BSE Sensex and NSE Nifty 50 Index Chart Patterns – Jul 15, ‘11

BSE Sensex Index Chart

In last week’s analysis of the BSE Sensex index chart pattern, weakening signs were clearly visible in the technical indicators (marked with light blue ovals), which led me to make the following observations:

‘The EMAs may support any down moves. The technical indicators are suggesting that any such support may be temporary.’

The index dropped below all three EMAs, bounced up to find resistance from the 200 day EMA on a closing basis, only to turn down and seek support from the 20 day EMA. Another effort by the bulls to break above the down-trend line has come to nought.

The technical indicators are beginning to look bearish. The MACD is positive, but has dropped down to touch its signal line. The ROC has fallen well below its 10 day MA into negative territory. After a brief sojourn into its overbought zone, the RSI is plunging towards its 50% level. The slow stochastic has slipped below the 50% level.

Despite net buying by FIIs (though the identity of these so-called FIIs are questionable at best – as per a recent investigation by a business TV channel), the bulls have not been able to make much headway. A test, and a possible break, of the 17460 support level is likely.

NSE Nifty 50 Index Chart

The NSE Nifty 50 index chart pattern fared marginally better than the Sensex – probably due to the greater weightage of the oil stocks in the index. After sliding below all three EMAs, the Nifty bounced up above them and is currently getting support from the 200 day EMA on a closing basis.

That is a small consolation, as the technical indicators are looking just as bearish as those of the Sensex. Cash volumes have started slipping after the brief rally, and the Nifty is likely to test the 5180 support level sooner or later. A break below will have very bearish implications.

The macro environment is not improving. The government is getting pushed into a corner due to the various scandals and scams. A less-than-impressive cabinet reshuffle has not convinced anyone that tough decisions will be taken soon – notwithstanding the talk about allowing FDI in retail. The reform process seems to be on the back burner. Inflation refuses to be controlled, and another 25 basis points interest rate hike is becoming inevitable. Auto sales are suffering. Q1 results declared so far isn’t encouraging.

The corrective move from the Nov ‘10 top has entered the 9th month, and may continue for some more time.

Bottomline? The BSE Sensex and NSE Nifty 50 index chart patterns are in danger of dropping below important support levels. This is a time to be cautious, and away from the ‘action’. Remain invested but maintain appropriate stop-losses.