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Saturday, June 9, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 08, 2012

BSE Sensex index chart

It was FII buying that had triggered the rally on the BSE Sensex index chart during Dec ‘11 and Jan ‘12. At that time, some questions were raised about the identity of such FIIs. Similar questions are cropping up once again now that another FII-fuelled rally seems to be under way. Why are the questions being raised now?

From different interviews of prominent FII representatives it is quite apparent that money is not flowing into India-specific funds. In fact, money is flowing out. FIIs appear fed up with the lack of progress in policy making and dithering on taking tough measures to curtail deficit. So, who is buying, and should small investors care?

The younger of the Ambani siblings had to pay a hefty fine to SEBI for round-tripping of funds disguised as Mauritius-based FII money to invest in his own company shares. Several politicians (some behind bars) have used similar strategies in an effort to launder ill-gotten wealth. Such inflows are not long-term funds and are likely to flow out quickly. Small investors should think twice about jumping on to the rally, and be very careful about the stocks they choose.


Technically, the weekly closing chart of the Sensex has pulled back to the blue down trend line. Such pullbacks provide selling opportunities. Any further up move needs to overcome resistances from the 20 week and 50 week EMAs. Only a close above 18289, the closing high touched on the week ending Feb 17 ‘12, will form a bullish pattern of higher bottoms and higher tops.

The technical indicators have corrected oversold conditions, but are still bearish. MACD is below its signal line in negative territory. ROC has crossed above its 10 week MA, but remains negative. RSI and slow stochastic have emerged from their oversold zones. Note that two of the technical indicators – RSI and slow stochastic – touched lower bottoms as the Sensex touched a higher bottom. The negative divergences may stifle the rally.

NSE Nifty 50 index chart

There is a lot of talk that RBI may cut repo and reverse repo rates by 25 bps. But it is not a given, and will depend on the IIP and inflation numbers next week. More likely is a cut in the CRR rate.

The expectation of some form of QE3 in the US was belied, though it is not completely off the table. There are hopes in some quarters that Greek elections won’t end in a tragedy; even if Greek exits the Eurozone, it would be an orderly exit and not a sudden one. Investors have little choice but to wait for events to unfold.


On the daily closing chart of the Nifty, things are beginning to look bullish. The index has closed above the blue down trend line, the 20 day and 50 day EMAs. It needs to close above the 200 day EMA backed by strong volumes. But volumes are dropping off as the index is rising – putting a question mark on the sustainability of the rally.

Technical indicators are looking bullish. MACD is rising above its signal line, but remains in negative territory. ROC is positive and above its 10 day MA, but has stopped rising. RSI is above its 50% level, but its upward momentum is slowing down. Slow stochastic has entered its overbought zone.

What does it mean technically: the Nifty daily indicators are looking bullish but the Sensex weekly indicators are bearish? The famous RARE bull explained it in a TV interview yesterday: “I’m short-term bullish and long-term bullish. Medium-term, I don’t know.”

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are in the midst of another FII-fuelled rally. Unless the indices manage to move above their Feb ‘12 tops, a trend reversal from bear to bull market won’t get confirmed. Those who are not convinced that the bears are still dominating should take a look at the charts of Defty and Dollex 30 (Sensex measured in US Dollars). Carry on with regular investments, but avoid impulsive bets on ‘cheap’ stocks.

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