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Saturday, September 1, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 31, 2012

BSE Sensex index chart

On the last day of trading for the week and the month, FIIs turned net sellers for a change – to the tune of Rs 200 Crores. So, it was probably just month-end profit booking rather than a sell-off. Since DIIs were also net sellers – which they had been for most of the month - the upward bounce from the top of the triangle on Thurs. Aug 30 ‘12 was followed by a drop to the top of the triangle the next day.

Will the Sensex fall some more and drop back inside the triangle? The possibility can’t be ruled out. However, the index is poised at twin support from the 50 day EMA and the top of the triangle (at around 17300). Q1 GDP at 5.5% was not good, but better than expectations and higher than the previous quarter’s 5.3%. The economy may be turning around finally.

In case the index does drop inside the triangle, there will be twin support from the 200 day EMA and the blue uptrend line joining the Jun and Jul ‘12 bottoms (at around 17150). So, the zone between 17150 and 17300 should provide strong support to any further fall in the Sensex.

SENSEX_Aug3112

The daily bar chart of the Sensex consolidated for 8 months within a large symmetrical triangle, before finally breaking out upwards. Break outs are often followed by pullbacks to the top of the consolidation zone – and the possibility was mentioned in last week’s post. Such pullbacks offer a buying opportunity for those who missed out on buying during the triangle break out earlier in the month.

Technical indicators are looking bearish. Some more correction or consolidation can be expected near the top of the triangle before the up move resumes. MACD has crossed below its signal line and both are falling, but remain in positive territory. ROC has fallen into negative territory, and is below its falling 10 day MA. RSI has dropped below its 50% level from its overbought zone. Slow stochastic has moved down sharply to enter its oversold zone.

A fly in the ointment can be the US Fed’s decision not to announce a QE3. Global markets may be in a sell-off mood for a couple of days. India won’t be spared if such an event occurs. 

NSE Nifty 50 index chart

There was some bad news for the main opposition party, as some of its stalwarts were convicted for instigating the Gujarat riots. Their policy to stall parliament proceedings using the ‘Coal-gate’ scam to build up a consensus among opposition parties have not fructified – giving the UPA government some breathing space.

I had an interesting conversation with a former Congress MP who is no longer active in politics and prefers to concentrate on his legal practice. He asked: “How many MPs do you think are corrupt?” I responded: “Out of the 547 odd MPs? Probably 540. I’m ready to give the benefit of doubt to 7.” He laughed loudly and said: “You’d be surprised to know - not more than 50 or so. I know of MPs who sell their personal assets to maintain their family and nurture their constituency.” For India’s sake, I hope he is right. 

Nifty_Aug3112

The weekly bar chart of the Nifty shows a classic break out from a symmetrical triangle pattern, followed by a pullback to the top of the triangle. Last week’s large red volume bar may seem like bear domination, but please remember that the previous two weeks had only 4 trading days each due to Independence Day and Eid-ul-Fitr holidays.

The index is expected to bounce up from the top of the triangle (at about 5250). Even if it slips down into the triangle, strong support is expected from the merged 20 week and 50 week EMAs and the blue uptrend line connecting the Jun and Jul ‘12 bottoms (at about 5200). The zone between 5200 and 5250 should prevent a deeper correction in the Nifty.

Weekly technical indicators are bullish, but correcting from overbought conditions. MACD is positive and above its signal line, but has stopped rising. ROC is still positive, but has crossed below its rising 10 week MA. RSI has slipped down from its overbought zone. Slow stochastic is inside its overbought zone, but turning downwards.

The ‘golden cross’ of the 20 week EMA above the 50 week EMA will technically confirm a return to a bull market. It hasn’t happened yet, but it may be just a matter of time.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are tantalisingly poised at early stages of bull markets. The first sign of an economic turnaround was the slightly higher Q1 GDP number. Good monsoon rains during August have almost wiped out the earlier deficit. Bank lending rates are beginning to soften. This is a good time to start buying into fundamentally strong, low debt stocks with earnings visibility and proven management.

1 comment:

Jasi said...

Very nice anecdote in there! It makes for a very interesting reading. :)

Thanks, as always Sir!