Sunday, September 4, 2011

BSE Sensex and NSE Nifty 50 Index Chart Patterns – Sep 02, ‘11

In a trading week truncated by two consecutive holidays, the BSE Sensex and NSE Nifty 50 index staged sharp rallies to move above their respective 20 day EMAs.

What caused the rally? Did the fundamentals of the market change suddenly? Actually, they worsened – because inflation rose back to double digits, opening the door for another interest rate hike later in the month. Stock markets abhor rising interest rates.

So, was the rally celebrating Anna Hazare’s ‘victory’? Maybe. The FIIs bought heavily, and that always boosts the market. Technically, the market was oversold, and a rally was on the cards. Reasons why the market is going up or down are always debatable. One should concentrate instead on the possible opportunities.

BSE Sensex Index Chart


The technical indicators were looking oversold last week and they were showing positive divergence with the index. That had indicated the possibility of a rally. The rally has corrected the oversold condition.

The MACD has crossed above its signal line, but is deep inside negative territory. The ROC is rising above its 10 day MA, but is yet to enter the positive zone. The RSI rose from its oversold zone to the 50% level, but faced resistance and turned down. The slow stochastic has managed to climb above the 50% level.

Can the rally continue? Yes, but it is losing momentum. Strong resistance is likely from the 17300 level (the lower edge of the descending triangle), and above it, from the gap and the falling 50 day EMA. The index may consolidate in the band between 17300 and the next likely support level of 15580 before deciding on its next move – which should be downwards.

NSE Nifty 50 Index Chart


The weekly bar chart pattern of the NSE Nifty shows a nice recovery after 5 straight lower weekly closes. The week’s volume bar doesn’t inspire much confidence – but that is because of the two holidays during the week.

The technical indicators are showing positive signs, but haven’t turned bullish yet. The MACD is negative and below its signal line. The ROC is also negative and below its 10 week MA, but trying to turn around. The RSI has emerged from its oversold zone, but is below the 50% level. The slow stochastic is still in the oversold zone.

Further up move will face resistance at the 5180 level – the lower edge of the descending triangle. In case the Nifty can climb back inside the triangle, the falling 20 week and 50 week EMAs may prove to be stronger resistances.

With Anna Hazare off the front page, the government should concentrate on taking policy decisions that will help economic growth. GDP growth is definitely slowing. In a high interest rate environment, capital investments are held back, and profit margins get squeezed leading to even lower growth.

Bottomline? The BSE Sensex and NSE Nifty 50 index chart patterns staged relief rallies last week, correcting oversold conditions. Such counter-trend rallies are selling opportunities. Global growth is slowing, and that is never a good sign for stock markets. Both indices are in bear markets, which means one should avoid trying to be brave.

No comments: