Are you worried about the recent volatility in the Stock Market? Are you confused what to buy, sell or hold? The newsletter selects quality mid-caps and small-caps for investors with a long-term perspective and provides timely buy/sell/hold suggestions. Send an email (to address in profile below) for subscription details today.

Sunday, June 3, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 01, 2012

BSE Sensex index chart

The Indian economy is like a hired car whose driver is neither motivated nor capable of keeping the car well-maintained. The engine is backfiring, and the gear is stuck at a low speed. The car needs to get serviced immediately, but the driver is clueless about what to do - except to toot the horn and blame the weather and traffic.

The car is rattling along somehow – much to the consternation and disgust of the passengers, who are not sure whether to jump off or stay put in the hope of a miracle that will help them to safely reach their destination.


BSE Sensex index daily bar chart pattern shows a typical bear market pattern that formed during the month of May ‘12. All three EMAs came close to each other after the two months long rally from the Dec ‘11 low fizzled out. A sharp move usually follows when the three EMAs converge. (Note what happened back in Jul ‘11.)

The index dropped sharply below all three EMAs and the blue downtrend line. A pullback often follows a sharp move - providing an opportunity to sell. It wasn’t a great surprise that the Sensex pullback terminated exactly at the blue downtrend line. Will the Sensex fall much lower?

The technical indicators – which have turned bearish once more - seem to suggest so. MACD is negative, and about to cross below its signal line. ROC has entered negative territory, and touching its 10 day MA. RSI failed to move above its 50% level, and is heading downwards. Slow stochastic is ready to drop below its 50% level.

A test and even a possible breach of the Dec ‘11 low (of 15136) is on the cards.

NSE Nifty 50 index chart

The Q4 GDP figure of 5.3% – which pulled down the annual GDP figure to 6.5% – shocked the stock market and snuffed out flickering bullish hopes. The RBI governor had mentioned that controlling inflation was his top priority – even at the cost of growth.

The government’s continued fiscal profligacy has ensured that inflation failed to moderate enough. But growth is coming down to the earlier ‘Hindu rate’. RBI is left with little ammunition – except to increase liquidity through OMO (open market operations) and cutting the CRR rate. As if India Inc. is just waiting to borrow money at high interest rates! The government is clueless about what to do, except to make ridiculous announcements like ‘no more foreign travel’ or ‘no more conferences at 5 star hotels’.


NSE Nifty 50 index weekly closing chart pattern made a half-hearted attempt to pullback towards the blue downtrend line – only to face strong resistance from determined bears. Note the higher volumes last week, which indicates that there is likely to be more selling in the coming week.

All four technical indicators are looking bearish. MACD is falling below its signal line in negative territory. ROC is negative, and below its falling 10 week MA. RSI and slow stochastic are inside their respective oversold zones. The Dec ‘11 closing low of 4624 is under threat of getting breached.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices have completed brief pullback rallies and are getting ready to test their Dec ‘11 lows. The global economic outlook isn’t bright. A prominent FII representative, Hans Goetti, CIO of Finaport Singapore mentioned on a business TV channel that in the current circumstances, he prefers to invest in US Treasury bonds. Investors would do well to lock their cash in fixed deposits or debt mutual funds till the bear market plays out.

No comments: