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Sunday, September 18, 2011

BSE Sensex and NSE Nifty 50 Index Chart Patterns – Sep 16, ‘11

After breaking down below large descending triangle reversal patterns, both BSE Sensex and NSE Nifty 50 index chart patterns have been showing some resilience by consolidating within trading ranges. Will the range-trading continue for some more time, or will it break out of the range soon?

Knowing the answer to such a question can make some one rich! In other words, only the market knows - which in this case seems to mean the FIIs, since their buying and selling is guiding market moves. Mere mortals can only try educated guesses and hope for the best. So, here goes.

BSE Sensex Index Chart
Last week, I had made the following comment: "The Sensex is likely to consolidate between 17300 and the next support level of 15580 over the next couple of weeks." That is exactly what the index did last week, closing slightly higher on a weekly basis. Note that the week's bar made a lower top and lower bottom.
As is often seen during periods of consolidation, the technical indicators aren't showing any clear direction. The MACD is below its signal line, and moving sideways in negative territory. The ROC is also negative and below its 10 week MA. The RSI is treading water below its 50% level. The slow stochastic has climbed out of its oversold zone, but is below the 50% level. 
The consolidation in the range between 17300 and 15580 may continue in the coming week. In case FII buying propels the index above the 17300 resistance level, the falling 20 week and 50 week EMAs are likely to provide stronger resistances. 
Note that ever since the Sensex closed below the 50 week EMA on the week ending Jul 29 '11, it has closed eight straight weeks below the long-term moving average. That is as clear an indication of a bear market that you can get. So, rallies should be used as opportunities to sell.
NSE Nifty 50 Index Chart

It was an interesting week of trading. The Nifty had a gap-down opening below the 20 day EMA, but a rally ensued mid-week. The index moved above the 20 day EMA and looked all set to test the resistance level of 5180. Friday's (Sep 16 '11) trading turned out to be a high-volume 'distribution day', which could lead to more selling next week.

Three of the four technical indicators are showing bullishness. The MACD is negative, but rising above its signal line. Both the RSI and the slow stochastic have moved above their 50% levels. But the ROC has crossed below its 10 day MA, and is heading down. The 5180 level and the 50 day EMA are resistances on the up side. Even if those are overcome, the gap should provide stronger resistance. Further consolidation within the trading range between 4700 and 5200 is likely.

The 25 bps interest rate hike by the RBI was widely expected and discounted by the market. The high inflation figure ensured the hike. There are definite signs of growth slowdown, and that is likely to be reflected in Q2 results next month. Once those not-so-great results hit the market, the index may resume its fall - if it doesn't do so earlier.

Bottomline? The BSE Sensex and NSE Nifty index chart patterns have spent six weeks within trading ranges. Looks like both may spend some more time within the ranges. The eventual breaks - whenever they come - should be downwards. The problems in the US and Eurozone economies haven't gone away, and sooner or later things are likely to turn worse. Our markets won't be immune to a sell-off.


VIPAN said...

Dear Mr. Shubhankar,
Its very true we are in bear market but mute question is how far down we may go from here... every body is looking at 2008 when we lost almost 80% from the top.

Few indicators may be used by layman to start investing again..

1. In 2008 dividend yield on good midcap stocks was closer to 10% yes you may not believe that it was even more than the FD interest.

2. Large cap or sensex stocks was trading at 4-5% of dividend yield even more in some cases..

Now this time we may not see that kind of severe bear market than people can use like DY of 6-7% on midcap and 3-4% yield on large cap to start accumalting stock or increaing their asset allocation to stocks..

Subhankar said...

Thanks for your comments, Vipan.

Please read last Thursday's (22-09-11) post: "To make money in the stock market, avoid these three buying mistakes".

Different criteria are used by investors to decide when to start buying again. P/E bands of the index can be one; dividend yields can be another; A-D line can be used as well.

Best is to concentrate on individual stocks instead of worrying too much about index levels. Your asset allocation plan will also help to decide whether stocks should be bought or sold.