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Saturday, August 25, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 24, 2012

BSE Sensex index chart

FIIs continued their buying and DIIs continued their selling in another holiday-shortened trading week. For the fourth straight week, Sensex has closed higher but the upward momentum is waning. Market players are probably getting tired of waiting for some positive policy actions.

The Finance Minister has got a clean chit from the Courts and may be able to proceed to turn some of his reform statements and plans into action. But it is very unlikely that he will get much support for contentious issues like GST and FDI in multi-brand retail even from UPA allies – let alone the opposition.

The latter seem hell-bent on stalling all activities of the Parliament by clamouring for the PM’s head over the ‘coalgate’ scandal. Any faint hopes of passing some policy bills into law during the monsoon session of parliament are fading.

SENSEX_Aug2412

In spite of all the gloom and doom surrounding the global economic down turn, policy inaction and the ever-increasing fiscal and current account deficits in India, the weekly bar chart of the Sensex seems to be merrily moving up. The 20 week EMA has moved up to touch the 50 week EMA for the first time in more than a year.

The index has formed a bullish pattern of higher bottoms and higher tops since rallying from the Jun ‘12 low. A cross above the Feb ‘12 weekly high of 18524 should put the bulls back in control after nearly 2 years.

Weekly technical indicators are looking bullish. MACD is positive, and rising above its signal line. ROC is also positive, but has moved down towards its rising 10 week MA. RSI and slow stochastic have both entered their respective overbought zones.

The Sensex may pullback towards the top of the symmetrical triangle – giving a buying opportunity to those who may have missed out on buying during the break out from the triangle 3 weeks back.

NSE Nifty 50 index chart

The BJP seems to be testing out their options for the 2014 general elections by taking an extreme stand in Parliament – knowing fully well that the PM is unlikely to resign on the basis of a draft report from the CAG. They tried in vain to rope in some of the UPA allies to their cause. Now they are trying to get the support of the Left parties. Short–term political motives are ensuring that Parliament fails to function and pass important bills.

Nifty_Aug2412 

Political shenanigans had very little effect on the upward march of the daily bar chart pattern of the Nifty 50 index. All three EMAs are rising and the index is trading above them. The Nifty has made a bullish pattern of higher tops and higher bottoms. These are all signs of a nascent bull market. A convincing move above the Feb ‘12 intra-day top of 5630 should send the remaining bears running for cover.

Technical indicators are bullish, and correcting from overbought conditions. That should improve the technical health of the Nifty chart and enable the index to gather strength and move higher. MACD is positive and above its signal line, but has touched a lower top. ROC is barely positive, and has crossed below its 10 day MA. RSI and slow stochastic are both inside their respective overbought zones, but succumbing to gravity.

On the down side, the index should receive support from its rising 20 day EMA (at about 5350), and stronger support from top of the symmetrical triangle (at about 5250).

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices appear to be in the early stages of new bull markets. Weak economic fundamentals and policy inaction have been countered by a steady flow of FII money. As long as the money continues to flow in, selling by DIIs will only slow down the bull rally but won’t be able to stall it. Investors should not expect to get rich in a hurry. Regular investments according to proper asset allocation plans will ensure gradual wealth building.

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