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Sunday, May 27, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – May 25 ‘12

BSE Sensex index chart

After four straight lower weekly closes, the BSE Sensex chart was in pause mode last week. The bulk of Q4 results have been declared. Bottom line pressure has been clearly visible, and may continue for a couple more quarters. BPCL sprang a surprise with a bonus offer. ITC’s results were good, except for its hotel business. The hotel industry is suffering from a double whammy – increase in supply of available rooms with decrease in overseas visitors due to the economic downturn in USA and Europe.

The sharp hike in the price of petrol was met with the usual noises of ‘rollback’ from UPA allies and the opposition. The section of the population that will be most affected is the middle class – who own two-wheelers and small cars that run on petrol. Petrol car makers, particularly Maruti, have started offering discounts to shore up the likely drop in sales. The high and the mighty, who own diesel-guzzling SUVs and luxury cars, will be unaffected.

SENSEX_May2512

The blue down trend line continues to dominate the Sensex chart. The index is trading below its falling 20 week and 50 week EMAs and the down trend line. All three are potential barriers to any up move.

Why have the FIIs been in selling mode of late? The depreciation of the Rupee against the Dollar and failure of the government to curtail deficit and introduce policy reforms have shaken their confidence. They have the option of investing anywhere they like, and India is not on the top of their list.

The technical indicators are bearish. The MACD is falling below its signal line in negative territory. The ROC has stopped falling, but remains negative and below its 10 week MA. Both the RSI and the slow stochastic are in their oversold zones, and touched lower bottoms as the Sensex touched a higher bottom. The negative divergences may drag the Sensex down .

NSE Nifty 50 index chart

The NSE Nifty consolidated sideways and closed about 30 points higher on a weekly basis. But volumes were low, so it was more of short-covering than investment buying. Interestingly, FIIs were net sellers on the last two days. The index rose partly due to DII buying and partly due to RBI’s efforts to stem the fall of the Rupee.

Nifty_May2512

The technical indicators have corrected from oversold conditions. The MACD has turned up to touch its signal line in negative territory. The ROC has climbed above its 10 day MA to reach the ‘0’ line. Both the RSI and the slow stochastic have emerged from their oversold zones.

Any attempt at an up move will need to overcome the combined resistances (at 4980) from the falling 20 day EMA and the blue down trend line. The down move is likely to resume after the current consolidation is over.

Bottomline? Chart patterns of the BSE Sensex and NSE Nifty 50 indices are in bear markets and may seek lower levels. Policy paralysis is keeping the FIIs away. There has been talk of issuing US Dollar bonds for NRIs. But that may not prevent a net Dollar outflow. Conserve cash till the tide turns.

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