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Saturday, April 14, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 13 ‘12

BSE Sensex index chart

Despite the sharp fall on Fri. Apr 13 ‘12, which sent the superstitious scurrying for safety, the 6 months bar chart pattern of the BSE Sensex index is still consolidating within a ‘falling wedge’ pattern. Bulls may heave a sigh of relief since it is a bullish pattern, and the likely break out from it is upwards. Bears will point out that the index closed below all three EMAs.

Note that all three EMAs are converging together. A sharp move usually follows. Will it be an up move or a down move?


The technical indicators are looking a bit bearish. The MACD has slipped below its signal line in negative territory. The ROC is touching its 10 day MA at the ‘0’ line. Both the RSI and the slow stochastic are below their 50% levels. The odds are favouring the bears slightly. The bulls successfully defended the lower trend line of the ‘falling wedge’ (currently at 16850) twice last month. Can they do it again? A convincing drop below 16850 will negate the ‘falling wedge’.

Why the sudden fall last Friday? Different people may come up with different reasons. It could be due to the poor IIP numbers, or high oil prices, or a financially-strapped Spain, or poor results from Infosys, or basket-selling by a large investor/FII, or all of the above. There is no point in looking for reasons. That is the nature of stock markets – some times they rise and some times they fall.

The rush towards ‘defensive stocks’ – the usual suspects being FMCG and Pharma stocks – indicates a lack of confidence within the investing community. All eyes and ears will now be on the inflation number to be announced on Mon. Apr 16 ‘12 and RBI’s policy announcement on Tue. Apr 17 ‘12. 

NSE Nifty 50 index chart

In last week’s analysis, two technical confirmations of a bull market were awaited. The 2 years closing chart pattern of the NSE Nifty 50 index shows that those confirmations haven’t occurred yet. The 20 week EMA moved up to touch the 50 week EMA, but failed to cross above it. The Feb ‘12 peak (of 5565) is yet to be breached.


The index received good combined support from the 20 week and 50 week EMAs. An upward bounce will keep bullish hopes alive. A drop below the two EMAs may go down to the lower edge of the ‘falling wedge’ shown in last Wednesday’s post (at 5100), and below that to the blue down trend line (currently at 5000). The zone between 5000 and 5100 is where the Nifty is likely to get strong support. 5100 also happens to be the 50% Fibonacci retracement level of the rise from the Dec ‘11 low of 4624 to the Feb ‘12 peak of 5565.

Can the Nifty fall below the blue down trend line? Sure it can, but the probability appears low at this stage. The technical indicators are still bullish but showing signs of weakness. The MACD is positive and above its signal line, but the histogram is clearly falling. Both the RSI and the slow stochastic have fallen from their overbought zones, but remain well above their 50% levels. Only the ROC has slipped into the negative zone. It has fallen well below its 10 week MA, which could be a precursor to an upward bounce.

Eurozone debt problems are periodically sending jitters through world markets. Of greater concern should be our inept government’s failure to tackle its own finances. Appeasement and status quo seem to be the operating principle instead of taking tough but decisive action. Blaming everything on coalition politics is a cop out. That India’s economy is still growing better than that of many developed countries is a testament to the resilience and management skills of Indians. It is one of the main reasons why one should be more bullish than bearish about the future.

Bottomline? Chart patterns of the Sensex and Nifty indices are still in consolidation mode. Something’s gotta give, and soon. Short-term indications are bearish, but things may change quickly. Better to wait and watch for RBI’s policy announcement and Q4 results before jumping in feet first. Even in present uncertain conditions, a few stocks have been hitting 52 week or all-time highs. So, there are always opportunities – but one needs to be choosy and patient.


scorpio said...

A sharp move happens when there is a convergence of moving averages....
Is this your observation or you have also read up on this.

Subhankar said...

It is an observation based on tracking charts for several years.