Technical updates – Sanghvi Movers and Sintex Industries

Shareholders of infrastructure stocks had a rough time over the past couple of years. Most stocks suffered badly at the hands of bears as India’s economic growth slowed down and investments in infrastructure and capital goods petered off.

In a previous post on Thermax and Voltas, it was seen that the closing charts of both companies had shaken off the bears to touch new 2 year highs. The situation on the two charts below tell a different story.

Both stocks bottomed out and re-entered bull territory – the ‘golden cross’ of the 50 day EMA above the 200 day EMA technically confirm that. Both have also doubled from their respective bear market lows. However, they are struggling to cross long-term support/resistance levels.

Sanghvi Movers

The stock price of Sanghvi Movers touched a bottom of 37.35 on Aug 21 ‘13 and then a slightly higher bottom of 37.85 on Aug 27 ‘13. The small ‘double-bottom’ reversal pattern ended the long bear market. After consolidating sideways with a slight upward bias for the next 6 months (‘accumulation’ phase), the stock rose sharply above its 200 day EMA on a volume surge on Mar 10 ‘14, and continued to rally strongly till it approached its long-term support/resistance level of 85.

Note how the 85 level provided strong support in Aug ‘12 and Nov ‘12 (marked by green up arrows). After a convincing downward breach in Feb ‘13, the 85 level remained untested till the stock rose to touch a 52 week high of 83.45 on Apr 29 ‘14 (marked by red down arrow). Technical indicators are in overbought territories. ROC, RSI and Slow stochastic are showing negative divergences by failing to touch new highs. A correction is likely.

Sintex Ind

The stock of Sintex was a darling of small investors 4-5 years back. Its bear market ended with a classic ‘inverted head-and-shoulders’ bottom reversal pattern that formed during Aug-Sep ‘13. Why classic? Because the pattern formed at the end of a long down move. Any ‘reversal’ pattern must have something to reverse. (Some times a pattern may look like a head-and-shoulders pattern, but if it doesn’t form at the end of a long up/down move then the pattern should be rejected.)

Note the strong volumes as the stock broke out above its ‘neck line’ (marked by blue line). That technically confirmed the pattern. The 52 level had provided good support during May ‘12, Aug ‘12 and Mar ‘13 (marked by green up arrows). But after 52 level got convincingly breached, it became a resistance level in May ‘13 (marked by red down arrow), and has not been tested since.

Overbought technical conditions have been corrected and all four indicators are still in bullish zones, but looking bearish. Expect some correction/consolidation.

WTI and Brent Crude Oil charts: an update

WTI Crude chart

The following comments were made in a previous update to the daily bar chart pattern of WTI Crude oil: “Though oil’s price is trading well above its three EMAs in a bull market, the hurdle at 105 needs to be crossed before bulls can regain full control.” 

Oil’s price failed to cross 105. Bears used the opportunity to press sales and push oil’s price below its 20 day and 50 day EMAs. However, the 200 day EMA is still rising and oil’s price is trading above it. Bulls may use the support of the long-term moving average to mount another rally.

Daily technical indicators are looking bearish. MACD is still positive, but is falling swiftly below its signal line. RSI has slipped below its 50% level. Slow stochastic is ready to enter its oversold zone.

Oil’s price may be forming a bearish ‘double top’ pattern – which will be confirmed technically only if it drops below its Mar ‘14 low of 97.50. If 97.50 gets breached, oil’s price can drop to 93.

On longer term weekly chart (not shown), oil’s price is trading above all three weekly EMAs in a long-term bull market.

Brent Crude chart

In the previous update to the daily bar chart pattern of Brent Crude oil, the following remarks were made: “The rally may continue a bit longer. However, a failure to move above its Mar ‘14 top of 112 would mean a continuation of a bearish pattern of lower tops and lower bottoms that began in early Dec ‘13.”

The rally did continue a bit longer, but oil’s price failed to reach even the 111 level. A sharp fall on high volumes has taken oil’s price back into bear territory (below its three EMAs). The bearish pattern of lower tops and lower bottoms continues.

Daily technical indicators are turning bearish, which means the correction may not be over yet. MACD is about to drop from its overbought zone and cross below its rising signal line. RSI has just slipped below its 50% level. Slow stochastic has dropped from its overbought zone.

On longer term weekly chart (not shown), oil’s price has dropped below its 20 week and 50 week EMAs, but is trading above its 200 week EMA.

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 25, 2014

It was another holiday-shortened trading week that included an early F&O settlement on Wed. Apr 23 because Thursday was a holiday. That did not prevent Sensex and Nifty from touching new intra-day, intra-week and closing highs.

Many small investors are worried about the sustainability of the rally. Is it a good time to book profits or should one hold on till the election results come out? What if the market crashes after May 16? What if there is a 2009-like ‘gap’ up surge?

There is a simple answer to these questions: Worry about things you can control – like your own portfolios. If you can’t stomach a 20-30% correction, you should not invest in stocks. Corrections should be welcomed as buying opportunities since both indices are in bull markets.

Have that ‘missed-the-bus’ feeling? Not to worry. More buses will be arriving soon. Q4 results announced so far show that the usual suspects – IT services, private banks - are doing well. Pharma and FMCG should announce decent results as well. Those are the buses to get on.

BSE Sensex index chart

Daily bar chart pattern of Sensex touched new lifetime intra-day and closing highs during the week. However, Friday’s bar has formed a ‘reversal day’ pattern, which may lead to some correction or consolidation. All three EMAs are rising and the index is trading above them. The bull market is under no threat.

Daily technical indicators are correcting from overbought conditions. MACD is below its falling signal line and about to drop from its overbought zone. ROC is touching its 10 day MA in positive territory. RSI is falling towards its 50% level. Slow stochastic is ready to drop from its overbought zone.

All four indicators are showing negative divergences by failing to touch new highs. But a deep cut is not expected. FIIs were net buyers on all four days of the week. DIIs were net sellers of an equal amount.

NSE Nifty 50 index chart

Weekly bar chart pattern of Nifty is struggling a bit near the 6800 level, though the index did touch new intra-week and weekly closing highs. The long-term up trend line and the two weekly EMAs are rising, with the index trading above them – which is the sign of a long-term bull market.

Weekly technical indicators are inside their respective overbought zones and not showing any inclination to climb down. That doesn’t mean a correction can’t happen at any time. Be prepared for it but don’t worry about it.

As mentioned in last week’s post, markets can remain overbought for long periods. So, selling now in the hope of buying back at a lower price later may not be a good idea. However, part profit booking and investing the proceeds in fixed income – i.e., if your asset allocation plan demands so – is always a good idea.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices continue to touch new highs. Still many small investors are staying away from the market. That means the indices are likely to go even higher! Those who are in the market should stay invested with appropriate stop-losses. Continue with your SIPs in funds and use any dips to add.

Stocks in the news this week (Apr 25, ‘14)

Electioneering ‘tamasha’ is gradually winding down, with NaMo camp confident of victory and all the others hoping for a piece of the pie post May 16 results. Focus is now shifting to Q4 results of India Inc.

An early F&O settlement day (due to election holiday on Thursday) saw both Sensex and Nifty close at new lifetime highs on Wed. Apr 23 – thanks to strong FII buying. Different analysts are trying to outguess each other about the election outcome and suggesting appropriate investment strategies.

The smart thing to do would be to stick to current financial and asset allocation plans without getting swayed by what catastrophe/euphoria may follow after May 16. The market always provides money-making opportunities.

Given below are charts of some stocks in the news this week. Please do not fail to do your due diligence before buying or selling.

Astral Poly

The stock of Astral Poly has been in a strong bull rally for more than 2 years. It has more than doubled in price since the previous stock split 9 months back. The management is considering another stock split, which is the reason for the sharp high volume price spurt. All four technical indicators are looking overbought and showing negative divergences by failing to touch new highs. Some correction/consolidation may follow.

Cera Sanitary

The stock of Cera Sanitary has been in a spectacular bull rally since touching a low in Dec ‘11. Of late, it was correcting after forming a small double-top above the 900 level. Today’s high volume price surge occurred after declaring very good Q4 results. Technical indicators are in bullish zones. New highs are likely soon.

Tata Tele

 

The Tata Tele stock has been struggling to get out of a strong bear grip. News about NTT Docomo’s plan of selling its 26% stake in the company led to a high volume rise in price. There are rumours about Vodaphone’s interest in picking up the stake. ROC and RSI are in their overbought zones. MACD and Slow stochastic are in bullish zones. Some more buying may follow.

Yes Bank

The stock of Yes Bank had dropped into a bear market back in July ‘13 because of control issues between the families of the original promoters. The stock price had already doubled from its Aug ‘13 low and re-entered a bull market earlier this month. Good Q4 results and a higher dividend announcement caused a price rise on good volumes. All four technical indicators are showing negative divergences. Expect some consolidation or correction.

Key risks for the stock market – a guest post

When stock market indices keep touching new highs on a daily basis, the biggest risk that small investors face is getting the urge to jump in by throwing caution to the winds.

Unexpected election results and possibility of El Nino conditions that can cause a less-than-adequate monsoon are other risks that are being faced by the market.

The stock market appears to be discounting the most optimistic post-election scenario – a NaMo led NDA government with a majority. That may or may not happen.

In a guest post, Nishit introduces a note of caution by discussing less optimistic post-election scenarios that can derail the current rally.

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The market is going up as if there is no ceiling. Every day one sees their portfolios increase in value and everyone seems to be getting swept up by the Modi wave. Now, let us try and see what can derail this rally.

The level of 6350 is a very critical level on the Nifty. It has been broken upwards after being tested 3 or 4 times over a 6 year period. In technical parlance, this is known as a major breakout and 6350 becomes a key support level for the market now.

This also means that since Nifty has broken 6350 level convincingly and stayed above for several weeks now, it may not go below that level.

What could be the key risks for the market now?

1. No Modi or BJP led Government at the centre

The Congress fights back just to garner enough seats to prop up a third front government. Not out of the realms of probability if the Congress manages 130-140 seats. In this case, the market would tank straight away.

2. Modi wins and El Nino causes a drought

In this case, the markets would rally after the elections, stay in the 7000+ zone for a few weeks and by mid June start drifting down when reality strikes. The upside would remain capped then.

3. BJP has to hunt for allies to cobble up a majority

If the BJP led NDA ends up with 200-225 seats and have to take on board allies who will demand an alternative PM candidate than Modi, the rally would get tempered. It would again lead to a scenario where there is a weak Prime Minister in place, say someone like a Rajnath Singh.

By rallying before the election results, the markets have moved to the side of extreme optimism. Remember the rally is based on FII inflows which is banking on a Modi-led stable Government in place which is investor friendly making India a good place to do business.

A drought like scenario will push up inflation, raising interest rates and delaying the economic recovery. The markets at 7200-7500 will not factor all this.

Nifty will definitely test 6350 once - whether before the elections or after the elections is the question. Also, the question remains what happens to the 3700-3900 ‘gap’ of the previous election results? Will it remain unfilled or will these elections results close that ‘gap’?

Penny stocks have started rallying now. It could be a good chance to remove the junk from the portfolio. If one is holding quality stocks in the portfolio they can always be averaged out at a later date. Good businesses always bounce back.

All eyes will now be on May 16^th 2014.

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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.)

Gold and Silver charts: an update

Gold Chart Pattern

In the previous post on the daily bar chart pattern of gold, a ‘reversal day’ pattern formed on Mar 17 ‘14 and the failure of the 50 day EMA to cross above the 200 day EMA (‘golden cross’) were mentioned as technical reasons for explaining gold’s slide back into bear territory.

However, bullish ‘rounding bottom’ patterns formed on RSI and Slow stochastic indicators pointed to a likely attempt at a rally by bulls. Note that the rally faced stiff resistance from the 200 day EMA, and gold’s price crashed down below all three EMAs on a volume surge.

The zone between 1260-1280 acted as a support/resistance zone during the past 6 months. Some buying interest may emerge there. But bears are likely to use any rally to sell. If 1260 gets breached, then the previous low of 1180 is likely to be tested.

Daily technical indicators are in bearish zones. MACD is negative, and has crossed below its signal line. RSI and Slow stochastic are falling below their respective 50% levels. Time for gold bulls to go into hiding.

On longer term weekly chart (not shown), gold’s price is trading below all three weekly EMAs. Weekly technical indicators have just entered bearish zones.

Silver Chart Pattern

The following comments were made in the previous post on the daily bar chart pattern of silver: “Silver’s price is consolidating within a bearish ‘flag’ pattern from which the likely break out is downwards.”

A high-volume break down below the ‘flag’ occurred last week. Silver’s price is trying to form a bottom at 19.25, but is likely to slip further down to breach its previous low of 18.75.

Daily technical indicators are in bearish zones – suggesting further downside. There seems to be no silver lining to dark bearish clouds.

On longer term weekly chart (not shown), silver’s price is trading below all three weekly EMAs in a bear market.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Apr 18, ‘14

S&P 500 Index Chart

The following comments appeared in last week’s analysis of the 6 months daily bar chart pattern of S&P 500: “The index is just above a support zone between 1800-1810. Buying interest may emerge here.”

The index found good support at the 1815 level – just above the support zone mentioned – and climbed above its 20 day and 50 day EMAs in a truncated trading week. The short but sharp correction from the Apr 4 peak of 1897 should enable the index to move to new highs.

Technical indicators are turning bullish. MACD is about to cross above its signal line into positive territory. RSI and Slow stochastic have risen above their respective 50% levels. Bulls are trying to regain control of the chart.

On longer term weekly chart (not shown), the index received support from its rising 20 week EMA and is trading above all three weekly EMAs. However, weekly technical indicators are in down trends. The correction may not be quite over yet.

FTSE 100 Index Chart

The 6 months daily bar chart pattern of FTSE 100 was expected to test the 6500 level once more, which it did by dropping to an intra-day low of 6507 on Apr 14. By the end of a short trading week due to Easter holidays, the index managed to close above its 200 day and 20 day EMAs, but remained below its 50 day EMA.

Daily technical indicators are showing some bullish signs. MACD moved up to touch its signal line in negative territory. RSI has just crept above its 50% level. Slow stochastic is rising towards its 50% level.

Bears aren’t ready to loosen their grip yet, but bulls need not lose heart as long as the 6500 level holds.

On longer term weekly chart (not shown), the index is trading well above its rising 200 week EMA in a long-term bull market. The index may be in the process of forming a large ascending triangle, which has strong bullish implications.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 are recovering from sharp corrections. Both indices are in long-term bull markets. Ignore near term volatility. Stay invested.