With all the ratios that investors toss around, it's easy to get confused. Consider return on equity (ROE) and return on assets. (ROA). Because they both measure a kind of return, at first glance these two metrics seem pretty similar.
Both gauge a company's ability to generate earnings from its investments. But they don't exactly represent the same thing. A closer look at these two ratios reveals some key differences.
Together, however, they provide a clearer representation of a company's performance. Here we look at each ratio and what separates them.
Read more at:
https://www.investopedia.com/investing/roa-and-roe-give-clear-picture-corporate-health/
FIIs were net buyers of equity on all three trading days this week. Their total net buying was worth Rs 11.3 Billion. DIIs were net buyers of equity on Mon. and today, but net sellers on Tue. Aug 7. Their total net selling was worth Rs 0.7 Billion, as per provisional figures.
According to an IMF report, RBI will need to gradually tighten monetary policy further due to rising inflation driven by higher oil prices, a falling Rupee, a pick-up in domestic demand and a recent hike in procurement prices of major crops by the government.
IMF also described GST as a "milestone reform" in India's tax policy but suggested a simplified dual rate structure as the multiple rates could lead to higher costs of compliance and administration.
The daily bar chart pattern of Nifty touched new highs on all three days this week as bulls have taken complete control. All three EMAs are rising, and the index is trading above them in a bull market.
Note that the 900 points rally from the Jun 28 low of 10558 is looking eerily similar to the 1100 points rally from the Dec 6 '17 low of 10033. The index had moved further and further above its rising 20 day EMA followed by a 1200 points correction.
Such sharp rallies are unsustainable for long. Keep a close watch on the (purple) up trend line drawn from the Jun 28 low. A downward breach of the trend line can trigger serious profit booking.
Daily technical indicators are inside their respective overbought zones. MACD is rising above its signal line. RSI and Slow stochastic are rising inside their respective overbought zones, but showing negative divergences by failing to touch new highs with the index.
Nifty's TTM P/E has moved up to 28.23 - which is much higher than its long-term average and in overbought zone. The breadth indicator NSE TRIN (not shown) is moving down in neutral zone, and hinting at some more index upside.
A few large-cap stocks are continuing to lead the rally. Mid-cap and small-cap stocks have undergone corrections but are still trading at elevated values. More than 1500 stocks are trading below their 200 day EMAs, which is an extremely worrying sign.
No need to sell off in panic. Let your asset allocation plan guide you. Continue with monthly SIPs. But control your impulses to hunt for 'multibagger' stocks at a lifetime index high.
Gold chart pattern
The daily bar chart pattern of Gold has been consolidating sideways for the past two weeks. It faced strong resistances from its falling 20 day EMA and the 'Support/Resistance zone 2' (between 1237 & 1248).
The 200 day EMA has formed a bearish 'rounding top' pattern. All three EMAs are falling. Gold's price is trading below them in a bear market, but is trying to find support from the zone between 1200 & 1210.
Daily technical indicators have corrected oversold conditions, but are not showing any upward momentum. Expect the sideways consolidation to continue a while longer.
Bulls may indulge in bottom fishing after a sharp fall. Bears are unlikely to release their strong grip on the chart.
On longer term weekly chart (not shown), gold’s price closed well below its three weekly EMAs in long-term bear territory. Weekly technical indicators are looking bearish and oversold. The 20 week EMA has crossed below the 200 week EMA. The 50 week EMA has formed a bearish 'rounding top' pattern and is falling towards the 200 week EMA.
Silver chart pattern
The daily bar chart pattern of Silver has been consolidating sideways for the past two weeks. It faced resistance from 'Support/Resistance zone' (between 15.60 & 15.80) and remained below its falling 20 day EMA.
All three EMAs are falling. Silver's price is trading below them in a bear market, but is trying to find support from the zone between 15.10 & 15.20.
Daily technical indicators have failed to emerge from bearish zones after correcting oversold conditions. Expect bears to sell on every rise to maintain their domination.
On longer term weekly chart (not shown), silver’s price closed below its three falling weekly EMAs in a long-term bear market. Weekly MACD and RSI are falling in bearish zones. Slow stochastic is falling inside its oversold zone.
S&P 500 index chart pattern
On Jul 25, the daily bar chart pattern of S&P 500 had partly filled the 13 points downward 'gap' formed on Jan 30. Bear resistance led to a brief correction.
The index received twin support from its rising 20 day EMA, and the support/resistance zone between 2780 and 2800. Formation of a small 'double bottom' reversal pattern led to a technical bounce.
The index closed at 2840 - just inside the 'gap' and above its three rising EMAs in a bull market. A convincing move (i.e. accompanied by strong volume support) above the 'gap' is required for the index to rise to new highs.
Daily technical indicators are looking bullish. MACD is trying to cross above its signal line. RSI and Slow stochastic are showing upward momentum. Bears are likely to put up a fight to defend the 'gap', but may be on the verge of getting vanquished.
On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly MACD and RSI are rising in bullish zones. Slow stochastic is showing negative divergence by moving sideways inside its overbought zone.
FTSE 100 index chart pattern
After touching a lifetime high of 7903.50 on May 22 '18, the daily bar chart pattern of FTSE 100 had been consolidating sideways and appeared to be forming a 'saucer' or a 'cup and handle' pattern.
Sharp corrections on Wed. & Thu. (Aug 1 & 2) dropped the index below its 20 day and 50 day EMAs, which may have negated both those patterns. The index is trading above its rising 200 day EMA in a bull market.
Daily technical indicators are looking neutral to bearish. MACD and RSI are in neutral zones and showing slight downward momentum. Stochastic has fallen below its 50% level after forming a 'triple top' reversal pattern inside its overbought zone.
Expect the consolidation to continue for some time. A test of support from the 200 day EMA is also a possibility.
On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly MACD has crossed below its signal line in bullish zone. RSI is falling in bullish zone. Slow stochastic has dropped below its 50% level.
FIIs were net buyers of equity on Tue. Jul 31, but net sellers on the other four trading days last week. Their total net selling was worth Rs 4 Billion. DIIs were net buyers of equity on Mon. Jul 30 and Fri. Aug 3, but net sellers on the other three trading days. Their net selling was worth Rs 10.6 Billion, as per provisional figures.
Nikkei India's Manufacturing PMI slipped to 52.3 in Jul '18 from 53.1 In Jun '18. Still, it showed 12th consecutive month of expansion (>50). Nikkei India's Services PMI grew to 54.2 in Jul '18 from 52.6 in Jun '18 - showing strongest growth since Oct '16. The Composite (Manufacturing + Services) PMI rose to 54.1 in Jul '18 from 53.3 in Jun '18.
Auto sales were a mixed bag in Jul '18. Maruti (-0.6%), M&M (-6%), Ford (-7%) showed degrowth. Honda (28%), Tata Motors (14%) showed decent growth. In 2-wheelers, Hero Moto (9%), Royal Enfield (6%) had modest growth. TVS Motors (13%), Suzuki (57%) grew better. CV sales grew in strong double digits.
BSE Sensex index chart pattern
The daily bar chart pattern of Sensex touched a new high of 37712 on Aug 1, but formed a small 'reversal day' bar (higher high, lower close) that led to a bit of consolidation. All three EMAs are rising, and the index is trading above them in a bull market.
An interesting - and repeating - chart pattern may be forming:
- From end-Sep '17 to early Nov '17, Sensex had a sharp rally that was followed by a sideways consolidation with a slight downward bias till mid-Dec '17. An upward breakout was immediately followed by a sideways consolidation within a small 'rectangle' till early-Jan '18. An upward breakout from the 'rectangle' led to a sharp rally that touched a new high in end-Jan '18 (marked by light blue oval).
- A two months long correction (of 3960 points) dropped the index briefly below its 200 day EMA.
- From end-Mar '18 to mid-May '18, Sensex had a sharp rally that was followed by a sideways consolidation with a slight downward bias till early-Jul '18. An upward breakout was followed by a sideways consolidation within a small 'rectangle' till 3rd week of Jul '18. An upward breakout from the 'rectangle' led to a rally that touched a new high on Aug 1 '18 (marked by light blue oval).
- If the pattern continues to repeat (there are no guarantees that it will), be prepared for a big corrective move that can drop the index to test support from its rising 200 day EMA once more.
Daily technical indicators are looking overbought. ROC and Slow stochastic are showing negative divergences by failing to touch new highs with the index. Some more consolidation or correction is likely.
The way dips are being bought by bulls, the possibility of a 3960 points correction seems remote at this stage. But such a possibility must have seemed remote in end-Jan '18 as well.
There is an old Latin saying: 'Praemonitus praemunitus' (which means 'forewarned is forearmed').
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty rose to touch a new intra-week high of 11391 and closed at 11361 with a weekly gain of 0.7%. The index is trading above its two weekly EMAs in a bull market, and looks poised to rise higher.
Note that the index had formed a 4 months long up-down-up pattern during end-Sep '17 to end-Jan '18. A similar up-down-up pattern is forming since end-Mar '18. In between was the 2 months long (1220 points) correction to the 50 week EMA during end-Jan '18 to end-Mar '18. This increases the probability of another corrective move towards the 50 day EMA - if the pattern repeats.
Weekly technical indicators are looking overbought. MACD is rising above its signal line in bullish zone. ROC is moving up inside its overbought zone. RSI and Slow stochastic are inside their respective overbought zones but showing negative divergences by not rising higher with the index.
Nifty's TTM P/E has moved up to 28.23, which is in overbought territory and well above its long-term average. The breadth indicator NSE TRIN (not shown) is moving up in neutral zone, and can limit near-term index upside.
Bottomline? Bulls appear to be in complete control of Sensex and Nifty charts. However, down trends in Midcap and Smallcap indices remain worrying signs. Some correction or consolidation seems likely. Any falls below previous (Jan '18) tops can lead to deeper corrections on both charts.
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FIIs were net buyers of equity on Tue. Jul 31, but net sellers on Mon. Jul 30 and today. Their total net buying was worth Rs 2.4 Billion. DIIs were net buyers of equity on Mon. and net sellers during the next two days. Their total net selling was worth Rs 8 Billion, as per provisional figures.
At the end of the three-day Monetary Policy Committee meeting, RBI hiked repo rate and reverse repo rate by 25 bps (0.25%) each today. The move was widely expected. Nifty closed just 10 points lower today after four straight days of rallying higher.
Revenue collection from GST rose to Rs 965 Billion in Jul '18 from Rs 956 Billion in Jun '18, thanks to increased compliance. However, it fell short of the Rs 1 Trillion per month target set by the government.
The daily bar chart pattern of Nifty touched a new high every day for five straight trading days. However, it closed lower today to form a small 'reversal day' bar (higher high, lower close).
All three EMAs are rising, and Nifty is trading above them, and above the (blue) up trend line, in a bull market. The index is in 'blue sky' territory with no known resistances.
Daily technical indicators are inside their respective overbought zones. MACD is rising above its signal line. ROC is above its 10 day MA, but has stopped rising. RSI and Slow stochastic are showing signs of correcting overbought conditions.
Nifty's TTM P/E has moved up to 28.14 - which is much higher than its long-term average and in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating just above its overbought zone. Expect some index consolidation or correction.
The index rally during the past 4 months has not been broad-based. A few large-cap stocks have propelled the index higher. Mid-cap and small-cap stocks have undergone profit booking, but their valuations still remain high.
If the index undergoes a correction - which is quite possible after a sharp rally - the mid-cap and small-cap stocks may correct even more. Any rally in mid-cap or small-cap stocks from here on can be used for partial profit booking.
