BSE Sensex and NSE Nifty 50 index chart patterns – Jul 20, 2012

BSE Sensex index chart

Not much has changed on the ground in the past week. FIIs were net buyers while DIIs were net sellers. This has been a feature in the month of July ‘12. The Sensex closed slightly lower for the week but managed to stay above the 200 day EMA. The 50 day EMA is trying to cross above the 200 day EMA, but hasn’t been successful so far.

The RBI governor has pretty much put his foot down about cutting interest rates unless inflation falls noticeably. Q1 results haven’t been great. The monsoon is below expectations. The only trigger left for the market to go up is announcement of some big-ticket reforms. It may be premature to expect any bold moves from this government – which is too busy fighting coalition skirmishes.

Thanks to FII buying, the index hasn’t crashed – in spite of the gap-down fall below the ‘rising wedge’ pattern. But the three EMAs are beginning to converge, which means a sharp move may be around the corner. The probability of a downward move seems higher than an upward move.

Why? Because technical indictors are looking bearish. MACD is positive, but has crossed below its signal line and sliding down. ROC is negative and below its 10 day MA. RSI has dropped below its 50% level. Slow stochastic has fallen sharply and is just above its oversold zone.

Bulls will try to defend the 200 day EMA (at about 17050). Bears seem to be gradually gaining the upper hand.

NSE Nifty 50 index chart

The election for the new president is over, and the result is a foregone conclusion. Pranab Mukherjee has been selected to steer the UPA out of any mess if the 2014 general elections create a hung parliament. Promoting Rahul Gandhi to a ministerial post is another strategy with 2014 in mind. Staying in power at any cost is the motto of modern day politicians.

The ‘reversal week’ bar on the weekly bar chart pattern of the Nifty 50 index a week ago had signalled the end of the intermediate rally from the low of 4770 touched in the week ending Jun 8 ‘12. The index received good support from its 50 week EMA last week.

As long as the index remains above the blue up trend line joining the Dec ‘11 and Jun ‘12 lows, the bulls will remain hopeful. A break down below the trend line - currently at 4850 - will give the upper hand to the bears.

Weekly technical indicators are looking bullish, but there are signs of weakness. MACD is positive and above its signal line, but not moving up. ROC is positive and rising above its 10 week MA. RSI is moving sideways near its 50% level. Slow stochastic is on the verge of slipping down from its overbought zone.

Technically, Nifty is in a bear market because the 20 week EMA has failed to cross above the 50 week EMA.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are on the verge of falling deeper into bear markets. If you are getting inner feelings of bullishness – because of smart moves in small-cap and mid-cap stocks – suppress your feelings and look at reality. Stick to tried and tested companies.