BSE Sensex and NSE Nifty 50 index chart patterns – Jul 06, 2012

BSE Sensex index chart

Right through the past week, FIIs were net buyers and the DIIs were net sellers – the opposing forces resulted in the daily closing chart pattern of the Sensex inching up instead of running up. The 20 day EMA has crossed above the 200 day EMA. The 50 day EMA is forming a bullish rounding bottom pattern and is getting ready to cross above the 200 day EMA. That was the good news.

Now the bad. The entire rally from the closing low of 15965 touched on Jun 1 ‘12 has formed a bearish rising wedge pattern, from which the likely break out is downwards. There are no certainties in life, and definitely none in technical analysis – but when a bearish pattern is clearly visible, it is best not to bet against it.

Technical indicators of the Sensex are bullish. MACD is rising above its signal line in positive territory. ROC is positive and above its 10 day MA. RSI and slow stochastic are both inside their overbought zones. There may be some steam left in the rally.

But there are a couple of concerns. ROC touched a lower top while the Sensex moved higher. When RSI and slow stochastic enter their overbought zones, the probability of a correction increases with each passing day.

If you are long (i.e. you were able to enter at lower levels), maintain a trailing stop-loss and stay invested. If you are feeling ‘left-out’, having missed the rally, remain patient and wait for the likely correction to enter. A break down below the rising wedge may be a good shorting opportunity.

NSE Nifty 50 index chart

Despite all the positive and conciliatory noises coming from the Finance and Commerce Ministries, it is unlikely that the government will try to push through any big-ticket reforms till the Presidential election is over.

The weekly closing chart pattern of the Nifty 50 shows rising volumes as the rally completed its 5th week. The 50 week EMA has started to rise. The 20 week EMA is getting ready to cross above the 50 week EMA. The bulls look all set to regain control, but will need to push the index past its Feb ‘12 closing top of 5564 to form a higher bottom-higher top pattern.

Weekly technical indicators are looking bullish. MACD has crossed above its signal line into positive territory. ROC has climbed into the positive zone, above its 10 week MA. RSI has edged above its 50% level. Slow stochastic has risen to the edge of its overbought zone.

Note that Nifty touched a higher bottom on the week ending Jun 1 ‘12, but the RSI and slow stochastic touched lower bottoms. The negative divergences may stall the rally. FIIs seem convinced that Man Mohan Singh will turn the Finance Ministry around and remove some of the recent irritants like the GAAR proposals. DIIs are not so sure.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are looking bullish. But some bearish patterns are also visible. If FIIs continue their buying, both indices will move up. Remember that interest rates and inflation are still quite high. Unless both start coming down, there is not going to be a runaway bull market. Stick to quality large-cap stocks.