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Saturday, October 22, 2011

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 21 ‘11

The battle between the bulls and the bears remained inconclusive for the 11th straight week, as both the BSE Sensex and the NSE Nifty 50 index charts consolidated within rectangular trading ranges.

The longer they consolidate, the stronger will be the eventual breakouts. The only problem is that we don’t know the direction of the breakouts. The probability of downward breakouts is greater, because the consolidations have followed prolonged down trends.

BSE Sensex index chart


On Mon. Oct 17 ‘11, the Sensex made a ‘reversal day’ pattern (higher top, lower close) that marked the end of the two weeks long rally from the low of 15745 touched on Oct 4 ‘11. RIL’s unimpressive result and outlook was the likely selling trigger. The good news from the bullish point of view is that the rising 20 day EMA provided good support to the retreating index.

The technical indicators are not bearish, but hinting at a downward move in the coming week. The MACD is above its signal line and positive, but has stopped rising. The RSI has slipped down before touching its overbought zone, but is just above the 50% level. The slow stochastic is still inside overbought territory, but about to drop down. The ROC is still positive, but has quickly changed direction to cross below its 10 day MA.

L&T’s not-so-great Q2 result was as per expectations, but their poor future guidance came as a big shock to the market. The strong selling in the counter dragged the index down on Fri. Oct 21 ‘11. A few more such shocks can break the resolve of the bulls to defend the 15700 level. Till then, more consolidation within the trading range is likely.

NSE Nifty 50 index chart


The weekly bar on the Nifty chart shows a higher top and a lower close – a ‘reversal week’ pattern that signals the end of the two weeks long rally from the low of 4728. The combined resistances from the falling 20 week EMA and the support-resistance level of 5170 seemed to overwhelm the bulls.

The technical indicators don’t look particularly promising. The ROC rose quite sharply, but could not enter the positive zone. The MACD failed to cross above its falling signal line in negative territory. The RSI is moving sideways just above its oversold zone. The slow stochastic failed to make much headway after emerging from its oversold zone, and stayed well below the 50% level.

Inflation has shown no signs of coming down. Another 25 bps rate hike by the RBI has been factored in by the market, though signs of slow down in GDP growth has prompted a few analysts to suggest a pause in the interest rate hike.

The myth behind the growth in exports has been exposed by a group of Kotak researchers. Bogus orders from dubious overseas entities located in tax-havens like the Bahamas, and over-invoicing are being used to funnel back black money into the country. This could be another huge scam that rival the 2G and CWG scams. No wonder the FIIs are in a selling mood.

Bottomline? The BSE Sensex and the Nifty 50 index chart patterns look all set to move down towards the lower edges of their respective trading ranges. More negative surprises from index heavyweights can trigger further selling. A Diwali rally appears unlikely. Stay on the sidelines.


richfellow said...

Kotak exposed exports......
Who will expose Kotak....LOL.
Kotak from a small truck financing company became a open bank account u have to just sign the account opening forms, everthing else will be managed by their the saying goes sir " everyone is naked in bathroom".

Piyush said...

Not to forget the poor quality of IPOs(on the basis of cmp) managed by Kotak this year.For Example- SKS Micro IPO was managed by Kotak Mahindra Capital Company, Citigroup Global Markets and Credit Suisse Securities (India). Some other issues managed by Kotak include:
1. Vascon
2. DB Realty
3. Hathway
4. Nitesh Estate
5. Jaypee Infra (better forgotten)

I would like to give them credit for 'outstanding' issues like-
1. Jubilant Foodworks
2. Eros
3. Muthoot Finance

Subhankar said...

There is an old saying: Never ask a millionaire how he made his first million.

I don't have enough information to comment about Kotak's humble beginnings or their business practices. Their team of researchers have exposed a big scam in India's export growth figures.

Piyush said...

I think all the people not holding very positive view of the market need to admit that 'we' have gone wrong here.
At a time, when the entire world was talking about poor fundamentals of the world and India included, the market rallies BIG. Bears are short whereas BULL’s are long TO THE CORE. No retail participation at all and confidence crunch made a perfect pitch for all BULLS to strike hard. FIIs have turned bullish on our market and net purchased in excess of Rs 2100Cr, for the first time in recent months, in cash segment. DIIs have net sold Rs around Rs1100Cr in cash market.

I think NIFTY is well on course to kiss 5500 next week and what a shame- the common man is left behind. 'Aam Aadmi' will once again be buying at premium prices(the urge to jump in now and claim that he at least made some money) at a time when the smart guys would be booking. I can't resist from saying 'What a Shame Again'. Will 'Aam' category not see TISCO below 400, Sterlite Below 115, L&T Below 1300 etc.. Time may hold the answer to it but an Opportunity is certainly LOST here!!!

Subhankar said...

Most small investors buy and sell stocks without any plan. If small investors make proper asset allocation plans and stick to it, then a day's or a week's index gyrations won't lead to a feeling of missed opportunity.

You buy or sell individual stocks if your asset allocation plan demands it, not because the index has risen or fallen a few hundred points.

There are no awards for being right or wrong about index movements. What counts is whether you can make money consistently over several years. To do that, one has to stay invested through bull and bear markets.