BSE Sensex and NSE Nifty 50 Index Chart Patterns – May 06, ‘11

The higher-than-expected interest rate hike by RBI triggered a fresh wave of selling, and all support levels mentioned in last week’s analysis of the BSE Sensex and NSE Nifty 50 index chart patterns fell by the wayside.

The FIIs were net sellers throughout the week. The DIIs were net buyers. Last Friday’s (May 6 ‘11) pullback was mainly due to DII net buying overwhelming FII net selling.

BSE Sensex Index Chart

The bulls may be enjoying their weekend, content that the sharp fall in oil prices should halt the relentless FII selling. The pullback of the Sensex above the upward-sloping trend line is a positive. The higher bottom of 18161 touched on May 5 ‘11 keeps the bullish pattern of higher tops and higher bottoms since the low of 17296 (Feb 11 ‘11) intact. That is another positive.

But a glance at the technical indicators is enough to banish any bullish hopes. The MACD is negative and below its signal line. The ROC is negative and below its 10 day MA. The RSI is trying to emerge from its oversold zone. The slow stochastic is inside its oversold zone. All four indicators reached lower bottoms while the Sensex made a higher bottom. The negative divergences may extend the correction.

Almost forgot to mention (in case you haven’t seen it already) that the Sensex is trading below its 200 day EMA. The ‘death cross’ of the 50 day EMA below the 200 day EMA will confirm a re-entry into a bear market.

Nifty 50 Index Chart

Friday’s pullback in the Nifty 50 chart didn’t quite make it above the upward-sloping trend line, and there is every possibility of the index resuming its down trend next week. In spite of the drop in oil price, twin concerns of inflation and high interest rates are taking a toll on investor sentiments.

Last week, I had mentioned that higher volumes on down days during Apr ‘11 (note the higher red volume bars) was a sign of distribution. The sliding OBV indicator clearly exemplifies distribution.

There are no signs of a turn around in the down trend yet. But the index is indicating oversold conditions, which could lead to a recovery. If oil’s price continues to tumble, India’s fiscal deficit situation will improve. If results of the state elections go in favour of the ruling party at the centre, it could provide a trigger to buy.

Lots of ifs and buts. Shows that the near future is uncertain. Patience and discipline are virtues during such times.

Bottomline? The BSE Sensex and Nifty 50 index chart patterns are on the verge of dropping into bear markets. Long-term investors should keep a close watch on support levels of 17600 for Sensex and 5300 for Nifty. Use Q4 results to short-list stocks for your ‘buy’ list.