BSE Sensex and NSE Nifty 50 index chart patterns – Jun 29, 2012

BSE Sensex index chart

Stock market sentiments took a turn for the better during the past week. PM taking charge of the Finance Ministry has been well-accepted by the market – in the hope that some much-needed reform measures may follow. The noises emanating from the various economic advisers and experts have also been positive. One needs to await action on the ground before jumping in to buy.

Participants at the Eurozone summit last week agreed to use emergency funds for sovereign debt purchase and provide funds directly to debt-laden banks – thereby cutting procedural hassles and taking a step forward towards solving the debt crisis. A landmark first step towards a European banking union was also taken. Global stock markets celebrated the news with gusto.

The 2 years weekly closing chart of the Sensex has comfortably moved above its 20 week and 50 week EMAs and the blue down trend line. A ‘golden cross’ of the 20 week EMA above the 50 week EMA will technically confirm a bull market. The Sensex needs to move past its Feb ‘12 closing high to form a bullish pattern of higher bottoms and higher tops.

Weekly technical indicators are turning bullish. MACD has crossed above its signal line, and seems ready to enter positive territory. ROC has risen above its 10 week MA to touch the ‘0’ line. RSI has moved up to its 50% level. Slow stochastic has climbed sharply above its 50% level.

The stage has been set for a return to a bull market – but expect one that may grind upwards slowly.

NSE Nifty 50 index chart

Morgan Stanley’s upgrade of Indian equity and strengthening of the Indian Rupee against the US Dollar helped local market sentiments. Rise in oil price was a bit of a dampener.

Nifty’s one year bar chart pattern shows a ‘gap up’ break out above its 200 day EMA. ‘Gap up’ break outs are very bullish, specially if accompanied by good volume support. So, is it time to crack open the ‘bubbly’?

Not yet. Upward break outs are often followed by pullbacks. That may be a better entry opportunity. Note that three of the four technical indicators – ROC, RSI, Slow stochastic – touched lower tops as the Nifty rose higher. The negative divergences could cause a pullback or even a correction.

However, technical analysis can go out the door on a flood of FII liquidity. FIIs bought heavily on Fri. Jun 29 ‘12. If they continue their buying spree in the coming week, Nifty may shoot past its Feb ‘12 top and technically confirm a bull market.

Technical indicators are looking bullish. MACD is rising above its signal line in positive territory. ROC bounced up from the ‘0’ line, and is about to cross its 10 day MA in positive territory. RSI and slow stochastic are at the edges of their overbought zones. Any pullback or correction is likely to be brief.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices have crossed above important resistances into bull territories. Whether they will remain in bull territories for long will depend on follow up buying from FIIs and retail investors. Enter slowly in good large cap stocks, and maintain suitable stop-loss levels to avoid getting caught in a bull trap.