Saturday, February 11, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Feb 10 ‘12

In last week's post, the 3% 'whipsaw' leeway confirmation of the breaches of the blue down trend lines ruling the BSE Sensex and NSE Nifty 50 chart patterns were awaited. Confirmations have now been received. The bulls (read FIIs) should have celebrated by taking both indices higher. They did try their level best, but were held in check by bear (i.e. DII) selling. Poor IIP numbers didn't help the bullish cause either. The week's trading ended in a stalemate.

BSE Sensex index chart

The weekly candlestick chart pattern of the BSE Sensex formed a 'doji' (highlighted in light blue), which means that there was indecision among bulls and bears. Coming after a strong rally, the 'doji' may be hinting at a corrective move in the coming week. But a 'doji' by itself does not signify too much, and one needs to await bearish confirmation in the coming week. This is one of the challenges in technical analysis. Buy/sell decisions need to wait for various confirmations - by which time the window of opportunity may close, or considerably reduce in size.

The technical indicators are giving mixed signals. The MACD is still in negative territory, but has risen further away from its signal line - as can be seen from the histogram. The slow stochastic has climbed into its overbought zone. The RSI is meandering along its 50% level. But the ROC has turned down sharply, though it remains above its 10 week MA in positive territory.

A correction may revitalize the energy of the bulls. But a correction may not happen because every one expects it to happen. The 20 week EMA is still trading below the 50 week EMA. A cross above will confirm a bull market. Till then, the bears may keep up their selling efforts.

NSE Nifty 50 index chart

In a mid-week update on the NSE Nifty 50 chart, likely technical reasons for the battle for conquering the 5400 level were explained. That battle has not yet been won or lost. The entire week's trading (within the light blue oval) was restricted near the 5400 level, with only a day's close above it on Thu. Feb 9 '12. 

The technical indicators are showing some signs of weakness - which can be expected during a period of consolidation. The MACD is positive and above the signal line, but the histogram has started falling. The ROC is still positive, but has dropped below its 10 day MA and heading down. The RSI has stayed inside its overbought zone for quite some time and may be trying to come down. The slow stochastic is also inside its overbought zone. A pullback to the blue down trend line, or to the 200 day EMA, won't be surprising.

Bottomline? The chart patterns of the BSE Sensex and NSE Nifty 50 indices are showing some signs of hesitation after a strong rally. That doesn't mean that a correction is going to happen next week. But if it does, the rally may able to continue for a longer period. Don't fret if you have missed the rally. There are always opportunities to make money in bull and bear markets. But one has to work at it.

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