Sunday, January 8, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 07 ‘12

The BSE Sensex and NSE Nifty 50 index chart patterns spent the first week of the new year consolidating within narrow ranges in an extended week necessitated by the extra trading on Saturday to test a new software installation at NSE.

Food inflation came in at a negative figure – probably due to the high ‘base effect’ and seasonal inflow of vegetables. Much was made of the higher than expected PMI figure – but whether the improvement was due to inventory replenishment (which happens after inventory draw downs during a slower growth period) or rising production due to new orders will only be known after a couple of months.

Government’s annual budget has been postponed by two weeks to accommodate elections in a few states. Till then, important policy decisions will be kept in abeyance. Not that this government has been very forthcoming with important policy decisions! Q3 results, to be announced from this week onwards, and RBI’s interest rate policy announcement towards the end of this month will be the next triggers for the indices to change directions or continue their downward slides.

BSE Sensex index chart


The Sensex played hide-and-seek with its 20 day EMA and managed to stay above the support level of 15700. But it is trading well below its 200 day EMA, and also below its 50 day EMA and the small down trend line (marked DTL). The bears are very much in control. The convergence of the 50 day EMA and DTL may provide strong resistance on the up side.

Can the Sensex move up much further from here? The technical indicators are giving out mixed signals. The MACD is rising above its signal line, but is in negative territory. Mildly bullish. The ROC has dropped below its 10 day MA into the negative zone. Bearish. The RSI is rising above its 50% level towards the overbought zone. Bullish. The slow stochastic turned down immediately after entering its overbought zone. Mildly bearish. Honours were even between the bulls and bears last week.

Some more sideways consolidation can be expected in the near term.

NSE Nifty 50 index chart


Despite the extra trading session on Sat. Jan 7 ‘12, the weekly volume bar of the Nifty isn’t conducive for a stronger rally. Note that the last three green volume bars (representing weeks when the Nifty closed higher than the previous week) are reducing in size. That shows lack of buying conviction.

The technical indicators are all bearish, but showing faint signs of a turn around. The MACD is below its signal line, but has stopped falling. The ROC is looking very weak, falling below its 10 week MA, deeper into the negative zone. The RSI is trying to climb towards its 50% level. The slow stochastic is trying to emerge from its oversold zone.

The Nifty is trading well below its 20 week and 50 week EMAs, and remains in a bear market.

Bottomline? The BSE Sensex and the Nifty 50 index chart patterns continue their falls within downward-sloping channels. The balance of power is with the bears, and sharp falls below the channels may happen at any time. Some mid-cap and small-cap stocks have started jumping around. Don’t be tempted to buy – these are called ‘sucker’s rallies’. Remain patient. If you want to buy for the long term, accumulate fundamentally strong stocks slowly.

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