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Friday, January 21, 2011

BSE Sensex and NSE Nifty 50 Index Chart Patterns – Jan 21, ‘11

Two week’s back, I had mentioned that ‘till the index trades above its rising 200 day EMA, technically the bull market remains in tact.’ And so it has, in spite of the selling by the FIIs. How much longer will the bulls be able to survive the bear onslaught?

BSE Sensex Index Chart


The BSE Sensex index chart pattern consolidated within a narrow 400 points range during the week. The bad news was the penetration of the 200 day EMA twice during the week on intra-day basis. The good news was that the support from the long-term moving average was not breached on a closing basis. In fact, the index made a token weekly gain of about 150 points.

The technical indicators are not holding out much hope of a pullback rally. The MACD is negative and below the signal line. The ROC has moved above its 10 day MA, but remains in negative territory. The RSI has entered the oversold zone. The slow stochastic remained inside its oversold zone for the second week in a row.

Two of the best performing markets in the Asia-Pacific region in 2010 – Indonesia and India – are undergoing the biggest corrections. All the bearish news about scams, inflation, poor governance may have played a role in the flight of FII money. But it seems more a part of a regional portfolio rebalancing, as the Europe and US markets are offering better valuations at present.

The logical conclusion? The correction isn’t over yet. Note that the blue downtrend line can get breached next week even by a sideways movement. But bullish hopes shouldn’t be raised too much. The fall has been a bit steep, and some sideways movement or even a mild pullback can be expected.

NSE Nifty 50 Index Chart


In last week’s analysis of the Nifty 50 index chart pattern, positive divergences in the technical indicators were hinting at a mild pullback. It turned out to be a sideways consolidation within a range of 125 points that tested the support from the 200 day EMA. The bulls are probably relieved that the support held. But the relief may be short-lived. Wednesday’s (Jan 19 ‘11) down-day volumes were the highest during the week. The weakness in the technical indicators suggest a breach of the long-term moving average and a test of support from the Aug ‘10 top of 5550.

Q3 results declared so far have been mixed, and has failed to provide any bullish impetus to the market. The recent hike in petrol prices has kept inflation high. The ministerial reshuffle did not improve the poor perception of the UPA government. It once again failed to take tough decisions. RBI’s interest rate hike is now a foregone conclusion. The only debate is the quantum of hike.

The silver lining seems to be the resilience shown by the Nifty. After 10 weeks of a corrective move, the index has dropped only 11% and technically remains in a bull market.

Bottomline? The chart patterns of the BSE Sensex and NSE Nifty 50 indices continue their struggles to fend off the bears. There seems to be caution but no panic in the market. Long-term investors should remain invested. Short-term traders can trade the narrow range within which the indices are trading. New entrants can start gradually accumulating fundamentally strong large cap stocks, but with strict stop-losses.


Jasi said...

Something I have always wondered about. Nifty and sensex have always been similar in the sense, they go thru identical gains/sell-offs. So I would imagine their supports/resistances would also be similar, not perhaps in points terms but %age terms with a factor of around 3.
Does it then merit giving separate analytical treament to them? Isnt what you say about sensex be also be true about nifty although at different point levels? I mean if one is below its 200 MA would the other be any different?

Thanks and regards!

Subhankar said...

Good point, Jasi.

The Sensex has 30 stocks and the Nifty has 50. So percentage differences in up and down moves will not be identical, though similar.

The different point levels require separate analysis in terms supports and resistances.

There are other differences. Nifty trades in much higher volumes. But it doesn't recognise chart gaps - so gap analysis is only possible using Sensex charts.