WTI and Brent Crude Oil charts: an update

WTI Crude chart

The 3 years weekly bar chart of WTI Crude oil has been in a bull market, which is technically indicated by a rising 200 week EMA and the 50 week EMA staying above the 200 week EMA throughout. The 20 week EMA has criss-crossed the 50 week EMA, which is an indication of shorter-term fluctuations.

Note that oil’s price dropped below its 200 week EMA into bear territory several times. But the long-term bull market remained intact because the 50 week EMA never dropped below the 200 week EMA (‘death cross’).

The strategy to follow in a long-term bull market is to buy the dips. Quite a few buying opportunities were provided when oil’s price dropped below its 50 week EMA.

Weekly technical indicators are looking bullish. MACD has just entered positive territory above its signal line. RSI has moved above its 50% level, but its upward momentum is receding. Slow stochastic is inside its overbought zone, but turning down. There may be some correction or consolidation in the near term.

Brent Crude chart

The 3 years bar chart pattern of Brent Crude oil has been in a long-term bull market, as it is trading above its rising 200 week EMA. The 50 week EMA has remained above the 200 week EMA throughout.

Note that for the past 2 years, oil’s price has been consolidating sideways within a large symmetrical triangle – forming higher bottoms and lower tops. The way to make money in such a situation is to do shorter-term trading (in the range between 104 and 112).

Weekly technical indicators are mildly bearish. MACD and its signal line are entangled together and moving sideways just below the ‘0’ line. RSI and Slow stochastic have slipped below their respective 50% levels. The consolidation is likely to continue some more.

All you want to know about the ‘Vote on Account’ – a guest post

All pre-election market surveys are pointing to the end of UPA’s 10 year stint at running the central government. General elections are around the corner. If the surveys are to be believed, an NDA-led coalition is most likely to form the next government.

In an election year, it makes no sense for the Finance Minister to present a comprehensive budget. Instead, a ‘Vote on Account’ is presented to Parliament for approval of the present government’s expenditure till the new government takes over. The new Finance Minister will then announce a full budget.

More often than not, the ‘Vote on Account’ is a non-event as the present government’s policies are carried forward for a short period of time. At best, some tinkering with existing policies are done to alleviate problems in a few areas. That is precisely what the Finance Minister did.

In this month’s guest post, Nishit takes a look at some of the measures announced, and the likely effect on the stock market.

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The interim Budget has come and gone. So, how does one read into it? First of all, what is the interim budget or vote-on-account? It is merely a permission taken by the Government from the Parliament to continue with its expenses for a limited period of time.

This is because there will be a new Government sworn in by end of May and it would be the prerogative of that Government how they want to decide the economic policies for India. Typically in vote-on-account, no major decisions are taken and it is basically a continuation of the status quo.

A few things do stand out in this year’s vote-on-account. First, excise duty reduction of 4% on the sale of automobiles. Now, this is a major relief to the Automobile sector and also a car buyer’s dream. The last time such an exemption was allowed was in March 2008. Assuming a car is costing about Rs 6 lakhs, there is a straight saving of up to Rs 24000. Also, to be noted is that this exemption is only till June. Whether it continues in the full year budget is the next government’s prerogative.

If anyone is planning to change their vehicle in the next 1 year, next 3 months is the time to do it. During the months of April-May, car companies offer larger discounts since the March-end rush to gain depreciation benefits is out of the way.

There is a further 2% excise duty reduction on white goods like AC, refrigerators and Mobile Phones. Now, these translate into miniscule reductions of say Rs 600 on an AC worth Rs 30000. So, this is purely a sentiment booster.

The Government has done financial jugglery of containing the fiscal deficit to 4.6% by rolling over subsidies worth about Rs 35000 Crores to be paid to Oil Marketing companies to the next year. This helps achieve the target fiscal deficit number and shifts the subsidy headache on to the next Government.

Also, a lower CAD (Current Account deficit), the difference between dollars earned and dollars spent, of US $45 Billion will help the Rupee become stronger.

All in all, a budget that had nothing great to offer but which also did not offer too many populist measures. All eyes would now be on the first budget by the new Government.

If the Finance Minister had gone in for a populist budget, the market could have tanked. Now, as I see it, the chances of a full fledged market crash before the elections is fading and seems far less likely. The next 3 months could see range bound stock specific moves in the markets.

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(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money Manthan.)

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Feb 21, ‘14

S&P 500 Index Chart

In a holiday-shortened week, the 6 months bar chart pattern of S&P 500 consolidated sideways and closed marginally lower for the week. The Jan ‘14 top of 1851 was tested twice without getting breached. All three EMAs are rising with the index trading above them.

The consolidation should help bulls to gather strength to push the index to a new lifetime high. However, volumes remain a concern. On the two down-days during the week, volumes were higher. Is the ‘smart money’ using the rally to bail out?

Daily technical indicators are looking bullish. MACD is rising above its signal line in positive territory. RSI is moving sideways above its 50% level. Slow stochastic is inside its overbought zone, but slipping a little. Stay invested.

Economic news continues to be mixed. Housing starts and existing home sales dipped – but blame it on the unusually harsh winter. Rail traffic has softened. Initial claims of unemployment was slightly higher than expected at 336,000. Manufacturing data was a bit more encouraging.

FTSE 100 Index Chart

The following were the concluding comments in last week’s analysis of the daily bar chart pattern of FTSE 100: “Technical ‘health’ of the chart has been restored. Time to add to existing holdings.” The index sailed past the 6700 and 6800 levels before pausing just short of the Jan ‘14 top of 6867.

All three EMAs are rising and the index is trading above them. Bulls will regain complete control after the index crosses above its Jan ‘14 top. Some correction/consolidation is possible before that.

Daily technical indicators are bullish, but looking overbought. MACD is rising above its signal line and is just below the edge of its overbought zone. RSI and Slow stochastic are well inside their respective overbought zones, with the Slow stochastic showing signs of slowing upward momentum.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices have recovered from sharp bull market corrections, and look ready to climb higher. Both indices are very close to previous tops. Some caution is advised. Stay invested, but maintain stop-losses.

BSE Sensex and NSE Nifty 50 index chart patterns – Feb 21, 2014

FIIs were net buyers during all 5 days of the week – for the first time in Feb ‘14. However, they remain net sellers in Feb ‘14. DIIs have turned net sellers. Forex reserves were up by $1.45 Billion. Glaxo Pharma’s ongoing open offer should add to the forex kitty.

The selling in emerging markets by FIIs seems to have abated, but the subsequent buying hasn’t been strong enough to move Sensex and Nifty out of their rectangular consolidation zones. Both indices are trading above their long-term moving averages. Fears of a big crash have subsided.

With Q3 results out of the way, all eyes will be on the forthcoming general elections. The latest opinion polls show that NDA is likely to gain more seats at the expense of UPA, but may fall about 35-40 seats short of a majority. The uncertainty of either a hung parliament or a weak coalition is keeping buying interest in check.

BSE Sensex index chart

The daily bar chart pattern of Sensex is struggling to climb above its 20 day and 50 day EMAs because of resistance from the 20750 level (which happens to be at the middle of the rectangle). It is often seen on price charts that the mid-point of a rectangle acts as a support/resistance level.

Daily technical indicators are looking bullish. MACD has crossed above its signal line in negative zone, with the signal line forming a bullish ‘rounding bottom’ pattern. ROC is positive and above its 10 day MA, which has formed a ‘rounding bottom’ bullish pattern. RSI has moved up to the edge of its overbought zone. Slow stochastic is inside its overbought zone, but showing a slowdown in upward momentum.

The index may try to cross above the 20750 level, but is unlikely to break out from the rectangle in a hurry. Hold on to your portfolios or add selectively.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty has closed above its 20 week and 50 week EMAs in a clear sign that bulls are regaining control. However, sliding volumes raises concerns that Nifty may not be able to break out above the rectangular consolidation zone any time soon.

The long-term up-trend line (in blue) is intact, which means the up-trend that started from the low touched back in Dec ‘11 remains in force. There is an old stock market adage: “The trend is your friend.” Remember it.

Weekly technical indicators are beginning to give bullish signals. MACD is falling below its signal line in positive territory, but not as rapidly as earlier. ROC is about to cross above its 10 week MA into positive territory. RSI has moved above its 50% level. Slow stochastic has bounced up from near the edge of its oversold zone.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices continue to trade within ‘rectangle’ consolidation patterns. Longer they consolidate, stronger will be the eventual breakout. Both indices are in long-term bull markets. Dips provide opportunities to add fundamentally strong stocks. Maintain suitable stop-losses in case bears become active.

IT Sector stocks – an update

Despite the global economic slowdown, or perhaps because of it, IT sector companies have been relative outperformers in the Indian stock market. Devaluation of the Rupee against the US Dollar has been an added boon.

Large-cap IT stocks have done particularly well. Mid-cap IT stocks haven’t been far behind. But small-cap stocks in general have faced a rough time. In the IT sector, retaining talent is a challenge. That is where smaller companies are at a disadvantage.

IT services remain the major revenue earner. Consulting business is yet to catch on in a big way. With increasing visa impediments – particularly in the USA - the larger companies have focussed on offshore and India businesses. Software product development activity is mostly limited to MNCs.

HCL Tech

The stock has gained more than 200% since the bull run began back in Aug ‘12. Daily technical indicators have corrected from overbought conditions but showing negative divergences by failing to touch new highs with the stock price. There are rumours of a stake sale. May be a good idea to take some profits home.

Infosys

Lack of leadership and so-so performance kept the stock in a sideways range till Narayanamurthy took back the reins. Lot of top-level executive departures have put a question mark on succession issues. The market is obviously encouraged by an improvement in performance.

KPIT Cummins

After an 8 months bear phase (from Sep ‘12 to Apr ‘13), the stock is back in a bull market. Q3 result disappointed the market, causing a sharp fall. Can be added on dips.

Mindtree

The stock is in a terrific bull run, gaining 300% in the past 2 years. Founder and CEO Ashok Soota’s departure has been long forgotten. The stock is looking overbought and ripe for a correction. Dips can be used to add.

MPhasis

This stock has gone nowhere in the past 2 years. Likely drop in business from parent HP and possibility of sale of HP’s entire stake has kept the stock price in a sideways range. Avoid.

Oracle Financials

The stock price is undergoing a correction after touching 3400 in Jan ‘14 – its previous top was also 3400 touched in Jan ‘13. If the stock price falls below the support/resistance level of 2990, the possibility of a bearish double-top pattern may open up.

Tata Elxsi

After a prolonged sideways consolidation that tested the patience of most investors, the stock has broken out sharply and tripled in 5 months. Daily technical indicators are looking overbought. Part profits can be booked.

TCS

The ‘big daddy’ of IT companies has been in a steady bull market with frequent corrections that have kept the chart ‘healthy’. This is a stock that every investor should have in their portfolio. All dips are adding opportunities.

Tech Mahindra

It is a great credit of the M&M management that Satyam Computers has been so well integrated with the company, turning Tech Mahindra’s stock into an outperformer with gains of more than 200% in 2 years. Add on dips.

Wipro

Even after sorting out management issues, Wipro’s performance has been tepid. The stock has returned to a bull market, but gains have been moderate. Switch.

Related Post

IT Sector stocks – time to change the game plan?

Nifty chart: a mid-week update (Feb 19, ‘14)

The Finance Minister presented a ‘Vote on Account’ rather than a full budget because 2014 is an election year. It was expected to be a non-event and it was. Barring some sops to the struggling auto industry and some lofty target setting for tax collections, there wasn’t much to get excited about.

So, why has the Nifty rallied for 4 straight days? No prizes for guessing that FIIs have again turned net buyers, while DIIs have turned net sellers. Trading volumes haven’t been great, which raises questions about the sustainability of the rally.

The good news is that Nifty has closed above its 20 day and 50 day EMAs. It has retraced 50% of its fall from the Jan ‘13 peak of 6355 to the Feb ‘14 trough of 5933. Both are bullish signs. The bad news is that the index has not yet crossed the half-way point between the upper and lower edges of the ‘rectangle’ within which it has been consolidating since Oct 9 ‘13.

What is the significance of the half-way point of the ‘rectangle’? For explanation, a dotted horizontal line has been drawn through the middle of the ‘rectangle’ (at 6160). In one of those coincidences visible on many price charts, note how this particular level has acted as a support/resistance level.

Daily technical indicators are turning bullish. MACD has crossed above its signal line in negative territory. The signal line is in the process of forming a bullish ‘rounding bottom’ pattern. ROC has crossed above its 10 day MA into positive territory, but its upward momentum has slowed down. The 10 day MA has formed a bullish ‘rounding bottom’ pattern. RSI has crossed above its 50% level. Slow stochastic has just entered its overbought zone.

Bulls have successfully defended the lower edge of the ‘rectangle’, as the index didn’t close below the ‘rectangle’ even for a single day. But the current rally is lacking buying support. Expect some more consolidation within the ‘rectangle’ till political alignments for the election become clearer.

Gold and Silver charts: an update

Gold Chart Pattern

The daily bar chart pattern of gold has been rallying strongly for the past 8 trading sessions – gaining almost 140 points from its Dec ‘13 low. The 20 day EMA has crossed above the 50 day EMA. The 50 day EMA has formed a saucer-like ‘rounding bottom’ pattern which has bullish implications.

Has the long bear phase since the Sep ‘11 top come to an end? Technically, the answer is: Not yet. The 200 day EMA is still falling and gold’s price is yet to cross above it. Daily technical indicators are looking overbought, which means a price correction may be around the corner.

If gold’s price touches a higher bottom (than its previous bottom of 1240) after the likely correction and resumes its up move past its 200 day EMA, the bear phase may come to an end. If 1240 is breached on the way down, bears are likely to regain control.

On longer-term weekly chart (not shown), gold’s price has risen above its 20 week EMA but is trading below its falling 50 week and 200 week EMAs. Bulls still have a lot of work to do.

Silver Chart Pattern

The daily bar chart pattern of silver shows a sharp jump towards its falling 200 day EMA, backed by strong volumes. The 20 day EMA is about to cross above its 50 day EMA, which is bullish in the near term.

However, daily technical indicators are looking overbought. MACD has risen above its signal line into positive territory. RSI and Slow stochastic have entered their respective overbought zones. Some price correction is likely before silver can continue with its up move.

On longer term weekly chart (not shown), silver’s price is above its 20 week EMA but below its falling 50 week and 200 week EMAs. It is too early to call an end to the bear market.