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Sunday, October 16, 2011

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 14 ‘11

Both the BSE Sensex and the NSE Nifty 50 indices have consolidated for 10 consecutive weeks within rectangular trading ranges, after breaking down below descending triangle reversal patterns.

As mentioned in last week’s post, such consolidation patterns tend to be continuation patterns. Both indices were in clear down trends before entering rectangular consolidation zones. Which means that the break out from the ranges are likely to be downwards.

However, I’ve mentioned this before and it may bear repetition that technical analysis is not a science. Price patterns don’t always behave as per expectations. Some good news may lead to a bullish price spurt. Likewise, bad news can lead to a sudden sharp drop.

BSE Sensex index chart


Last week’s trading produced a bullish bar on the BSE Sensex chart, with the highest weekly close for the past 10 weeks.  The index faces twin resistances from the falling 20 week EMA and the support-resistance level of 17300.

Even if the Sensex manages to climb back into the descending triangle, it will face stronger resistances from the falling 50 week EMA and the blue down-trend line. But the odds of the bears striking back next week seem to have improved.

Both FIIs and DIIs were net sellers on Fri. Oct 14 ‘11, but the index gained 200 points. That means index stocks were bought and non-index stocks were sold. Reliance was one of the market leaders during the week’s trading, but declared less-than-stellar Q2 results today. Likely profit booking in Reliance will pare Sensex gains.

The technical indicators have improved some what, but they are not really holding out much bullish hopes. The MACD has moved up a bit in negative territory, but is still below its signal line. The ROC has smartly crossed above its 10 week MA, but is in negative zone. Both the RSI and the slow stochastic have emerged from their oversold zones, but are well below their 50% levels. More consolidation within the rectangular trading range can be expected.

NSE Nifty 50 index chart


The old saying: ‘Beauty is in the eyes of the beholder’ may well apply to the state of the NSE Nifty 50 index chart pattern. The bulls may justifiably celebrate the fact that the index closed above its 50 day EMA for the first time in nearly three months.

The bears will be quick to point out that the index is still within its 10 weeks long rectangular trading range, and the highest trading volumes during the week occurred on the two down days (Tue Oct 11 ‘11 and Thu Oct 13 ‘11). A sign of distribution?

The technical indicators are looking bullish, but with some warning signs. The MACD is trying to enter positive territory after crossing above its signal line. The ROC has already entered the positive zone after crossing above its 10 day MA, but has started slipping. The RSI has risen above its 50% level. The slow stochastic has climbed a bit too quickly into its overbought region. A correction may be round the corner.

Inflation remains stubbornly high, which means another rate hike by the RBI is almost inevitable. The UPA government is bereft of ideas about what to do to stop the visible slide in economic growth. Good Q2 results from Infosys pepped up the market last week. RIL’s results is likely to stifle the bullish fervour.

Bottomline? The BSE Sensex and the Nifty 50 index chart patterns appear to be stuck in their rectangular trading ranges. A market trend is supposed to remain in force till it gets reversed. Both indices have been in down trends for more than 11 months. As yet, there are no signs of a trend reversal. Stay on the sidelines, but spend your time fruitfully by studying annual reports in detail. 


richfellow said...

What r ur views on coal india and maruti, both are leaders in respective industry in which they operate and beaten down badly in this falling market.

Subhankar said...

PSU stocks are not my favourite. Too much interference in management and tendency to use them as free ATMs by ministers. Coal India is a particular 'avoid' because the organisation is corrupt from top to bottom.

Maruti's case is of irresponsible trade unionism that has brought production to a halt. It should be an opportunity to add.

richfellow said...

Thanks for your Crisp and Clear view on my query.