Sunday, March 4, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Mar 2 ‘12

In last week’s analysis of the chart patterns of BSE Sensex and NSE Nifty 50 indices, it was mentioned that the ongoing corrections will be shallow unless the FIIs start to sell. Except on two days since both indices topped out on Feb 22 ‘12, the FIIs were net buyers. As a result, both the indices have stayed above important support levels so far.

BSE Sensex index chart


The daily bar chart of the BSE Sensex has managed to stay above the down trend line and the entangled 50 day and 200 day EMAs, keeping bullish hopes alive. But the failure of the 50 day EMA to cross above the 200 day EMA has prevented a technical confirmation of a bull market.

The technical indicators have turned bearish. The MACD is falling below its signal line in the positive zone, and the histogram has turned negative. The ROC is negative and below its falling 10 day MA. The RSI has slipped below its 50% level. The slow stochastic has dropped to the edge of its oversold zone.

Some more correction/consolidation can be expected till three likely trigger events – the UP state election results, RBI’s policy review and the union budget – get out of the way.

NSE Nifty 50 index chart


The weekly bar chart of the NSE Nifty shows a classic pullback towards the down trend line that is receiving support from the rising 50 week EMA. Any upward bounce from current level will be an entry opportunity.

Some signs of weakness are visible in the technical indicators, but they haven’t turned bearish by any means. The MACD is still rising above its signal line in positive territory, but the histogram is falling. The ROC has dipped in the positive zone. The RSI is still climbing towards its overbought zone – no weakness there. The slow stochastic is in its overbought zone, but sliding down.

The UP state election is unlikely to produce a decisive result. The RBI is expected to do no more than reduce the CRR or the SLR. Both these outcomes appear to have been discounted by the stock market. All eyes are therefore on the budget, where some pro-reform policy notifications are expected. Lack of any negative surprises should help the up move to resume.

Bottomline? The chart patterns of the BSE Sensex and NSE Nifty 50 indices are going through a correction after a sharp rally. Such corrections provide entry opportunities to those who missed out on the earlier rally. That doesn’t mean one has to buy anything and every thing. The beaten down sectors, which may not be fundamentally sound, have shown greater gains. That is a worrying sign. Time to be cautiously optimistic.

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