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Sunday, February 26, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Feb 24 ‘12

The seven weeks long rallies on the charts of the BSE Sensex and NSE Nifty 50 indices finally came to a halt last week. There was no dearth of FII buying that had fuelled the rally. Selling by the DIIs overwhelmed the FII buying during the last couple of days. Unless the FIIs also start to sell, the correction should be a shallow one.

BSE Sensex index chart

SENSEX_FEB2412

On the weekly bar chart, the Sensex is trading above its rising 50 week EMA. The 20 week EMA is rising below the 50 week EMA, and an impending cross above the 50 week EMA may seal the fate of the bears. On the downside, the Sensex is likely to receive strong support from the 17000 – 17300 zone (where the 20 week EMA, 50 week EMA and the blue down trend line are congregating). A convincing drop below the down trend line may end the nascent bull market – but as of now, the probability of that happening is low.

The technical indicators are still quite bullish. The MACD is climbing above its signal line in positive territory. But the histogram has dipped a bit. The ROC is positive and rising well above its 10 week MA. The RSI is creeping up towards its overbought zone. The slow stochastic is inside its overbought zone, but showing signs of turning down.

The election results in UP and the central budget after that will be the next triggers for the Sensex to move up or down. Till then, expect some consolidation. Hold on with a stop-loss at 17300.

NSE Nifty 50 index chart

Nifty_Feb2412

There are a couple of technical points to note on the Nifty 50 daily bar chart pattern. First, the small gap on the chart (between 5420 and 5460) was closed on Fri. Feb 24 ‘12. That has probably put paid to another sharp up move for the time being. Second, the ‘golden cross’ (highlighted by the light-blue oval – just below the blue down trend line) of the 50 day EMA above the 200 day EMA is about to confirm the return to a bull market.

The technical indicators are beginning to look bearish. The MACD is positive, but has crossed below its signal line. The ROC has dropped well below its 10 day MA and is about to enter the negative zone. Both the RSI and the slow stochastic have fallen sharply from their overbought zones and seem ready to slip below their 50% levels.

The correction may continue a bit longer and drop the index below its 20 day EMA. The confluence of the 50 day EMA, 200 day EMA and the blue down trend line should provide strong support near the 5200 level. In case the index falls below 5200, the bull rally may take some time to resume.

Rising oil prices will extract a heavy toll on India’s surging balance of payment problem. If the RBI maintains interest rates at current levels, there will be no fundamental reason for a runaway bull market. However, the FIIs are aware that their buying and selling move the Indian market. So remain calm and follow sound investing principles – like remaining true to your asset allocation plan and picking fundamentally strong stocks that do not use too much debt leverage.

Bottomline? The chart patterns of the BSE Sensex and NSE Nifty 50 indices appear to be resting a little after a hectic rise into the first stage of new bull markets. Stay invested with stop-losses at 17300 (Sensex) and 5200 (Nifty). Any bounce up from the blue down trend lines will be buying opportunities. Drops below the down trend lines may stall the nascent bull markets. Be alert and nimble. No need to be gung-ho bullish or bearish.

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