Saturday, November 27, 2010

BSE Sensex and NSE Nifty 50 Index Chart Patterns – Nov 26, ‘10

BSE Sensex Index Chart


The BSE Sensex index chart pattern continued its sharp fall, as expected from the technical indicators last week. The fall was exacerbated by the housing finance scam, which was dispelled initially as ‘just a bribery scandal involving a few greedy PSU officials’. Now, several companies are being investigated for using ill-gotten loans to manipulate stock prices. The CBI, Enforcement Directorate, Income Tax department and SEBI have started separate enquiries.

Another technical support level – the 100 day EMA – has fallen by the way side. Twin supports from the rising 200 day EMA and the previous top of 18500 should halt the Sensex slide. Will they?

The last leg of the up move – from the May ‘10 low of 15960 to the Nov ‘10 peak of 21109 – covered 5149 points. A 50% Fibonacci retracement would mean a cut of 2575 points from the top. That gives a downside target of 18534. Since the market is aware of these technical support levels, there is a good chance that buying may emerge as the Sensex nears the 18500 mark.

What do the technical indicators say? The MACD is well below the signal line and dropping in negative territory. The ROC is in negative zone and well below its 10 day MA. But note that it has stopped falling. Both the RSI and slow stochastic are in their oversold zones. The market appears oversold.

I have learned the hard way not to bet against the Sensex trend. However, there is a good possibility of an upward bounce from the 18500 level. Provided, of course, that more cockroaches don’t emerge from the housing loan scam. Investment sentiment among FIIs will surely be affected by such regular revelations about scams and corruption.

NSE Nifty 50 Index Chart


The Nifty 50 index chart has dropped on strong volumes on the last two days, and that is a concern for the bulls. The ease with which the Nifty dropped through the 100 day EMA suggests that a test of support at the 200 day EMA may be imminent.

The longer-term moving average is just below the previous top of 5550 and should halt the index fall – even if temporarily. The 50% Fibonacci retracement level of the last leg of the up move from the low of May ‘10 to the peak of Nov ‘10 is at 5562. In case the Nifty drops below the 200 day EMA, there is good support in the 5300-5400 zone.

The index has corrected just about 9% from its recent peak of 6338. But many stocks – even the ones that have not been tainted by the housing loan scam – have corrected a lot more. Investors would do well to make a short-list of the fundamentally strong companies that have taken bigger hits in their stock prices than the Nifty.

Bottomline? Both the BSE Sensex and Nifty 50 chart patterns are approaching strong support zones on the down side. The supports should hold. If they don’t, then a much bigger correction may unfold. Hold off on buying till the correction finds a bottom. 


dr.kamlesh said...

hi thank you for your wonderful analysis

i just had one query ... on nifty
u see macd has broke and made lower low when compared to sep low of macd...

but price action has not confirmed that low as yet
there was beautiful neg divergence on macd indicating 6200 will be broken on nifty...
according to me we will see a low below 5450
for that a long shot we are very near to make low below macd low of may indicating we may trgt 4786 too(distant possibility )
even by elliott wave count if 5 waves moves has been completed and this is indeed corrective wave(ABC) we shld aim for wave 4 low (may low of 4786)
but for now i would settle for 5450 first
i m new to TA would like to know ur view

Subhankar said...

Thanks for your comments and kind words, Kamlesh.

I find Elliott Waves too complicated. The wave counts keep changing. 1-2-3-4-5, a-b-c, 'x' waves, bow-ties and diametrics leave me confused. EMAs, support/resistance levels and a handful of technical indicators seem more simple and easy to follow.

Good observation about the MACD. I had pointed out about the negative divergences in the technical indicators - including the MACD - in my earlier posts.

As to downward targets, let us see if the 5500-5550 zone holds or not. Below that, there is good support between 5300-5400.