the patience of long-term investors. But their patience has been well rewarded. 

The stock rose sharply to close at a high of 1124 on Jun 21 '17. But all four daily technical indicators touched lower tops. The combined negative divergences led to a correction down to its 20 day EMA, which has provided good support.

The stock can correct/consolidate a bit more. 

The best way to accumulate HUL is to spare 10K or 20K from your monthly savings and just go on buying for the next 5 years. (I can assure you that it is better than paying EMIs on a BMW or a Harley - both of which are depreciating assets.)

Nifty chart: a midweek technical update (Jul 05 ‘17)

FIIs were net sellers of equity worth Rs 14.1 Billion during the first three days of trading this week, despite being net buyers today.

DIIs were net buyers of equity worth Rs 13.3 Billion, as per provisional figures. Nifty recovered 200 points from last Friday's low of 9449, but is facing a bit of resistance from the 9650 level.

The Nikkei India Manufacturing PMI slipped to 50.9 in June '17, from 51.6 in May '17 and 52.5 in Apr '17. Though a figure above 50 indicates growth, the slide in the PMI number is a matter of concern.

The daily bar chart pattern of Nifty briefly dropped below its 50 day EMA to touch an intra-day low of 9449 on Jun 30, its lowest level in 5 weeks.

The index bounced up to close higher - forming a 'reversal day' bar (lower low, higher close). That allowed bulls to stage a recovery.

Strong buying by DIIs on Mon. Jul 3 propelled the index above its 20 day EMA and the 9600 level. A convincing move above the Jun 6 top of 9709 will put bulls firmly back in the saddle.

Daily technical indicators are looking bullish, and showing some upward momentum. MACD is still below its falling signal line in bullish zone. RSI has moved above its 50% level. Slow stochastic is rising towards its overbought zone.

Nifty's TTM P/E has moved up to 24.53 - well above its long-term average. The breadth indicator NSE TRIN has corrected extreme overbought condition, but remains at the edge of its overbought zone.

GST implementation will be a game-changer for India's economic growth in the long-term. Initial teething problems and confusion among small traders may keep growth on the slow lane in the interim.

Nifty may be forming an 'ascending triangle' pattern from which the likely breakout is upwards. Some more consolidation within the 'triangle' is likely before the index can rise to a new high. 

A sharp rally is unlikely as long as FIIs remain sellers. Stay invested. Buy only if you find value.

[Not sure which mid-cap and small-cap stocks to pick for long-term returns? Learn by subscribing to my Monthly Investment Newsletter. Paid subscriptions are being offered only for a limited period. Send an email to mobugobu@yahoo.com for details. Subscriptions will remain open till July 21, 2017.]

Gold and Silver charts: bears gaining complete control

Gold chart pattern

The following comments appeared in the previous post on the daily bar chart pattern of Gold: "A technical bounce from the 200 day EMA is a possibility. Bears may use the opportunity to sell again."

Gold's price did bounce up after receiving support from its 200 day EMA, but faced strong resistance from its falling 20 day EMA and dropped sharply below all three EMAs to close below 1220 in bear territory.

A 'double top' reversal pattern (marked by T1 and T2), with target implications, has formed on the chart. The distance from the 'valley' to 'T2' (about 85 points) is the same distance gold's price can fall below the 'valley'

A test of the 1130 level - where gold's price made multiple bottoms in Dec '16 - is on the cards. 

The 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a return to a bear market. Bulls may try their best to prevent that.

Daily technical indicators are bearish and looking oversold. Slow stochastic has touched a higher bottom inside its oversold zone. The positive divergence can trigger a pullback towards the 200 day EMA.

On longer term weekly chart (not shown), gold’s price closed below its three weekly EMAs in long-term bear territory. Weekly technical indicators are looking bearish, and showing downward momentum.

Silver chart pattern

The following comment appeared in the previous post on the daily bar chart pattern of Silver: "A test of the May 9 low may be on the cards."

Silver's price rallied within a bearish 'flag' pattern and moved above its falling 20 day EMA to touch a high of 16.86 on Jun 29, but formed a 'reversal day' bar.

That triggered a sharp fall below the 'flag'. Silver's price tested and closed near the May 9 low of 16.06.

Daily technical indicators are looking bearish and showing downward momentum. Slow stochastic has touched a higher bottom, which may cause a pullback towards the 'flag'.

Expect bears to sell on every rise. A test of the Dec '16 low is a possibility.

On longer term weekly chart (not shown), silver’s price closed well below its three falling weekly EMAs in a long-term bear market. Weekly technical indicators are looking bearish and showing downward momentum.

S&P 500 and FTSE 100 charts (Jun 30 '17): bear onslaughts force bull retreats

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 has been in a down trend (marked by purple down trend line) after touching a lifetime high of 2454 on Jun 19.

The index bounced up after receiving good support from its 50 day EMA, and is trading well above its rising 200 day EMA in a bull market.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. RSI is in neutral zone. Slow stochastic is in bearish zone.

Note that the 20 day EMA and the MACD signal line are forming bearish 'rounding top' patterns - hinting at some more correction or consolidation.

Wait for the correction to play out before deciding to add to existing holdings.

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are correcting overbought conditions, and showing downward momentum.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 has been in a down trend (marked by purple down trend line) after touching a lifetime high of 7599 on Jun 2.

The previous (Jun 15) low was breached by strong selling on Thu. Jun 29 and Fri. Jun 30. The index dropped well below its 50 day EMA to test support from the 7300 level.

The index is trading above its rising 200 day EMA in a bull market. But BrExit concerns have caused bulls to beat a hasty retreat.

Technical indicators are bearish and showing downward momentum. Slow stochastic has fallen deep inside its oversold zone, and can trigger a technical bounce.

Any such bounce may be used by bears to sell again. The index appears to have formed a 'head and shoulders' pattern with a downward-sloping 'neckline' at 7375. The pattern has a downward target of 7150. 

On longer term weekly chart (not shown), the index closed below its 20 week EMA but above its 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are showing downward momentum in bullish zones.

Sensex, Nifty charts (Jun 30, 2017): GST doubts keep investors out

For the third month in a row, FIIs were net sellers of equity - worth Rs 37.6 Billion during Jun '17. DIIs were net buyers of equity worth Rs 65.3 Billion, as per provisional figures.

Both Sensex and Nifty closed lower for the month after five straight monthly gains, as concerns about GST implementation turned investors cautious.

RBI's bi-annual Financial Stability Report is not optimistic about India's economic growth due to the stressed banking sector, leveraged corporate balance sheets and weak investment demand.

Manufacturers had cut production to deplete existing inventory before GST roll-out. The May IIP number can be affected also because of high base effect. 

BSE Sensex index chart pattern

The following comment appeared in last week's post on the daily bar chart pattern of Sensex: "In case supports from the 20 day EMA and the lower edge of the 'rectangle' get breached, the index can drop to test support from its rising 50 day EMA."

'Fan line 3' (marked as 'up trend line' on chart) was breached on Fri. Jun 23. Breaching of the three 'fan lines' is an indication that the up trend from the Dec '16 low is over for now.

The index continued its correction by breaching support from its 20 day EMA and the lower edge of the 'rectangle' on Jun 27 and dropped to test support from its 50 day EMA by the end of the week.

Note that the index is trading well above its rising 200 day EMA in a bull market. What we are witnessing is a consolidation-cum-correction near a new index high.

Can the index correct some more? Yes, it can. How much further can it fall? If the 50 day EMA gets breached, stronger support can be expected from the zone between 29300 and 30200.

The 38.2% Fibonacci retracement level of the entire rally from the Dec '16 low to the Jun '17 top is at 29300, which coincidentally happens to fall within the partly-filled upward 'gap' formed on Mar 14 '17.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bullish zone. ROC, RSI and Slow stochastic are in recovery mode in bearish zones.

Any pullback towards the 20 day EMA and the lower edge of the 'rectangle' may be used by bears to sell again. 

From initial reactions - particularly from small traders - GST implementation is unlikely to be a smooth process.

Stay invested. Wait for the consolidation-cum-correction to play out.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed lower for the third week in a row, and breached the lower edge of the 'rectangle' - but it has not been a convincing breach yet.

The index is trading well above its two rising weekly EMAs in a bull market. A further correction towards its rising 20 week EMA and the 9110 level will improve the technical 'health' of the chart.

Weekly technical indicators are in the process of correcting overbought conditions. MACD is about to cross below its signal line inside its overbought zone. ROC and RSI are moving sideways near the lower edges of their overbought zones. Slow stochastic has slipped down from its overbought zone.

Nifty's TTM P/E remained above 24 throughout Jun '17 - well-above its long-term average valuation. The breadth indicator NSE TRIN (not shown) has moved up from extremely overbought region.

Expect Nifty to continue with its consolidation-cum-correction a little longer. Without FII buying, the index is unlikely to rise much higher in the near term.

Bottomline? Sensex and Nifty charts are in corrective modes after touching new highs. Some more consolidation or correction is likely. Stay invested. 

Announcing re-opening of paid subscriptions to my Monthly Investment Newsletter

I am pleased to announce the re-opening of paid subscriptions to my monthly investment newsletter for a 3 weeks period from Jul 1-21, 2017. A limited number of subscriptions are being offered to blog visitors, blog followers, blog subscribers and twitter followers – on a first-come first-served basis – to enable me to provide personalised attention and guidance to each subscriber.

If you are interested in subscribing, please send an email to: mobugobu@yahoo.com at the earliest for details.

The newsletter has completed 90 issues, with its share of hits and misses. Sensex and Nifty touched lifetime highs in June, 2017 and have been in a consolidation-cum-correction phase during which small-cap and mid-cap stocks have faced sell-offs – affecting overall performance. It is gratifying that subscribers have still kept faith in my stock picking abilities.

Those who have been regularly following my blog posts know what kind of stocks to select, and what type of stocks to avoid. The guiding principle is to choose well-managed, financially prudent companies that generate cash from operations, have manageable debt, give steady (rather than spectacular) returns and have growth prospects.

Non-subscribers may be interested to know how the recommended (mostly mid-cap and small-cap) stocks have fared during the past 18 months. Without revealing the names of the stocks (it won’t be fair to my subscribers to do so), here is a brief summary of performance as on Jun 30, ‘17:

• 12 stocks gained more than 25%, of which 4 gained between 25-49%; 4 gained between 50-99%; 3 gained more than 100%; 1 gained more than 200%
• Of the balance 6 stocks, 2 gained between 10-24%, 3 gained between 0-9% and 1 gave nil gain

That may not seem all that great, but remember that the stock market has been in a consolidation-cum-correction phase from which it is yet to recover fully - thanks to FII selling. So, here is a different perspective on the above performance:

By blindly investing (not recommended - you should always do your own due diligence) Rs 20,000 in each month's recommended stock and holding on till Jun 30 '17, a subscriber would be sitting on gains of close to Rs 134,000 (37.2%) –outperforming the Sensex (19.7%), Nifty (19.2%), BSE Mid-cap index (32.9%), BSE Small-cap index (31.4%) and Bank Fixed Deposit (12%).

What is important to understand is that most of these stocks were not ‘cheap’ valuation-wise – fundamentally strong stocks rarely are - and some had already run up a lot when they were recommended.

If you wish to add fundamentally strong mid-cap and small-cap stocks with growth potential to your portfolio, why wait? Just subscribe to my Monthly Investment newsletter. Send me an email (at mobugobu@yahoo.com) soon – subscriptions will close on Jul 21, 2017.