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Saturday, August 4, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 03, 2012

BSE Sensex index chart

FII buying, particularly during the early part of the week, pushed Sensex above all its three EMAs and into bull territory. DII selling ensured that the rally didn’t progress too far. Slim hopes of an interest rate cut by the RBI were belied. The market seemed to have discounted the possibility in advance.

The index is consolidating within a large ‘symmetrical triangle’ pattern. Since the triangle has been tested twice on the upper side and twice on the lower side, a break out may happen soon. Triangles are unreliable about the direction of the eventual break out. An upward break out should be supported by a significant increase in volumes. A downward break out does not require volume support.

All three EMAs are beginning to converge together. A sharp move could follow. Will the index move upwards and break out above the triangle, or will it move downwards? Since Sensex is in a bear market, the move is expected to be downwards. But it is better to wait for the actual move instead of trying to outguess it.

SENSEX_Aug0312

The one year daily closing chart of the Sensex shows that the 200 day EMA is almost flat and moving sideways – indicating that bulls and bears are almost equally matched. Remember that it isn’t necessary for an index or a stock to break out above or below a triangle – though a break out is a logical outcome. Some times, an index (or stock) may move sideways right through the apex of a symmetrical triangle – thereby negating the pattern.

Technical indictors are mildly bullish. MACD is touching its signal line, and both are just inside positive territory. ROC is barely positive, but above its 10 day MA. RSI is slightly above its 50% level. Slow stochastic has entered its overbought zone, but showing signs of turning down. The brief rally may be petering out.

NSE Nifty 50 index chart

A weak monsoon is threatening drought-like conditions in many parts of the country. In anticipation, some states have already started clamouring for central assistance. A drought will further dent the prospects of economic growth and lead to a spike in food inflation.

As if that isn’t bad enough, oil prices have started rising again – putting further stress on India’s balance of payments problems. With exports slowing down perceptibly, don’t expect depreciation of the Rupee to reverse direction any time soon. It will take a long while before India can dig itself out of the current economic morass.

Nifty_Aug0312 

The weekly closing chart of the Nifty 50 index has been consolidating within a symmetrical triangle pattern since touching its Dec ‘11 low. Last week, the index closed above its 20 week and 50 week EMAs after three straight weeks of lower closes. But have a look at the volume bars. This week’s volumes were less than the previous down week’s volumes. A rally needs volume support, without which it may not sustain very long.

Weekly technical indicators are looking bullish. MACD is above its signal line and just about positive. ROC is rising above its 10 week MA in positive territory. RSI is trying to move above its 50% level once again. Slow stochastic has moved down from its overbought zone.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are consolidating within large symmetrical triangle patterns. Break outs may happen in either direction from such patterns. It may be better to wait for the break out before plunging in feet first. India’s economy is in a period of declining growth and rising inflation – a double whammy that may lead to stagflation. Stock markets don’t thrive in such a situation. It is advisable to concentrate on less risky investment avenues.

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