Sunday, December 11, 2011

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 9 ‘11

The BSE Sensex and NSE Nifty 50 indices continue their slide inside downward sloping channels. Probabilities of dropping below support levels (marked by blue dotted lines) are high. Any drops below the trading channels can induce panic selling.

BSE Sensex index chart


The sharp rally from the lower edge of the downward channel took the BSE Sensex chart above the 50 day EMA, but stalled well short of the falling 200 day EMA. Bear selling has pushed the index below all its three EMAs. The support level of 15700 is likely to be breached again. The bigger threat for die-hard bulls is a possible break below the channel.

The technical indicators are looking bearish. The MACD is above the signal line, but is changing direction in negative territory. The ROC has started falling, and may cross below its 10 day MA into the negative zone. The RSI failed to climb above its 50% level, and has started to move down. The slow stochastic has dropped from its overbought zone.

FDI inflows during the first half of this financial year has been more than double the amount received during the same period last year. But there was huge FII inflows last year. This year’s net FII outflows have neutralised any positive impact. Time to be cautious.

NSE Nifty 50 index chart


The weekly bar of the Nifty 50 index faced resistance from the falling 20 week EMA and is getting ready to drop below the support level of 4700. If the index fails to find support from the lower edge of the downward channel, there can be a sharp drop.

The weekly volume bar appears lower because of the holiday on Dec 6 ‘11. Otherwise, volumes may have been equal to or even more than the previous week’s volumes. Higher volumes on down weeks is usually a sign that smart money is exiting. The policy flip-flop on allowing 51% FDI in retail has shaken the confidence of FIIs – at least in the near term.

All four technical indicators are bearish. The MACD is entangled with its signal line in the negative zone. The ROC has dropped below its 10 week MA into negative territory. The RSI has slipped below its 50% level. The slow stochastic is barely above its oversold zone.

Food inflation has started to moderate. The core inflation and IIP numbers will be announced in the coming week. They are not expected to provide any positive triggers to the market. The depreciated Rupee is making an already widening trade deficit even worse. Exports are slowing – thanks to the debt problems of the Eurozone. Decisions on domestic infrastructure projects have practically stalled because government mandarins are sitting on their hands. As William Shakespeare wrote in Richard III: “Now is the winter of our discontent.”

Bottomline? The BSE Sensex and the Nifty 50 index chart patterns are slowly grinding down within their channels. Neither index has fallen dramatically – but that doesn’t mean that they won’t. A pause in RBI’s interest rate hikes could be the first signal that the tide is turning. Cash preservation should be the guiding principle. If you wish to accumulate beaten down stocks, choose only the best ones.


Piyush said...

Subhankar Da,
Do you think a beaten down PSU stock- ENGINEERS India & SAIL- qualifies to be in one's portfolio & should be added at every dip now???

Note: My only fear with PSU scrips is that they are used as cash cows by the existing government? look at SITUATION of SCI, SAIL and a lot many PSU scrips...

Awaiting your reply on Engineers india & SAIL???

Subhankar said...

I'm very biased against all PSU stocks, Piyush, even though some PSU shares have performed well.

There is too much meddling by the government and lack of transparency in management. They treat small holders as dirt.

Why think about Engineers India and SAIL when you can buy Thermax or Tata Steel?