Friday, December 17, 2010

BSE Sensex and NSE Nifty 50 Index Chart Patterns – Dec 16, ‘10

BSE Sensex Index Chart


In last Tuesday’s update of the BSE Sensex index chart pattern, I had mentioned three hurdles for the bulls on the upside. These were the combined resistances from the 20 day and 50 day EMAs at 19800, the upper edge of the downward sloping channel at 19900, and the previous high of 20218.

The FIIs were net sellers on Thu. Dec 16 ‘10 – which was the last day of trading in a holiday-truncated week. But buying by the DIIs and short-covering before the long weekend led to the index breaching the upper edge of the channel intraday, and a close exactly on it.

Technically, only the first hurdle has been crossed. The second has not. Will it? The bulls may say ‘yes’, because the index has made a higher bottom, and the RSI and slow stochastic are both rising above their 50% levels. The bears may say ‘no’, because the MACD and ROC are still in negative territory, and the two-months long downward sloping channel is still intact.

A penetration above the downward sloping channel may lead to a sideways consolidation before the up move resumes. On the down side, the 200 day EMA should provide support.

NSE Nifty 50 Index Chart


The Nifty 50 index chart pattern closed at an interesting place – at the confluence of the entangled 20 day and 50 day EMAs and the upper edge of the downward sloping channel. The combined resistances may prove too strong for a further up move.

The volume data is a continued concern for the bulls. Note that the three days of up move following the bounce up from a higher bottom of 5721 (touched on Dec 10 ‘10) was on receding volumes. Also, the down day volumes preceding the two recent up moves (on Nov 26 ‘10 and Dec 9 ‘10) were higher than the subsequent up day volumes.

The 1% decrease in the SLR announced by the RBI will inject some much-needed liquidity in the banking system. That, and the unchanged repo and reverse repo rates were seen as  positives by market participants. The advance tax numbers were also in line with expectations. If the FIIs keep selling – their ‘home’ markets have been outperforming of late – then the correction will continue.

Bottomline? Both the BSE Sensex and Nifty 50 indices are struggling to get out of bear attacks.The 100 day and 200 day EMAs are still rising, so there is no threat to the bull market as yet. Any external ‘black swan’ event may change things for the worse. But one should not panic and sell. Particularly at times like these, patience is a virtue.

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