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Saturday, June 18, 2011

BSE Sensex and NSE Nifty 50 Index Chart Patterns – Jun 17, ‘11

The bears were determined to drive home their advantage from the previous week. Even though the repo rate hike of 25 bps by RBI was widely expected, I had mentioned the possibility of more selling in last week's post. Why? Because both the BSE Sensex and NSE Nifty 50 indices are technically in bear markets. Repeated interest rate hikes do not help the bullish cause.

BSE Sensex Index Chart

The only good news for the bulls was that the index tested but didn't break the support level of 17780. It may only be a temporary reprieve. All the technical indications are bearish.

The blue down trend line is under no threat of being breached. All three EMAs have turned downwards, and the Sensex is trading below them. Note how the falling 20 day EMA resisted all efforts at an up move during the week.

The MACD is negative and has slipped below its signal line. The ROC is also negative and below its falling 10 day MA. The RSI has dropped below the 50% level. The slow stochastic has entered the oversold zone. A fall below the Feb '11 low of 17300 can lead to a deeper correction.
Nifty 50 Index Chart

The level to watch in the Nifty chart is the Feb '11 low of 5180. There is a good chance that the Nifty will fall lower because there are no positive triggers for the market, and the FIIs have been net sellers.

Retail investors are almost out of the market, so the FII selling is being absorbed mainly by the DIIs. The question is: when will the FIIs resume buying? The US and European markets are sliding. So are the Asian markets. Commodity prices have already been bid up to high levels. The time-wise correction in the index is almost over. Valuations are no longer expensive.

There seems to be maximum pessimism around. Retail investors are fearful of a big fall. Good time to play contrarian, but one has to pick stocks carefully. 

Bottomline? The BSE Sensex and NSE Nifty 50 chart patterns are poised near important support levels. Things aren't looking good for the bulls. Both indices can lose another 2-3% from current levels easily. Stay out if you are a conservative investor. Any buying should be done with a 2-3 years time frame. 

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