Sunday, December 18, 2011

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 16 ‘11

In last week’s analysis of the BSE Sensex and NSE Nifty index chart patterns, I had mentioned the likelihood of both indices falling below their support levels (marked by blue dotted lines). So, the break and close below the support levels on Fri. Dec 16 ‘11 should not have come as a surprise to this blog’s followers. The good news is that neither index fell below its downward channel. We will expect both indices to continue trading within their downward channels – unless something drastic happens in the global or local economies.

BSE Sensex index chart


The sharp fall last Friday dropped the weekly bar of the Sensex to a closing level below 15500 – its lowest weekly close in more than 2 years. While that may sound ominous, it isn’t the end of the world – yet. Note that the Sensex fall stopped just short of the lower edge of the downward-sloping channel.

Will the Sensex bounce up – like it did on the past few occasions when it dropped to the lower edge of the channel? Three of the technical indicators are suggesting: ‘No’. The MACD has slipped below its signal line in negative territory. The RSI is falling below its 50% level. The slow stochastic is moving sideways below its 50% level, but has started sliding.

Only the ROC is showing positive divergence by touching a higher bottom while the index dropped lower. However, the ROC is negative and below its 10 week MA. So, any bounce up may be a weak one and induce more selling. There is a possibility of some FII buying in the next week – due to year-end considerations.

NSE Nifty 50 index chart


The NSE Nifty 50 daily chart pattern is clearly showing positive divergences from all four technical indicators, which made higher bottoms while the index fell lower. That should lead to an upward bounce. Perhaps a weak bounce because the indicators are looking bearish. The MACD is negative and below its signal line. The ROC is also negative – but has dropped too far below its 10 day MA. The RSI failed to cross above its 50% level. The slow stochastic has just entered its oversold zone.

A look at the NSE TRIN indicator gives a slightly different picture:

Nifty TRIN_Dec1611

Note that the TRIN has spiked up sharply to 1.4, which indicates oversold conditions and a very likely upward bounce. A TRIN level of 1.2 and higher indicates oversold conditions, which is usually followed by an up move. (Please don’t go crazy about chasing the bounce!)

The pause in interest rate hike by the RBI should have encouraged the market – but didn’t. Ignoring ‘good news’ is the sign of a bear market. Inflation still remains high, even though food inflation has come down. The de-growth in IIP is a huge concern.

Many corporate honchos are fed-up with policy inaction and flip-flops by the UPA government and want to shift their businesses overseas. Some have started spending a lot of time overseas to manage their global businesses. The BJP-led opposition along with the Leftists are trying to corner the government on the issue of corruption, but stalling the passage of the Lokpal Bill which is meant to curtail corruption!

In short, the economic and political climate is just not conducive enough for the stock market to stop its steady slide.

Bottomline? The BSE Sensex and the Nifty 50 index chart patterns continue their slide within downward-sloping channels. Bravehearts can trade the range. Sensible investors may be better off parking their money in bank fixed deposits or gilt funds. Those who are accumulating good stocks trading at reasonable values should keep a two-three years time frame in mind.


sreyO... said...

Excellent post..objective and directive. I think we are near to the trendline support of lows of 2008. So, a bounce can take place around 4530-4600. Some of the bluechips are available cheap. So, we can start accumulating those.

Subhankar said...

Appreciate your comments, Sreyoskar.

Sounds like you have started investing in the stock market. In a bear market, cheap can get cheaper. So accumulate slowly.