Stock Chart Pattern - Reliance Capital Ltd. (An Update)

The previous technical analysis update of the stock chart pattern of Reliance Capital was posted back in Nov ‘09 (marked by a grey vertical line on the chart below). The stock price had corrected after touching an intra-day peak of 1066 in Jun ‘09 and had twice received support from the upper edge of the gap formed in May ‘09.

As long as the gap was not closed, there was hope of further upside. Accordingly, I had made the following recommendation to readers: “Existing holders can stay invested with a stop-loss at 680. New entrants should await a convincing cross above the 1050 mark.” A look at the chart below will show that my advice was timely and appropriate.

Regular readers know that I have a bias against any company with the word ‘Reliance’ in its name. If you don’t know (or remember) why, you can read this post. What is the reason then for posting this update? Well, there are two reasons. The first is to admit to a classic investing mistake. The original post on Reliance Capital in Apr ‘09 was premised on the prospect of likely monetisation of the company’s ‘hidden assets’ – its huge asset management business (Reliance Capital had the highest AUM back then) and its thriving insurance and financial services businesses. The mistake? Hidden assets may stay hidden and never get monetised. (This is particularly true for ‘holding companies’ that hold huge number of shares in different companies.)

The second and more important reason is to warn new investors that though the stock price had more than doubled – from the intra-day low of 225 (Jan 2 ‘12) to an intra-day high of 482 (Feb 22 ‘12) – during the recent rally, the stock is technically still in a bear market and in a down trend. There is no reason to enter now.

Let us have a look at the three years daily bar chart pattern of Reliance Capital:

The gap in the chart formed in May ‘09 – approximately between 620 and 680 – was filled a year later. That opened up further downsides and triggered the stop-loss of 680 mentioned in the previous update. The stock price bounced up from the lower edge of the gap, and over the next 5 months, gained 40%. But it formed a lower top that marked the beginning of a sharp down trend, which coincided with the bear phase in the broader market.

Note the sideways consolidation between 620 and 680 during Dec ‘10, before a convincing break down below 620 in Jan ‘11. A ‘panic bottom’ formed at 478 in Feb ‘11, following which the stock price bounced up quickly – only to face strong resistance from the earlier support level of 620 in Apr ‘11 and Jul ‘11. This is another example of how a breached resistance level becomes a support level, and a broken support level becomes a resistance level. Another point to note is that support-resistance levels provide better and safer entry-exit points than Fibonacci levels or EMA levels.

The stock price is oscillating near its 200 day EMA. The 50 day EMA is still below the 200 day EMA. The technical indicators are mildly bullish. The MACD is positive and just below its falling signal line. The ROC is also positive and above its 10 day MA, but has turned down. The RSI is a little below its 50% level. The slow stochastic has climbed above its 50% level. The stock price is trying to move up to test the blue down trend line once more, but the falling volumes mean another likely failure of an upward break out attempt.

Bottomline?  The stock chart pattern of Reliance Capital is a clear example of disenchantment within the investing community. The recent sharp rally may have provided huge short-term gains to a fortunate few. If you are one of them, book your profits. New investors can look at a company like Sundaram Finance. If you don’t trust the Ambanis, avoid all companies with ‘Reliance’ in its name.

Related post

Why rely on Reliance?

The truth(?) behind the 6.8% Jan ‘12 IIP growth number

The Index of Industrial Production (IIP) published by the government each month is supposed to give an idea about what is going on in the economy. The Jan ‘12 figure of 6.8% came as a positive surprise, because the IIP number for Dec ‘11 was only 2.5%, and the consensus estimate for Jan ‘12 was about 2.1%. Naturally, the much higher figure seemed to indicate that growth was returning to the Indian economy.

The stock market should have celebrated the news – but didn’t. Were market participants ‘selling on news’, or did they ignore the news as unbelievable? Digging a little deeper into the published data raises more questions than answers.

Manufacturing growth was at a respectable 8.5%. But that growth was largely due to a whopping 92.6% growth in food products and beverages; 56.1% growth in printing, publishing and reproduction of recorded media; and 29.9% growth in medical, precision and optical instruments, watches and clocks. Minus these three items, manufacturing growth would be negative.

In plain English, the above data means that Indian citizens consumed almost twice the amount of food and drinks than what they did in Jan ‘11. Surely, population increase and rural prosperity through the NREGA scheme had roles to play. But 92.6% growth is hard to believe. So is the data that indicates a sudden rise in reading books, newspapers and listening to music and watching movies at home.

A growth in medical instruments may be explained away by the proliferation of modern hospitals and clinics. But why the propensity for buying watches and clocks? Of course, the published data has the following disclaimer: “Indices for January ‘12 are Quick Estimates.” May be the data collection was outsourced and improperly supervised.

More intriguing are the areas of de-growth. Electrical machinery and apparatus fell by –30.5%. Office, accounting and computing machinery fell by –14.1%. Radio, TV and communication equipment and apparatus fell by –13.8%. India is definitely not shining if electrical machinery, computers and communication equipment are showing de-growth.

As happens almost every month, these ‘Quick Estimates’ get revised subsequently. Which means these initial numbers don’t count for much and don’t indicate any trend. The collective wisdom of market participants in ignoring the Jan ‘12 IIP growth number proved correct in this instance.

BSE Sensex and NSE Nifty 50 index chart patterns – Mar 9 ‘12

Both index charts – BSE Sensex and NSE Nifty – show classic break outs above down trend lines followed by pullbacks and upward bounces from the down trend lines. That should mean that trend reversals have occurred and it is time to buy. But all is not well as yet.

Results of the elections in five states have come and gone. The market was not expecting the thrashing that the Congress Party got at the hustings. There are rumblings from UPA partners about big-brotherly treatment. Another surprise was the 75 bps cut in the CRR announced by the RBI prior to its Mar 15 review meeting – probably to preempt the likely liquidity shortfall in the system due to advance tax payments. The better-than-expected manufacturing IIP number has further confused market players.

RBI’s Mar 15 meeting appears to have become a non-event. The good IIP number may dash any possibility of a cut in interest rates. Some experts are already suggesting that the CRR cut will be inflationary. Very little is expected from the Mar 16 budget announcement from a government that has backed itself into a corner financially and politically, with its populist measures and inability to take tough decisions.

BSE Sensex index chart

In the weekly bar chart of the Sensex, last week’s bar shows a dip below the down trend line followed by a strong upward bounce. The ‘golden cross’ of the 20 week EMA above the 50 week EMA has not taken place yet. The technical confirmation of a bull market is still awaited.

The weekly technical indicators remain bullish, but there are signs of weakness. The MACD is positive and above its signal line, but it has stopped rising and the histogram has started falling. The ROC is positive and above its rising 10 week MA. The RSI has started falling towards its 50% level. The slow stochastic has slipped down from its overbought zone.

The pre-budget rally may turn out to be a sideways consolidation. A budget without any negative surprises may provide the trigger for the rally to resume in earnest.

NSE Nifty 50 index chart

The daily bar chart pattern of the Nifty shows the break out above the down trend line, followed by a pullback and then a bounce up with a gap. Note that the volume bar is smaller on last Friday’s bounce up. That is not a positive sign for bulls.

The technical indicators are bearish, but showing signs of a turnaround. The MACD is falling below its signal line, but hasn’t yet entered negative territory. The ROC is negative, but is trying to cross above its 10 day MA. The RSI has bounced up from the edge of its oversold zone, but remains below the 50% level. The slow stochastic is trying to emerge from its oversold zone.

The 50 day EMA has crossed above the 200 day EMA, signalling a return to a bull market. But see what happened back in Apr ‘11 (left part of chart above). The 50 day EMA crossed above the 200 day EMA – only to drop back below it. Any fall below the down trend line can snuff out the bull rally.

Bottomline? Chart patterns of the BSE Sensex and NSE Nifty 50 indices have bounced up nicely after pullbacks to their down trend lines. Such bounces from resistance levels offer entry opportunities – provided there is adequate volume support and bullish technical indications. These seem to be lacking – probably because of the budget announcement hanging like the proverbial sword of Damocles. Those who are already invested should hold with stop-loss at the levels of the down trend lines. New entrants should await the budget announcement.

Is it worth investing in tax-saving bonds?

To reap the benefits of high interest rates prevailing in the market, many investors have been booking profits in the stock market and parking the proceeds in bank fixed deposits (FD). But the interest received from bank FDs is taxable. It is that time of year when advance taxes need to be paid. Shouldn’t investors be looking at saving taxes by investing in infrastructure bonds and tax-saving bonds?

In this month’s guest post, Nishit explains the basic difference between infrastructure bonds and tax-saving bonds, and recommends that investment in tax-savings bonds is definitely worth considering seriously.

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Tax-saving bonds are the flavour of the month. Let us try and ascertain if they are worth buying. Earlier in the year, Infrastructure Bonds were introduced. Some of those bond issues are still open. How are the current tax-saving bonds different from the Infrastructure Bonds?

For starters, to avail tax breaks in the infra bonds, the limit up to which one could invest was Rs 20,000. This Rs 20,000 would be deducted from your taxable income for the year. This would save about Rs 6,180 in the highest tax bracket. The interests from these bonds are not tax free and would be added to one’s taxable income in subsequent years. The interest rates offered were in the rage of 8-8.25% per annum.

The tax-savings bonds being offered now are of a different type. In these bonds, a retail investor can invest Rs 1 lakh for a period of 10-15 years. These bonds are offered by various government undertakings like REC, NHAI, PFC and are hence safe investments. The bonds offer tax free returns as the interest is not taxable. The interest rates are about 7.93% to 8.32%. This means if Rs 1 lakh is invested, then upto Rs 8,130 interest which one gets annually is not taxed. Over a period of 10 years, this amounts Rs 81,300 which is not taxed. To get equivalent returns from a taxable bank FD, the interest rate one should get is about 11.5%. There is no bank FD which falls under the ‘safe category’ offering such returns.

The REC issue is due to get closed on the 12^th of March, 2012 and one can definitely look at further similar issues hitting the markets. The benefit of such issues over the infrastructure bonds is that one can save a much larger amount of tax.

Details of REC issue as below:

There is another tax free bond in the market! REC or Rural Electrification Corp. Ltd. is going to raise Rs 3,000 Crore by selling tax free secured redeemable non-convertible bonds . The subscription will open on March 6 and close on March 12 , 2012. While it is being sold that the interest on the bond will be tax free, it is important that subscribers should know other aspect of this tax free bond issue.

Credit Rating : “CRISIL AAA/Stable” by CRISIL, “CARE AAA” by CARE, “ICRA AAA” by ICRA & “Fitch AAA (Ind)” by FITCH.

The Company has confirmed the following interest rates:

Tenure of the bonds	Other than Category III investors (i.e. QIBs & Corporates and Individuals/HUFs investing > 1,00,000)	Category III investors (Individuals and/or HUF investing upto Rs. 1,00,000/- in the issue)
10 years	7.93%	8.13%
15 years	8.12%	8.32%

Individual/HUF limit reduced due to a notification dated February 14 issued by Central Board of Direct Taxes (CBDT) clearing the issue has said that “any individual investing over Rs 1 lakh will be classified as high net worth individual (HNIs)”.

• Bucket size: The issue size would be Rs. 3000 Crores (shelf limit)
• Minimum Application: Rs 5000/-(5 Bonds of Rs 1000/-) and in multiple of Rs 1000/-
• Issuance Mode - Demat only
• Listing at BSE only
• Interest Payment – Annually
• Allotment on first come first served basis.
• Interest on the refund money will be at rate of 5% p.a.

Category of investors	Bucket size
Category I (includes QIBs and Corporate)	50%( 1500 Cr)
Category II (Individuals/HUFs investing > 1,00,000)	25% (750 Cr)
Category III (Individuals/HUFs investing < 1,00,000)	25% (750 Cr)

Tax Benefits:

1. The income by way of interest on these Bonds shall not form part of total income as per provisions under section 10(15)(iv)(h) of I.T. Act, 1961;
2. There shall be no deduction of tax at source from the interest, which accrues to the bondholders;
3. As per provisions under section 2 (29A) of the I.T. Act, read with section 2 (42A) of the I.T. Act, a listed Bond is treated as a long term capital asset if the same is held for more than 12 months immediately preceding the date of its transfer. Under section 112 of the I.T. Act, capital gains arising on the transfer of long term capital assets being listed securities are subject to tax at the rate of 20% of capital gains calculated after reducing indexed cost of acquisition or 10% of capital gains without indexation of the cost of acquisition;
4. Wealth Tax is not levied on investment in Bond under section 2(ea) of the Wealth-tax Act, 1957.

Note: The investment limit for Category III investors has been increased from Rs 1 Lakh to Rs 5 Lakhs.

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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.)

Chart Patterns of 10 Banking Sector stocks (an update)

There is nothing like a nice, long bear market to separate the men from the boys. Banking sector stocks have been no exception. Back in Dec ‘10, banking sector stocks were undergoing corrections after touching new highs. Those corrections turned out to be the first phase of a 14 months long bear market.

There are two schools of thought in the stock market. One group believes that stocks that have undergone deeper corrections during a bear market, are likely to gain more during the subsequent bull rally. There may be some truth to this line of thought – if gains are measured in percentage terms from the lows.

The other group prefers stocks that fall less during a bear phase, but recover more quickly in the subsequent bull phase – even though the gains may not be high in percentage terms. If you are not sure which group you should follow, have a look at the charts of ten banking sector stocks below to help you to decide.

Punjab National Bank

Punjab National Bank’s stock was one of the star performers during the bull phase from Mar ‘09 to Nov ‘10. The bear market shaved 46% off its peak level of 1395. The recent bull rally from its Dec ‘11 low of 751 pierced the 200 day EMA from below and reached 1091 – a 45% gain from the low. But the stock price remains in a bearish pattern of lower tops and lower bottoms and has slipped down below its 200 day EMA. Technically, the stock is in a bear market. Avoid.

Bank of Baroda

Bank of Baroda’s stock dropped from a peak of 1050 in Nov ‘10 to a low of 630 in Dec ‘11 – a 40% fall. The recent rally topped out at 881 – a gain of 40% from its low. The stock is trading above its 200 day EMA, but is still in a bearish pattern of lower tops and lower bottoms. Hold.

Central Bank

Central Bank’s stock made a double-top at 249 during Oct-Nov ‘10 and fell steadily down to touch a low of 63 in Jan ‘12 – a 75% fall from its peak. Though the recent rally gave a 76% gain from its low to its intermediate top of 111, the stock is trading below its 200 day EMA and remains deep inside a bear market. Avoid.

Corporation Bank

The stock price of Corporation Bank fell 59% from its top of 815 to its bottom of 335. The subsequent rally gained 57%. The stock is struggling to stay above its 200 day EMA, and remains in a down trend. Note the sharp volume spike as it crossed above its 200 day EMA – an indication that it may not fall much further. Hold.

Indian Overseas Bank

Indian Overseas Bank’s stock dropped 58% from its peak of 176 to a low of 73. Though the stock price rose sharply above its 200 day EMA – gaining 73% from its low – it has dropped equally fast and remains in a bear market. Avoid.

HDFC Bank

A favourite of the FIIs for obvious reasons, HDFC Bank’s stock has risen steadily to touch a new high in Feb ‘12 – forming a bullish pattern of higher tops and higher bottoms. Despite several drops below its long-term moving average, the stock is in a bull market. If you think that HDFC Bank’s stock is too expensive, and it is better to go for ‘cheap’ stocks like Central Bank of Indian Overseas Bank – think again. Cheap can get cheaper. Buy.

ICICI Bank

The stock price of ICICI Bank lost almost 50% from its peak of 1277 in Nov ‘10. The recent rally produced a 55% gain from its Dec ‘11 low of 641. The stock is in a clear down trend and struggling to get out of its bear market. Hold.

Axis Bank

Axis Bank’s stock touched a high of 1608 in Oct ‘10 and a trough of 784 in Jan ‘12 – a 51% loss. The sharp rally to 1309 means a 67% gain. But the stock price is in a long-term down trend and struggling to get out of a strong bear grip. Hold.

Kotak Mahindra Bank

The stock price of Kotak Mahindra Bank is in a bull market and touched a new high in Feb ‘12. The subsequent correction is receiving good support from its 20 day EMA. Buy.

Yes Bank

Yes Bank’s stock made a double-bottom (in Feb ‘11 and Jan ‘12) reversal pattern and re-entered a bull market. The stock is consolidating, and should test and break above its Nov ‘10 top of 388. Buy.

Stock Index Chart Patterns – Jakarta Composite, Singapore Straits Times, Malaysia KLCI – Mar 09, ‘12

A month ago, the chart patterns of the Jakarta Composite, Singapore Straits Times and Malaysia KLCI indices were looking bullish, after recovering well from bear attacks. The bulls have been trying hard to regain control and momentum. But the bears are still reluctant to give up ground. In the process, some interesting chart patterns have been forming.

Jakarta Composite Index Chart

The Jakarta Composite index never entered a bear market technically. The 50 day EMA had bounced off the 200 day EMA back in Oct ‘11, and has been moving up since. After a sharp drop below the 200 day EMA and an equally sharp recovery, the index has been trading within an upward-sloping channel for the past four months.

The interesting thing to note is that the index faced strong resistance from the 4030 level, where it had earlier faced resistance in Jul, Aug and Sep ‘11. As a result, the index has not been able to make any headway for the last two months – though it is trading above its rising 200 day EMA and is technically in a bull market.

The technical indicators are mildly bullish. The MACD is barely positive and has merged with its signal line. The ROC has crossed above its 10 day MA into positive territory, but appears unable to decide which direction it wants to go. The RSI is resting at its mid-point. The slow stochastic has dropped from its overbought zone.

The bulls still have some work left to be able to test the Aug ‘11 top of 4196. 

Singapore Straits Times Index Chart

The Singapore Straits Times index climbed smoothly above all three EMAs. The ‘golden cross’ of the 50 day EMA above the 200 day EMA (marked by light blue oval) technically confirmed a return to a bull market. But the lower edge of the gap (at 3030 level) formed in Aug ‘11 is providing strong resistance to the bull rally.

After a short correction down to its rising 50 day EMA, the index has bounced up smartly. But the technical indicators are yet to turn bullish. The MACD is still positive, but has made a bearish ‘inverted saucer’ pattern and is falling below its signal line. The ROC has dropped into negative territory. The RSI is below its 50% level. The slow stochastic bounced up from the edge of its oversold zone, but is below its 50% level.

The bulls need to concentrate their efforts on closing the Aug ‘11 gap before they can hope to regain control.

Malaysia KLCI Index Chart

The Malaysia KLCI index chart is clearly trending up in a bull market, and looks the most bullish of the three indices. After coming within two points of its Jul ‘11 top of 1597, the KLCI index had to beat a slight retreat. Will the brief setback turn into a correction?

The technical indicators are suggesting the possibility. Volumes have reduced considerably and all four indicators touched lower tops (marked by blue arrows) as the index rose to test its previous top. The combined negative divergences may pull the index down some more.

Note that all three EMAs are rising in tandem and the KLCI is trading above them. That is a clear sign of a bull market. Do not make the mistake of shorting a rising index. Use any dips to add.

Bottomline? The Asian index chart patterns are back in bull markets. The bears haven’t given up the fight, but are slowly losing ground. Once the nearby resistance levels are overcome, the bulls will regain complete control. Add the dips and maintain trailing stop-losses.

Behavioural traits of a successful investor

To be a successful investor in the stock market, one needs to develop several skills:

• Learn how the stock market functions – the roles played by short-term traders, long-term investors, operators, company promoters, brokers, FIIs, DIIs, NSDL/CSDL, stock exchanges, SEBI
• Know about the various types of securities that are traded – stocks, convertible and non-convertible debentures/bonds, warrants, ETFs, mutual funds, bonus/rights shares, bonus/rights debentures
• Be aware of related information – dividends, interest on debentures/bonds, tax implications of buying and selling of various securities
• Have working knowledge of economic concepts – supply and demand, money supply, inflation/deflation/stagflation/recession, surplus/deficit, interest rates, impact of global economies on domestic economy, effect of economic changes on different business sectors
• Reasonable proficiency in accounting concepts – debit/credit, assets/liabilities, capital/reserves, equity/preference shares, payables/receivables, raw materials/inventory, profit/loss, cash flows, and ability to calculate and compare EPS, P/E, P/BV, RoNW, RoCE, Debt-Equity ratio, etc.

But the most important skill of all is to learn about oneself – the behavioural traits that determine who will be a successful investor and who will be an ‘also ran’.

In a recent article posted at investopedia.com, the following behavioural model developed by Bailard, Biehl and Kaiser was presented:

Investors are classified according to their decisions and actions (‘impetuous’ at one end and ‘careful’ at the opposite end) as well as their levels of confidence (‘confident’ at one end and ‘anxious’ at the other end). Based on these behavioural traits, investors are divided into five groups:

• Celebrity – anxious and impetuous, a follower of the latest investment trends
• Adventurer – confident and impetuous, a strong-willed risk taker
• Individualist – confident and careful, with an analytical and self-reliant approach
• Guardian – anxious and careful, willing to sacrifice riskier growth for more stable returns
• Straight Arrow – equally shares the above four behavioural traits

Apparently, greatest investment success is achieved by those with the ‘Individualist’ behavioural trait. What if one has one of the four other behavioural traits? Should they exit from the stock market?

With discipline and perseverance, behavioural patterns can be changed – provided one is aware which behavioural category one belongs to.

Moral of the story? To be a successful investor – know thyself.

Related Posts

Become a successful investor by avoiding 'herd mentality'

Are you an irrational investor?

Some practical examples of Behavioural Finance

Stock Chart Pattern - DLF Ltd. (An Update)

The previous detailed update to the technical analysis of the stock chart pattern of DLF Ltd. was posted more than two years back (date marked by the grey vertical line on the chart below). A further update since then had not been considered necessary because there wasn’t anything new to add to the following recommendations:

“The stock chart pattern of DLF Ltd. does not hold out much hope for the bulls. If you are still stuck at higher prices, continuing to hold may increase your losses. Investors should not go anywhere near this stock.” 

So, why take a re-look at the DLF Ltd. chart now? The motivation came from the considerable interest generated by a recent report published by a Canada-based equity research house that tore the company’s business practices and financial condition to shreds. That report was based on fundamental analysis. But technical signals had warned of the decimation in the stock’s price back in Oct-Nov ‘09.

The weekly bar chart pattern of DLF Ltd shows the steady fall from the 3 yr high of 491, touched in Oct ‘09. The stock fell almost 65% to its Jan ‘12 low of 173. But that pales in comparison to the 90% fall from its all-time high of 1225 touched on Jan 15 '08 to the bottom of 124 on Feb 4 '09.

The subsequent rally led to a 300% gain (from 124 to 491) but retraced only a third of its bear market fall – less than the Fibonacci retracement level of 38.2%. That means the entire gain from 124 to 491 was a bear market rally within the long-term bear market that started from Jan ‘08. Hence the call to investors not to go anywhere near the stock. Very few stocks manage to recover from a 90% fall.

Note that the stock price formed a ‘reversal week’ pattern (higher high, lower close) when it touched 491 in Oct ‘09. A ‘distribution week’ pattern (high near open, close near low on higher volumes) followed the next week. The stock price then entered a bearish ‘rising wedge’ pattern.

After the expected break below the ‘rising wedge’, the stock dropped to 251 in May ‘10 but formed a ‘reversal week’ pattern (lower low, higher close) that marked the end of the first phase of the down move. A counter-trend rally took the stock price above the 20 week and 50 week EMAs to a high of 397 in Oct ‘10. Again, a ‘reversal week’ pattern (higher high, lower close) marked the end of the intermediate rally.

The next leg of the down move dropped the stock to a low of 173 in Aug ‘11. A bounce saw the stock price reach a high of 251 in Nov ‘11 before falling back to test the low of 173 in Jan ‘12. A rally along with the broader market took the stock to a high of 261 in Feb ‘12, when another ‘reversal week’ pattern ended the brief rally. Note the negative divergences in three of the four technical indicators (marked by blue arrows) that warned of a correction, which started even before the adverse report hit the market.

The weekly technical indicators are turning bearish. If the stock breaches its recent low of 173, it can drop all the way to test its Feb ‘09 low of 124. If you are holding the stock, ask yourself: Why?

Bottomline? The stock chart pattern of DLF Ltd. is in a long-term bear market that started more than 4 years ago, and shows no sign of ending. After years of financial shenanigans and taking customers and investors for a ride, the chicken are coming home to roost. The company is desperately trying to sell-off assets to survive, but are finding few takers. The stock doesn’t deserve to be an index constituent. AVOID.

Gold and Silver chart patterns: bears fight back

Gold Chart Pattern

Gold’s chart pattern shows a strong fight back by the bears, just when all seemed lost. After moving above the 1770 level, gold’s price consolidated a bit before rising to a 2 months high of 1790. Proximity to the Nov ‘11 top of 1800 was used as an excuse by the bears to indulge in heavy selling.

Note that all three technical indicators touched lower tops as gold’s price reached a 2 months high. The negative divergences warned of an impending correction. But the high volume of selling marked a ‘distribution day’ (high near the opening level and a much lower close). Such high volumes were last seen during the sell-off in Sep ‘11. Volumes on down days (red volume bars) have exceeded volumes on up days (grey volume bars) on several occasions, and is a sign of distribution.

Gold’s price has dropped below its 20 day and 50 day EMAs, and it looks like it may drop further to its 200 day EMA. The technical indicators are looking bearish. The RSI has slipped below its 50% level. The MACD is still positive, but is falling below its signal line. The slow stochastic bounced up a bit from the edge of its oversold level, but it looks like a ‘dead cat bounce’.

Gold is still trading above its rising 200 day EMA – which means it is technically in a bull market. Hold, with a strict stop-loss at 1650.

Silver Chart Pattern

Silver’s chart pattern shows strong buying by the bulls in the third week of Feb ‘12 that pushed the price above the 37 level. High volume selling and a ‘reversal day’ pattern (higher high and lower close) marked the end of the intermediate rally from the Dec ‘11 low of 26.

The technical indicators are looking bearish. The RSI has dropped from the overbought zone to its 50% level. The MACD has crossed below its signal line, and is barely positive. The slow stochastic has fallen below its 50% level from its overbought zone.

Despite spending more than a month above the 200 day EMA, a bull market was not confirmed technically because the ‘golden cross’ of the 50 day EMA above the 200 day EMA didn’t occur.

Silver’s price is likely to fall below its 200 day EMA, and return to a bear market after a foray into bull territory. Sell.

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Mar 2, ‘12

S&P 500 Index Chart

The inevitable happened. The bulls finally managed to push the S&P 500 index chart to new 52 week highs – both on intra-day and closing basis. The index touched an intra-day high of 1378 on Feb 29 ‘12 and a closing high of 1374 on Mar 1 ‘12. Is it time for celebration or caution?

All three EMAs are rising and the index is trading above them. The bulls appear to be in complete control. But there are a few concerns. The index is trading too far above its 200 day EMA, which is a precursor to a correction. Despite a spike up on Feb 29, volumes have been sliding. A bull rally needs volume support to sustain.

The technical indicators are bullish, but continue to show negative divergences. The slow stochastic is inside its overbought zone, but drifting down. The MACD is positive and touching its signal line, but slowly losing ground. The RSI is above its 50% level, but making a bearish pattern of lower tops and lower bottoms. The ROC is barely positive, but touching lower tops. Stay invested with a trailing stop-loss.

Is the slow-growing US economy reaching stall speed? Some of the data points suggest as much. Weekly unemployment claims remained flat at 351,000. ISM Manufacturing index declined to 52.4 from 54.1 in Jan. Durable goods orders declined by 4% in Jan after 3 straight monthly increases. Home prices continued to fall. But it wasn’t all bad news. Car sales crossed the 15 Million mark in Feb – a 4 yr high. Sales of previously owned homes rose 4.3% in Jan – helped by the lower prices.

FTSE 100 Index Chart

The FTSE 100 chart closed marginally lower for the week. The bull rally appears to have hit a road-block below the 6000 level. The index is still trading above all three EMAs, so the bull rally is under no immediate threat. However, a correction seems to be around the corner.

The technical indicators have weakened further, and are on the verge of turning bearish. The slow stochastic has dropped from the overbought zone, but remains above the 50% level. The MACD is positive, but has slipped below the falling signal line. The RSI is resting at the 50% level. The ROC is at the ‘0’ line, after a brief dip into negative territory. A correction down to the 5800 level can be used as a buying opportunity. A deeper correction may put the nascent bull market in jeopardy.

Spectre of a double-dip recession in the UK may be fading. PMI for construction increased to 54.3 from 51.4 in Jan. PMI for services dropped to 53.8 from 56 in Jan. Remember that a figure above 50 means expansion. The big problem remains unemployment, which is at a 17 yr high. Austerity measures are not helping in job creation. High oil prices are another concern.

Bottomline? Chart patterns of the S&P 500 and FTSE 100 indices are in bull markets, which have climbed higher in spite of negligible growth in the underlying economies. Easy availability of liquidity has helped in propelling the markets. At some point, the weak fundamentals may drag the markets down. Till then, stay invested with trailing stop-losses.

BSE Sensex and NSE Nifty 50 index chart patterns – Mar 2 ‘12

In last week’s analysis of the chart patterns of BSE Sensex and NSE Nifty 50 indices, it was mentioned that the ongoing corrections will be shallow unless the FIIs start to sell. Except on two days since both indices topped out on Feb 22 ‘12, the FIIs were net buyers. As a result, both the indices have stayed above important support levels so far.

BSE Sensex index chart

The daily bar chart of the BSE Sensex has managed to stay above the down trend line and the entangled 50 day and 200 day EMAs, keeping bullish hopes alive. But the failure of the 50 day EMA to cross above the 200 day EMA has prevented a technical confirmation of a bull market.

The technical indicators have turned bearish. The MACD is falling below its signal line in the positive zone, and the histogram has turned negative. The ROC is negative and below its falling 10 day MA. The RSI has slipped below its 50% level. The slow stochastic has dropped to the edge of its oversold zone.

Some more correction/consolidation can be expected till three likely trigger events – the UP state election results, RBI’s policy review and the union budget – get out of the way.

NSE Nifty 50 index chart

The weekly bar chart of the NSE Nifty shows a classic pullback towards the down trend line that is receiving support from the rising 50 week EMA. Any upward bounce from current level will be an entry opportunity.

Some signs of weakness are visible in the technical indicators, but they haven’t turned bearish by any means. The MACD is still rising above its signal line in positive territory, but the histogram is falling. The ROC has dipped in the positive zone. The RSI is still climbing towards its overbought zone – no weakness there. The slow stochastic is in its overbought zone, but sliding down.

The UP state election is unlikely to produce a decisive result. The RBI is expected to do no more than reduce the CRR or the SLR. Both these outcomes appear to have been discounted by the stock market. All eyes are therefore on the budget, where some pro-reform policy notifications are expected. Lack of any negative surprises should help the up move to resume.

Bottomline? The chart patterns of the BSE Sensex and NSE Nifty 50 indices are going through a correction after a sharp rally. Such corrections provide entry opportunities to those who missed out on the earlier rally. That doesn’t mean one has to buy anything and every thing. The beaten down sectors, which may not be fundamentally sound, have shown greater gains. That is a worrying sign. Time to be cautiously optimistic.

Running Multiple Copies of MT4

How do you synch the files (experts, scripts, etc.) between multiple copies of MT4?

Where do you run your line MT4? …and your demo?  How fast does the machine need to be?

Here is my routine and set-up, to give you something to think about.

I have two computers. 

1. One I use on a day to day bases to check email, surf, do MT4 coding and back testing, general stuff.  It’s blazing f’n fast with RAID hard drives.  Windows 7, AMD IIX4 3.2Ghz, 8Gb ram, 64 bit OS.  I don’t need this speed for this PC but I needed a new PC, the price was right.

2. Second PC is an old P4 running XP, 3.0Ghz and 4GB ram.  I hate using it as a day to day, it’s to slow and can’t keep up with me.  But as a trading machine sitting in the corner it’s quite happy.  I also run Winamp on it 24/7 with an FM transmitter PCI card in it so I have tunes all over my house.

3. NAS – Network Area Storage – 1TB of redundant drives.  This is where the MP3’s are that played on the second computer.  This is where I store my MT4 files for back-up and synching.

Here’s the drill:

Saturday – On computer 2 – run cCleaner to get rid of old files, and a registry check, defrag the hard drive, run a virus scan full power down, power up.  Virus scanner doesn’t check my trading directories, I excluded them.  All files to this machine come from computer 1 anyways, and they get checked there.  I use the free Microsoft virus scanner.

Sunday – set-up trades on my live accounts running on computer 2.  Also set up some trades on demo account running on computer 1.  I also run a demo on computer 2 that copies trades from other traders, checking to see if this is worthwhile.

During the Week – might do some coding on computer 1.  Once I’m done, I run Microsoft SyncToy.  It copies all the files in my demo MT4 coding platform to the NAS for storage.  Then it copies those files to computer 2 to all the MT4 platforms running there.  I have to run SynchToy twice for the changes to make.

To format my code before I am finished with it, I do this:

Downloaded AStyle.exe, a free open source formatter.  Put it in experts and scripts directory.  Then I made a batch file and put it in there as well.  To format my code, double click the format.bet file and away you go, takes less than a second.  Here is the batch file called “format.bat”

ECHO OFF

ECHO ...............................................

ECHO THIS WILL FORMAT ALL MQ4 FILES IN THIS DIRECTORY

ECHO ...............................................

pause

AStyle.exe -A2 -s3 --mode=c *.mq4

ECHO ...............................................

ECHO CHECK RESULTS AND PRESS ANY KEY TO EXIT

ECHO ...............................................

pause

Here is the interesting part, how much processor does the MT4 take up?  It depends on how many ticks are coming in, that triggers your EA’s to execute.  Here’s a short video on using a tick simulator while running several MT4’s with EA’s and how the number of ticks per second causes the processor load to increase.

magic stick versus trading sticks

Either way you compare these two they are both not for me.

You can read about them here….

http://www.4xcircle.com/blog/

http://www.forexpeacearmy.com/public/review/www.4xcircle.com – for comments and user reviews, assuming what you read is by real people not affiliated with them. 

and here is the price at http://www.forexmoneytrendline.com/

$500.  Put away your reading glasses, it says five hundred bucks!!!!

Learn to trade with price action and supply and demand, then get the FREE TipsterTrendlines for MT4.

Here is the link for the free stuff.

Trading Mentor…. or not?

I received some email asking about trade mentoring.  As I have never taking a trading course or had a mentor I’m looking for some honest input from readers.

I think the worst part about finding a mentor is trusting if they are actually profitable.  If I was to have someone teach me, let’s say, how to install wiring for my addition to the house, I’m pretty sure I would only take advice from an electrician.  By the same token, if I was to take advice from a trader, I would want to see his statements for the last 3 years, and not some random stuff he might have made up.  Some online, lets log into your account and take a look, and see if your playing with some real money.  If he had 20K I wouldn't be interested.  I think an account of 100K or more and profitable yearly for 3 years would make me comfortable.  Good luck finding this taught.  Good traders are probably to busy making $$ to worry about teaching others to compete with them.

If you want something done right, do it yourself.  Learn price action.  Here is a suggestion.

Open up a chart with a 1hour timeframe or higher.  Zoom in so you can see maybe 50 to 100 bars.  Mark off areas with a box where you think price might turn next time it gets there. Let’s say there was a breakout to the upside, mark the area with a yellow triangle.  Then move along the chart marking off more area, don’t worry yet about seeing if that area was a turning point.  Once your done all the data, zoom out and see what happened.  Make notes.

Do this a few time with different pairs or trading instruments.  Then do the same thing but also mark off a target.  Then zoom out and see what happened.

You will notice that some trading vehicles don't give a rats ass about price action.  Try this first with EURUSD.  Then try some strange pair.  You will then realise that trading these odd pairs isn’t worth it.  I stick to the majors. unless I’m testing some EA.

Once your done this, watch a chart on a 5 minute time frame between 9am EST and 11am EST.  I have also done a 1 minute video screen capture of the NFPA news release to see how it moves.  Watch it a few times.  Watch price when it gets to a supply demand level on a 1 minute timeframe and see how it bounces around. 

My number 1 problem is that I chase price sometime.  I almost always lose money when I pull the trigger on a market order.  When I use limit order and set it and walk away, checking every 30 minutes, I’m usually profitable or breakeven.  I actually prefer to trade off 4 hour charts on forex, sometimes I have to wait more than 1 week for the entry. But in that week, I haven't lost any green, and the right set-up give you a smile on your face when it goes into profit shortly after entry.

So once you’ve done all that stuff above, try this game out.  Hint: switch time frames to drill down, use the pause button.

Click for the trading game Trading Game

By the way, if you’ve read this far, I just watch all Sam Siedens videos and got his odds enhancer list somewhere on line and studied it, to learn price action.  His stuff and Alphatrends helped a lot.

If you have a mentor or use a trading service, post a comment.  Not really interested in the service or who is the mentor, just interested in the result…. is it helping you become consistent and profitable?  Leave a comment.

About trend lines and channels

Here are some extracts from my free eBook on Technical Analysis taken from Chapter 2: Trend Lines and Channels:-

“Stock or commodity prices tend to move in a trend. A bullish (or up) trend occurs when demand for a stock or commodity exceeds supply. In other words, there are more buyers than sellers. A bearish (or down) trend occurs when supply of a stock or commodity exceeds demand. That means there are more sellers than buyers.

Some times, demand from buyers and supply from sellers are almost equally matched. The trend becomes sideways – neither going up nor falling down. At such times, technical analysis doesn’t work too well. At some point, a mismatch between buyers and sellers causes a break out from the area of sideways consolidation.

There are three types of trends. A major trend lasts for a few months or years. This is the trend of greatest interest for buyers and sellers. An intermediate trend moves in a direction opposite to the major trend, and lasts for a few weeks or months. Eventually, the major trend resumes. A minor trend occurs for a few days during major and intermediate trends, and is of very little consequence.

Prices don’t move in one direction in a straight line. An up move of a few days is followed by two or three days of a down move, producing a zigzag pattern on the chart. Trend lines enable investors to identify the major and intermediate trends. These lines are drawn by connecting the progressively higher bottoms touched by prices in an up trend, or the progressively lower tops touched by prices in a down trend.

Some times, prices move within trend channels – a pair of parallel lines can be drawn connecting the tops and bottoms touched by prices during an up or down trend. A trend channel is similar to a sideways consolidation, but with an upward (or downward) bias. Eventually prices break out of the channel.

Drawing trend lines (and channels) is a skill that improves with practice. Despite its name, there is nothing ‘technical’ in technical analysis – other than dealing with graphs and geometrical shapes taught in school to every student. The important thing is to remain flexible about adjusting to changing conditions if chart patterns don’t form exactly as per expectations.”

Why remain satisfied with these extracts? Get the real thing. The eBook is absolutely free. Just send me an email at mobugobu@yahoo.com with your full name and a request for the eBook to receive your copy.

Is the Q3 GDP growth rate of 6.1% a good or a bad number?

The short answer to the question: It depends on your viewpoint. Such a GDP growth number can not be seen in isolation, but in comparison with what has happened before and what is happening elsewhere.

Here are a few reasons why the number is good, and a few more reasons why the number is bad. The idea is not to confuse readers, but to provoke thinking and debate.

Reasons why Q3 GDP growth of 6.1% is good

If you look at the growth figures in some of the developed economies – particularly those in the Eurozone where even a 2% growth figure is considered good – a 6.1% growth figure should be celebrated with fireworks and champagne. The stark difference in growth figures is one of the reasons FIIs are investing big sums in our stock market.

High growth usually leads to inflation and therefore, high prices for goods and services. A more moderate growth figure has helped to tame inflation to a certain extent.

The Q4 GDP growth figure is unlikely to be much higher, but things are likely to improve from here on as there is usually a spurt in spending by the government sector to utilise left over funds from the previous year’s budget. In other words, the economic cycle may be bottoming out – which it usually does a few months after the stock market bottoms out.

Reasons why Q3 GDP growth of 6.1% is bad

This was the lowest growth figure in nearly 3 years, and almost 35% lower than the heady figure of 9.5% growth seen 5 years back.

There is evidence of economic slowdown everywhere – particularly in the manufacturing sector. Even services sector is slowing down. If growth doesn’t pick up soon, the FIIs may just pull out their money and invest it elsewhere.

Government’s fiscal deficit target for the year has already been exceeded in the first 10 months. That, coupled with the rise in oil prices, means that inflation may rear its ugly head again. The RBI may feel constrained to leave interest rates at the current high levels, or reduce it only marginally. That in turn will lead to slow growth in the next financial year.

The Sound of Price

I tried this script and got it working.  You hear popping sounds as the ticks come into your MT4 platform.  For you price watchers, would you ever try this out?  Do you think its of any use?  In the evening I tried this out and it serves a purpose in my view if you're looking to scalp of looking for a breakout on a small time frame.


Hope you comment!


Read this post at forex factory on The Sound of Price

Notes from the USA (Feb 2012) - a guest post

The data flowing out of the US economic indicators have been showing definite signs of recovery from the world-may-come-to-an-end kind of scenario three years ago. Two large doses of Quantitative Easing have prevented a collapse of the financial system. The stock market is soaring and corporate America is flush with cash. Unemployment situation is improving and even the moribund housing market is beginning to show signs of life.

Is this the proverbial light at the end of the tunnel, or is it the headlight of an onrushing train? In this month’s guest post, KKP expresses his apprehensions about the strength and durability of the US economic recovery. He also presents a positive outlook from a recent consumer survey report.

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Beautiful Orange Sky Before Darkness

The sky looks awesome right now since it is 6 pm and we can see the sun setting on the horizon. It is a perfect time when the glare of the sun does not bother our eyes, the heat has reduced to a more comfortable level, and it is all-in-all pleasant to everyone enjoying this moment. The key is to know what happens in a few minutes to an hour. It will be dark and the lights need to turn on. Oh no, the electricity man came earlier and cut off our electricity? Is that possible? Turning to my wife, I ask if we paid the electric bill on time? Huh!

Well, it seems that we are facing such an evening right now in the global economy. The bearish blog writers have portrayed well that ‘patch-work’ solutions of the current debt-related issues are only going to take us so far. One fine day the electricity guy is not going to take our cheques (or bonds) and the darkness is not going to get illuminated with a 100 or 200 watt CFL (tube light) bulb.

Many global economies are running on borrowed time, with times of pleasure and growth in between based on government maneuvering for political reasons. Is the booster shot that Greece just got something that will last, or will it need a 2^nd, 3^rd, and 4^th shots before the antibiotics kick-in? And will the patient be alive when those 3^rd and 4^th shots are given? Are the other countries after Greece in the PIIGS acronym next to ask for rescue packages? Of course, they are almost ready now. We already have a next acronym after PIIGS and it is CAASH. This is the Canadian, Australian, Hong Kong and other economies that also have their Debt-to-GDP ratios going out of whack. US tax collections are lower than ever, and annual deficits are in the same range as during 1929-1934 (% of GDP). Are we so information overloaded that we cannot see the turmoil in the air, or are we too busy with our daily chores, ‘synch’ing our mobile devices, and playing Angry-Birds on our Tablets/iPhones/Androids?

Take a look at the previous crisis and what happened to Gold. Look at what has happened to Gold even without a ‘real crisis’. I say that the crisis has not happened since we keep averting the ‘root cause’ event with patch-work. In the meantime, we have high tides and low tides in the market and have the emotional roll-coaster associated with it (being left out, or what did I do!). So, let’s watch what is happening in the global markets and react accordingly.

If you want to see a positive viewpoint of the most current survey that I participate in with ChangeWave, here is partial report. Of course, I was not very optimistic in my input to the survey. We are approx 5000 to 10000 people in this closed group of professionals that provide our input based on our consumer spending or enterprise spending surveys. It will show the minor waves of positive and negativity, and of course, it is showing the positive/optimistic living that we are all experiencing right now. I am all for good living, and benefitting from positive waves, but will it last?

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February U.S. Consumer Spending Report

Spending Accelerates for February as Consumer Confidence and Expectations Improve

by Jean Crumrine and Paul Carton

Overview: In a clear sign of accelerating momentum, U.S. consumer spending has soared in February – the second major upswing of the past three months. Importantly, the February 1-13 ChangeWave survey shows overall spending at a nine month high, and confidence and expectations continuing to improve. ChangeWave Research is a service of 451 Research.

The survey of 2,501 U.S. consumers finds the biggest spending upticks are occurring in Travel/Vacation, Household Repairs and Improvements, Autos, and Restaurants.

Moreover after last month’s post-holiday declines, our latest findings point to renewed momentum for several retailers, including Costco (COST), Target (TGT) and Walmart (WMT).

Consumer Spending Outlook: Three-in-ten U.S. respondents (30%) now say they'll spend more over the next 90 days than they did a year ago – up 6-pts since our previous ChangeWave survey in January.  Only 27% say they'll spend less, a 4-pt improvement from previously.

Putting the Findings in Context:  As the following chart shows, the net 10-pt jump in February is the second major uptick of the past three months – and the overall reading is higher than any of the previous 9 months.

Consumer Expectations and Confidence: When we asked consumers about their impressions of the economy, we found confidence and expectations up again to their highest levels of the past year.

Consumer Expectations:  One-in-three consumers (33%) now believe the overall direction of the economy will improve over the next 90 days, while only 21% think it will worsen.  This represents a net 7-pt improvement since January and a striking 66-pt turnaround since the horrendous lows of six months ago.

Stock Market Confidence:  In a similar positive, 39% say that they’re More Confident in the U.S. stock market than they were 90 days ago, while 19% say they’re Less Confident – an 8-pt improvement since the previous month.

Respondents were asked about their investing plans going forward, and reported their money inflow into U.S. Stocks (+13; up 6-pts) is accelerating. And although Non-U.S. Stocks (-1; up 6-pts) are still registering a money outflow, the rate is subsiding – a sign that the European Union debt crisis hasn’t immobilized consumer investing.

Bottom Line: The February ChangeWave survey results show consumer spending soaring, and bring into sharp focus the improved spending environment we’ve been tracking in our monthly surveys since November of last year.

Importantly, U.S. consumer confidence and expectations are also improving for the 6th consecutive month. As for the biggest outperformers in February – it’s Travel/Vacation, Autos, Household Repairs/Improvements, and Restaurants.

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KKP (Kiran Patel) is a long time investor in the US, investing in US, Indian and Chinese markets for the last 25 years. Investing is a passion, and most recently he has ventured into real estate in the US and also a bit in India. Running user groups, teaching kids at local high school, moderating a group in the US and running Investment Clubs are his current hobbies. He also works full time for a Fortune 100 corporation.

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Feb 24, ‘12

S&P 500 Index Chart

The chart pattern of the S&P 500 index reminded me of an old Cole Porter song: “So near and yet so far.” The index touched an intra-day high of 1369 on Fri. Feb 24 ‘12 and closed marginally higher on a weekly basis, but couldn’t quite cross above the May ‘11 top of 1371. Will the index touch a new 52 week high this week?

The possibility is high. The index is trading above all three of its rising EMAs, and is in a bull market. But volumes are decreasing and the technical indicators continue to show negative divergences, by failing to reach new highs. The index may pause to catch its breath after rising almost non-stop for two months.

Despite large doses of QE1, QE2 and an indirect QE3, growth in the US economy is still tepid. Initial jobless claims were almost flat at 351,000. New hiring isn’t picking up. Inventory of existing homes reduced as existing home sales rose. As per AAII’s Sentiment Survey, bullish sentiment rose by 1% to 43.7% (above its historical average of 39%) and bearish sentiment rose by 0.9% to 27.5% (below its historical average of 30%). The fly in the ointment was ECRI’s reaffirmation of a recession by mid-2012.

FTSE 100 Index Chart

The FTSE 100 index chart closed with a higher weekly gain, but the bulls seem to be getting tired as the index nears the 6000 level. All three EMAs are rising with the index trading above them, which indicates a bull market.

The technical indicators are not bearish, but showing some weakness. The slow stochastic is inside its overbought zone, but sliding down. The MACD is positive and touching its signal line, but drifting downwards. The RSI has fallen sharply after touching the edge of its overbought zone, but remains above the 50% level. The ROC dropped to the ‘0’ line, but has bounced up.

The UK economy is teetering at the brink of another recession. The GDP contracted by 0.2% during the last three months of 2011, in spite of a 0.5% increase in household spending and 1% growth in government spending. The full year GDP was revised down to 0.8%.

Bottomline? Chart patterns of the S&P 500 and FTSE 100 indices are in bull markets – even though the GDP growths in the US and UK economies are negligible. Are the stock markets telling us that things will improve later in the year – or is it just that markets are being propelled by easy availability of low-cost money? Who knows, and why bother? Just ride the up trends by maintaining a stop-loss at the levels of the respective 20 day EMAs. Use dips to add.

BSE Sensex and NSE Nifty 50 index chart patterns – Feb 24 ‘12

The seven weeks long rallies on the charts of the BSE Sensex and NSE Nifty 50 indices finally came to a halt last week. There was no dearth of FII buying that had fuelled the rally. Selling by the DIIs overwhelmed the FII buying during the last couple of days. Unless the FIIs also start to sell, the correction should be a shallow one.

BSE Sensex index chart

On the weekly bar chart, the Sensex is trading above its rising 50 week EMA. The 20 week EMA is rising below the 50 week EMA, and an impending cross above the 50 week EMA may seal the fate of the bears. On the downside, the Sensex is likely to receive strong support from the 17000 – 17300 zone (where the 20 week EMA, 50 week EMA and the blue down trend line are congregating). A convincing drop below the down trend line may end the nascent bull market – but as of now, the probability of that happening is low.

The technical indicators are still quite bullish. The MACD is climbing above its signal line in positive territory. But the histogram has dipped a bit. The ROC is positive and rising well above its 10 week MA. The RSI is creeping up towards its overbought zone. The slow stochastic is inside its overbought zone, but showing signs of turning down.

The election results in UP and the central budget after that will be the next triggers for the Sensex to move up or down. Till then, expect some consolidation. Hold on with a stop-loss at 17300.

NSE Nifty 50 index chart

There are a couple of technical points to note on the Nifty 50 daily bar chart pattern. First, the small gap on the chart (between 5420 and 5460) was closed on Fri. Feb 24 ‘12. That has probably put paid to another sharp up move for the time being. Second, the ‘golden cross’ (highlighted by the light-blue oval – just below the blue down trend line) of the 50 day EMA above the 200 day EMA is about to confirm the return to a bull market.

The technical indicators are beginning to look bearish. The MACD is positive, but has crossed below its signal line. The ROC has dropped well below its 10 day MA and is about to enter the negative zone. Both the RSI and the slow stochastic have fallen sharply from their overbought zones and seem ready to slip below their 50% levels.

The correction may continue a bit longer and drop the index below its 20 day EMA. The confluence of the 50 day EMA, 200 day EMA and the blue down trend line should provide strong support near the 5200 level. In case the index falls below 5200, the bull rally may take some time to resume.

Rising oil prices will extract a heavy toll on India’s surging balance of payment problem. If the RBI maintains interest rates at current levels, there will be no fundamental reason for a runaway bull market. However, the FIIs are aware that their buying and selling move the Indian market. So remain calm and follow sound investing principles – like remaining true to your asset allocation plan and picking fundamentally strong stocks that do not use too much debt leverage.

Bottomline? The chart patterns of the BSE Sensex and NSE Nifty 50 indices appear to be resting a little after a hectic rise into the first stage of new bull markets. Stay invested with stop-losses at 17300 (Sensex) and 5200 (Nifty). Any bounce up from the blue down trend lines will be buying opportunities. Drops below the down trend lines may stall the nascent bull markets. Be alert and nimble. No need to be gung-ho bullish or bearish.

Manual for TipsterTrendlines for MT4

Instead of keeping a PDF up to date, I decided to keep a blog post, its easier to update.

Files are available at these two forums;

Stevehopwoodforex.com

Forex Factory

Introduction

I wrote this EA to be able to place my manual trades easily, avoid errors, and let the computer do the repetitive tasks. If you enter trades manually this EA should help you.

I use EA robots as well, but mainly I enter manual trades based on price action. This EA can be used on the same platform as other robots, just make sure the Magic Numbers (MN) are different. This EA also used Magic Number to track, so ensure your broker let’s you use MN’s. Order comments are used but not required. Brokers such as Oanda do not let you use MN’s, and the comment field is filled out by them so be careful, run this on a demo account first to ensure it works as expected.

This document will only discuss the 2P version, the 1P is very similar.

Setup

Put the file into the experts folder and start (re-start) MT4. Drag it onto an open chart. At the first incoming tick the EA will draw all the lines you need to set-up your trade. There are no ticks on weekends so you may need a tick simulator for the EA to draw the lines.

The EA uses include files that are already on your system. (DLL’s were removed in version 10a).

· #include <stdlib.mqh>

· #include <stderror.mqh>

Functionality

To setup an order, you need to place the 5 lines on the chart to a valid location (Entry, Stop, Target 1, Target 2, BreakEven), then go to Expert Advisors Properties and set LimitOrder to true or false. The lines are initially drawn on the chart by the EA after the first tick is received, if you can’t see the lines then right click on the chart -> Object, and delete all of them. The EA will display the order type on the lower left of the chart, check it before you set “Live” to ‘true’ in EA Properties. Lines can be horizontal or sloped.

The EA determines the type of order based on the location of the lines relative to each other and current price. Note: If the ticket numbers (generate by MT4) are not sequential a pop up box will appear, you can select to delete the orders. If the order ticket numbers are not sequential, the EA cannot manage the trade properly.

Placing a Trade

Here’s a quick run through of how a typical trade set-up is accomplished once the EA is on the chart and MT4 is set up as described above.

1. Set up the lines.

2. Turn on the EA, EA properties à Live = “true”, LimitOrder = “true of false”

3. Price is not between the dashed blue buffer line and the blue entry line, the bottom left on the screen says “+LIVE+ …waiting. Sell Stop order set”.

4. Price is now between the two lines described above, two orders are sent to the broker (pending limit orders), and the only difference is the targets. The bottom left of the screen says “+LIVE+ <<PENDING ORDER>> Sell Stop order for 0.10 lots

5. The target for the second order is always closest to the entry, the EA takes care of this, even when you move the lines around when the trade is open. This is done so it can track the single remaining order once the first target is hit. When you have a pending order (not filled) you can drag the lines around. Note that the lines cannot be on top of each other, the EA keeps them slightly apart so you can grab them.

6. When price hits the entry line you are now in a position, you can drag the lines around. Be careful not to drag the targets or stops to close to current price or your position could be closed unexpectedly. Sometimes it’s a good idea to make Live = false and adjust the lines up, then turn it back on. You can also use the “Expert Advisor” button on the MT4 menu area.

7. A screen capture image is stored in /experts/files/ with the filename that shows the symbol, ticket number, etc so you can figure out what the trade setup was when you look at the picture in the future. Images are captured so you can review your trades later to see what you can improve upon.

8. After price hits a target one order is closed and the other is tracked by the EA as long as it is on and running. If you used horizontal lined you can turn the EA off. If you used sloping lines you need to leave it on so it will update the new order details as new bars open.

9. Once both positions are closed an image capture is stored in /experts/files/

10. To reset the EA you can just delete one of the lines, the line will be re-drawn and the EA will be ready to go again. The best method however, is to got o EA properties, “Reset”, then right click on the chart to “Objects”, CNTL A to select all, then “Delete”. Another way is to use the TipsterDelete script that will clear the screen.

LIMIT ORDERS (set in EA Properties LimitOrder true)

Buy Limit Order:

· Current price must be above the blue entry line.

· Both green target lines must be above the blue entry line.

· The red stop line must be below the blue entry line.

· The dashed red breakeven line must be above the blue entry line.

· The order will be sent when price is above the blue entry line and below the dashed blue buffer line.

· The distance between the blue entry line and the dashed blue buffer line can be set in EA Properties.

STOP ORDERS (set in EA Properties LimitOrder false)

Sell Stop Order:

· Current price must above the blue entry line.

· Both green target lines must be below the blue entry line.

· The red stop line is above the blue entry line.

· The dashed red breakeven line is below the blue entry line

· The order will be sent when price is above the blue entry line and below the dashed blue buffer line.

· The distance between the blue entry line and the dashed blue buffer line can be set in EA Properties.

The Break-Even Line

The BreakEven (BE) dashed red line is set to the price where you want the stop moved to breakeven, note there is an automatic breakeven offset in this EA, when price hits the dashed red line it takes the spread and doubles it. In the above chart, price needs to move up past the blue entry line and eventually to the dashed red line, at that time the orders stop will be moved to the entry price. If you don’t want to use the BE feature, put the dashed red line beyond the second target.

DANGER - Watch out for this scenario – a sell stop order is set up, looking for a break downwards. The price breaks through and we enter a position. Price climbs up then back down to the BE line. At this time the stop is moved to BE but BE is below current price, the trade is closed for a loss. I suggest always using a horizontal BE line that is placed away from any possibly entry on the current bar. Then you can walk away and check the trade progress at a later time.

Using Magic Numbers to track your progress

The EA “out of the box” (OOTB) is set to use MagicNumber 900000 and 900001, 900000 for the first order and 900001 for the second. Whatever you choose for the MagicNumber, the next order will be MagicNumber + 1. MagicNumbers are required for this EA to function.

I use MyfxBook to track my trading progress. When I place orders on different types of set-ups I use a different MagicNumber. Here’s how I do it;

Default: 900000, if I see this on MyfxBook, I know I didn’t set the MagicNumber up and I would have to check my screen captures to see what kind of a trade it was.

1^st Digit:

· 9 = TipsterTrendlines

· 8 = Tipster Trendlines straddle trade (use 9 for top line, 8 for bottom line)

2^nd digit: At demand or a breakout.

· 0 = forgot to set it (default)

· 1 = Enter trade at a demand or supply level (limit order)

· 2 = Breakout trade (stop order)

3^rd digit: # of take profits used, usually 2 but if I put them around the same area this would be a 1.

· 0 = forgot to set it (default)

· 1 = 1 target for both orders

· 2 = 2 target locations

4^th digit: Breakeven location.

· 0 = forgot to set it (default)

· 1 = Entry, BE, Target, Target

· 2 = Entry, Target, BE, Target

· 3 = Entry, Target, Target, BE

5^th digit: Sloped or horizontal lines.

· 0 = forgot to set it (default)

· 1 = horizontal

· 2 = sloped

· 3 = straddle trade horizontal

· 4 = straddle trade sloped

6^th digit: Used by EA to track orders. Use zero (0).

Examples

· 900000 = forgot to set MagicNumber, don’t know what kind of trade or set-up it was, check screen captures

· 912110 = Demand/Supply, 2 targets, Entry | BE | Target | Target, horizontal lines

· 922220 = Breakout, 2 targets, Entry | Target | BE | Target, sloped lines

· 911310 = Demand/Supply, 1 target, Entry | Target | Target | BE, horizontal lines

EA Properties (F7)

This is what the properties box looks like

Here is the code for the external user inputs. You can go into the code and set the user inputs to your defaults then press “compile”. In addition, you can remove the “extern” on any line and the user input will disappear from the properties pop up box.

EA Properties Settings Explanation

Setting	Value (default)	Explanation
Live	true false	T = EA is running and will place orders and manage orders F = EA will draw lines but will not place any new orders or manage any orders or positions
LimitOrder	true false	T = Limit order will be placed F = Stop order will be placed
EnterOnClose	true false	Waits for the current candle to close before sending the order. Could help avoid false breakouts.
UseRiskManagement	true false	Determines lot size based on account size and distance from entry to stop. This will determine the order size as if one order was being placed.
RiskPercent	Integar (2)	Percent of account balance used in the UseRiskManagement calculation
ManualLots_Help	Note	This reminds you that the number of lots (ManualLots) will be doubled since 2 orders are being placed. So if you indicate 0.1 lots, two orders are placed at 0.1 lots, for a total for 0.2 lots.
ManualLots	Integar (0.1)	Number of lots for each individual order.
MagicNumber	Integar (900000)	Use a different magic number if you use the same symbol on different charts.
Place_Order_Buffer	Note	A note to remind you of the setting below
PlaceOrderBuffer	Integar (500)	The distance from the blue entry line to the dashed blue buffer line
textcolor	Color black	Color of the on screen text.
OrderLineColor	Color blue	The color of the entry line.
Emailalert	true false	If you set up email in options, you will get an email when an order is placed, filled, and closed.
DisableSTOPAndTARGET	true false	Setting to true lets you place the order with just the entry line. You can also use entry and target, or entry and stop. This disables the check for the lines.
Slippage	Integar (3)	Amount of slippage you will allow for your orders
Reset_Stop	note	If you press Q and P together on your keyboard the stop will go to the red line. This is helpful if the stop went to breakeven and you don’t want it at breakeven yet. You have to have dll’s enabled in EA properties Common tab for this to work.
ShowRiskInfo	true false	This will show risk related information on the top left of the chart screen
ShowDebug	true false	This will show debug messages in the experts tab
ShowInformation	true false	This shows account information in the experts tab, such as point size, etc.
ShowInstructions	true false	This will show brief instructions on using this EA on the screen
PrintMagicNumbers	true false	This will print all the magicnumbers to the experts tab. Useful if your platform lost settings. For example, you can determine the magic number of specific trade by ticket number and symbol, set up TT2P and it will track the order for you.
CaptureScreenShot	true false	When a position is entered a screen shot will be stored in /experts/files/ and again when the trade is closed. A screen shot is not saved at the first target, only at stop or second target.

TipsterDelete Script (TipsterDelete_v2.mq4)

Script Files

These files are optional; you don’t need it to run the main EA (TT1P or TT2P). Additional information is on the last page.

· TT2P_DeleteLines.mq4

This script will delete all the lines that TT2P created on the chart. Put the file in /experts/scripts/ and re-start MT4. To use it, open navigator and look for it under “scripts”, drag it onto the chart or double click it. In addition, you can right click on it, select “set hot keys” for using a keyboard shortcut, I recommend “ALT D”.

· TT2P_ALL_On_Off.mq4

Run tis script to turn the TT2P ON or OFF on all charts that it is loaded on. Be careful. I review all my charts first, for example on Sunday night after I re-boot and defrag, then turn them all on.

· TT2P_ResetStop.mq4

Run this script to reset the stop line and move the stop back to the red stop line. Under normal operation, the EA will only move the stop towards profit and won’t let you move it away unless you run this script. A pop up message will appear.

Straddles

You can set up a straddle trade using two charts with the same symbol. You need to use different magic numbers.

Back test

You can run this EA in back test mode to practice. Use visual mode and set the expert to live before you press start. Once it is started you need to slow it down or pause it to move your lines into place. You won’t have access to the expert properties during the back test. To set up the next trade, just right click on one of the lines and delete it, the expert will reset it-self.

Tick Simulator

The EA requires ticks to function so it doesn’t work very well on the weekends, the EA will only execute code when it receives an incoming tick. You can use a tick simulator such as “mt4ticker.exe”.

Definitions:

Buy Stop Order

A stop order that becomes a market order to buy a security if it rises above its current price. That is, a buy stop order is not executed so long as the security is at or below the price when the order was made, but is executed at the best available price when it rises above that order. An investor who makes a buy stop order operates on the premise that if a security rises, it will likely continue to rise. In other words, the maker of a buy stop order hopes to profit from a security's upward momentum.

Sell Stop Order

An order to a broker to sell a security if its price falls below a certain level. A sell stop order exists to stop the losses, should a security's price fall. That is, it protects against further losses. This is not a stop loss order, this order is used to enter the market.

Limit order

An order to buy a stock at or below a specified price, or to sell a stock at or above a specified price. For instance, you could tell a broker "buy me 100 shares of XYZ Corp at $8 or less" or "sell 100 shares of XYZ at $10 or better" The customer specifies a price, and the order can be executed only if the market reaches or betters that price.

Stop loss order

Used to protect your position from additional loss. For a long position, a stop order turns to a market order when price goes below the stop order value and the position is liquidated.

For further reading on order types, consult Google or your broker.