BSE Sensex and NSE Nifty 50 index chart patterns – Jun 15, 2012

BSE Sensex index chart

Q4 results have come and gone, without creating much of a ripple on the stock market. As expected, top line growth wasn’t matched by bottom line growth by most companies. Capital expenditure and new projects have been shelved.

Pathetic IIP number of 0.1% raised hopes of an interest rate cut. But rising inflation snuffed out such hopes. Mar ‘12 inflation figure was revised upwards, and there is every possibility that Apr ‘12 and May ‘12 inflation will face the same fate.

It may be disastrous for the Indian economy if interest rates are cut when inflation is rising. The government needs to get its act together on the fiscal and reform fronts – instead of wasting time on useless politicking over who will be the next president.

The weekly bar chart of the Sensex shows a higher bottom in May ‘12, but RSI and slow stochastic touched lower bottoms (marked by blue arrows). The negative divergences may impede upward progress of the rally.

The index has managed to cross above the 20 week EMA, but any further up move will need to cross above the twin resistances from the 50 week EMA and the blue down trend line. Unless the index climbs above the Feb ‘12 intra-day top of 18524, a bullish pattern of higher bottoms and higher tops won’t get formed.

Technical indicators have corrected oversold conditions, but haven’t turned bullish yet. MACD is below its signal line in negative territory, but has started rising. ROC has crossed above its 10 week MA, but remains negative. RSI and slow stochastic are below their 50% levels.

NSE Nifty 50 index chart

Elections in Greece over the weekend and RBI’s policy announcement on Monday (Jun 18 ‘12) are being eagerly awaited by market players. Some sort of a resolution of the debt crisis in Greece and at least a 25 bps interest rate cut by the RBI seem to have been ‘discounted’ by the market. Any negative surprises may strengthen the hands of bears.

On the daily bar chart of the Nifty, a higher bottom in May ‘12 has only been matched by ROC. MACD and slow stochastic touched flat bottoms while RSI touched a lower bottom (marked by blue arrows). Negative divergences in three of the four technical indicators do not augur well for the bulls.

Last week’s rally was accompanied by falling volumes as the Nifty climbed above its 50 day EMA and tried to overcome resistance from its 200 day EMA. Market players are hoping for some positive triggers in the coming week to take the index higher.

Technical indicators are bullish, but looking overbought. ROC and slow stochastic have reached overbought levels. RSI turned down after briefly entering its overbought zone. Only MACD, which has risen above its signal line into positive territory, is not looking overbought.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are poised near important resistance levels. Overcoming those resistances convincingly may change the trend to a bull market. Market breadth indicators are not supporting such a possibility. NSE A-D line touched a lower top in Jun ‘12 and NSE TRIN is in overbought territory. Await events to unfold next week before deciding to jump in or out.