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Sunday, April 29, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 27 ‘12

BSE Sensex index chart

Not much has changed on the weekly closing chart pattern of the BSE Sensex index, other than the fact that the index has once again dropped below the 50 week and 20 week EMAs. That has prevented the 20 week EMA from crossing above the 50 week EMA. The index is technically back in a bear market.

Though the Sensex is drifting downwards, it has remained above the blue down trend line – keeping bullish hopes alive. Despite all the negative sentiment due to constant supply of bad news – whether it be Eurozone debt problems, high oil prices, falling value of the Rupee, ballooning deficits, policy inaction, scams, growth slow down – the index has not crashed. That doesn’t mean it won’t. A fall below the blue down trend line will extinguish any bullish hopes.

Sensex_Apr12

It was FII buying that pulled the Sensex out of its prolonged down trend. Of late, the FIIs have turned net sellers – thanks to the uncertainty caused by the GAAR provisions. The government has created unnecessarily complicated procedures for foreigners to invest in India. No wonder they try to exploit loopholes to their benefit. FII and FDI investments should be welcomed with open arms by a government reeling under a current account deficit. Complicated procedures keep out genuine investors. ‘Hawala’ transactions are not affected. How else will politicians become rich overnight?

The weekly technical indicators are beginning to look bearish. The MACD is still positive, but has merged with its signal line and not moving up. The ROC is negative and has dropped well below its 10 week EMA; an upward bounce often follows. The RSI has fallen from its overbought zone towards the 50% level. The slow stochastic has slipped below the 50% level.

NSE Nifty 50 index chart

The break out above the ‘falling wedge’ pattern on the daily bar chart pattern of the NSE Nifty 50 index turned out to be a ‘false’  break out. The wedge has accordingly been redrawn. This is one of the challenges in technical analysis. Patterns don’t always play out as planned, and one has to be flexible enough to adjust one’s buy/sell decisions suitably.

However, there is little doubt that the index has been consolidating within a ‘falling wedge’ since reaching an intermediate top in Feb ‘12. The typical break out from such a wedge pattern is gradual and sideways before the up trend is resumed in earnest. The wedge will need to be discarded only if the index falls convincingly below the blue down trend line.

Nifty_Apr12

The technical indicators have turned bearish. The MACD has crossed below its signal line in negative territory. The ROC is also negative, and touching its falling 10 day MA. The RSI is trying to move up after dropping below its 50% level. The slow stochastic has entered its oversold zone.

What can cause an upward break out? Better than expected Q4 results – like the one announced by Maruti last week. Positive policy action on reforms and reducing fiscal deficit will help too. India Inc. have tightened their belts by reducing capex and hiring. While that has led to a slow down in growth, profits may not be affected as badly.

Bottomline? The chart patterns of the BSE Sensex and NSE Nifty 50 indices are trying to shake off the persistent bears. Even if the bulls prevail eventually, a runaway rally is unlikely. Stay invested with proven performers. This is not a good time for speculation.

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