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Sunday, July 24, 2011

BSE Sensex and NSE Nifty 50 Index Chart Patterns – Jul 22, ‘11

BSE Sensex Index Chart

SENSEX_Jul2211

Not much has changed from the previous week on the daily closing chart pattern of the BSE Sensex index. The stock market is dancing to the tune of the FIIs – falling when they sell and rising when they turn net buyers. All the three EMAs have become bunched close together, and when that happens, there is usually a sharp move.

In which direction? The large descending triangle pattern is intact, and till the down trend line is not breached, the outlook has to remain bearish. Any breach of the down trend line should be accompanied by a spike up in volumes, otherwise the breach may turn out to be a ‘false’ one – as it happened earlier in the month.

As long as the support level of 17460 holds, the bullish hopes will be alive. The technical indicators are showing signs of a turnaround, but are not quite bullish yet. The MACD is positive but below the signal line. The ROC is about to cross above its falling 10 day MA but is still negative. The RSI is trying to climb above the 50% level. The slow stochastic stopped falling, just above its oversold zone.

Bulls may attempt to test and breach the down trend line. Bears will try to thwart such an attempt. An interesting fight is on the cards in settlement week.

NSE Nifty 50 Index Chart

Nifty_Jul2211

The point to note in the NSE Nifty 50 index chart pattern is the volume bars. Wednesday’s (July 20 ‘11) volumes on a down day were the highest. That is not a good sign for bulls. A 14 day Moving Average of the volume bars show gradually declining tops and bottoms since Oct ‘10. That is to be expected in a down trend.

Inflation is showing signs of moderation – a combination of the ‘base effect’ and the impact of the several interest rate hikes in succession. But it still remains high. Will the RBI resort to another rate hike next week? The market is expecting a 25 bps hike. If a hike does not come about, the index will rally.

Another potential rallying point could be a decision on opening up of multi-brand retail to FDI – something that has been discussed threadbare without reaching any conclusion. Q1 results have been a mixed bag so far – failing to provide a direction to the market. The Greece bailout has come as a temporary reprieve, which global markets are celebrating with a renewed rally.

Bottomline? The BSE Sensex and NSE Nifty 50 index chart patterns are just below an important resistance. Another failure to breach the down trend line could lead to tests of the June lows. A good time to stay on the sidelines and watch the action unfold.

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