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Saturday, September 24, 2011

BSE Sensex and NSE Nifty 50 Index Chart Patterns – Sep 23, ‘11

The BSE Sensex and NSE Nifty 50 index chart patterns have spent seven straight weeks in trading ranges immediately below the large descending triangle reversal patterns. The 17300 level on the Sensex and the 5200 level on the Nifty have become almost insurmountable resistances. However, both indices have proved quite resilient and have not crashed despite all the negative news flying around.

BSE Sensex Index Chart

The Sensex rally of the previous three weeks made two serious attempts to break above the trading range. The first effort on Sep 8-9 '11 crossed 17200, but fell short of the 17300 resistance level. The second attempt on Sep 21 '11 faced strong resistance from the falling 50 day EMA. A huge 700 points drop on the following day has ended bullish hopes for the time being.

There has been plenty of advice from 'experts' on TV channels. "This is a great time to buy", and "If you don't buy now, when will you buy?" are some of the pearls of wisdom. Every fall in the Sensex is not necessarily a buying opportunity. What matters more is whether individual stocks one wants to buy are trading at attractive valuations or not.

The technical indicators are suggesting that the worst may not be over yet. The MACD is about to cross below its signal line in negative territory. The ROC is also negative, and below its falling 10 day MA. Both the RSI and the slow stochastic have fallen below their 50% levels and are heading towards their oversold zones. If the Aug '11 intra-day low of 15766 is broken - and there is every chance of that happening soon - another 10-15% correction from current level is likely.

NSE Nifty 50 Index Chart

It was FII buying that boosted the 3 weeks' rally in the Nifty 50 chart, and it was their selling that caused the 200 points drop on Thur. Sep 22 '11. There can be no doubt that they 'own' our markets. Why the sudden selling? Possibly the realisation - after digesting the details of the US Fed's "Operation Twist" - that no amount of wishful thinking is going to clean up the huge mess in the US and Eurozone economies.

Growth is slowing down in India, thanks to the pro-active stance of the RBI. But the UPA government is embroiled in so many corrupt deals that are getting exposed one by one, that policy decisions have been put on the back burner. Monetary policies alone has not helped in reigning in inflation. Valuations are looking attractive based on past earnings. Q2 results, due in another three weeks, should lead to earnings downgrades.

The technical indicators are all bearish, but haven't reached oversold conditions yet. So, be prepared for further down side in the Nifty, and a probable break below the trading range.

Bottomline? The BSE Sensex and NSE Nifty 50 index chart patterns seem to be getting ready for a break below the last seven weeks' trading range. Some short-covering can be expected because of the settlement day next week. Any bounce up from the Aug '11 lows will provide another selling opportunity. Stay on the sidelines.

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