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Sunday, September 16, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Sep 14, 2012

BSE Sensex index chart

From the fundamental point of view, the previous week’s upward bounce from the blue uptrend line on the Sensex daily bar chart could be attributed to the unlimited bond buying announcement by ECB’s Mario Draghi. The gap-up move last Friday (Sep 14 ‘12) can be similarly attributed to US Fed’s announcement of unlimited buying of mortgage-backed securities.

Technically, the ‘good news’ had already been ‘discounted’ by the stock market – as can be seen from the higher bottom formed in Jun ‘12 and the subsequent rally, backed by a steady flow of FII money, that took the Sensex past its three EMAs.

The higher inflation number was bad news for the economy and the stock market. It is a clear evidence of underlying bullish sentiment when such bad news is totally ignored by market players. 

SENSEX_Sep1412

The 270 points upward gap formed on the Sensex chart may have important bullish implications if the gap is not filled quickly, or only gets filled partly. For more on gaps and how to trade them, read this post.

Technical indicators are bullish, but beginning to look overbought. MACD is positive and rising above its signal line. ROC has moved sharply above its 10 day MA in positive territory. RSI has just entered its overbought zone. Slow stochastic is well inside its overbought zone.

When bullish sentiment is strong, an index (or stock) can remain overbought for long periods. That doesn’t mean you have to jump in with both feet. Two of the indicators – MACD and RSI – are showing negative divergences by touching lower tops while the Sensex moved higher.

If you do enter, keep a stop-loss at the lower edge of the gap (at about 18000). On the up side, there is a strong resistance zone between 19000 and 19800. Some consolidation/correction can be expected at or near the resistance zone before the Sensex can move up to test its Nov ‘10 top. On the downside, support can be expected from the blue uptrend line and the 50 day EMA (at about 17500).

NSE Nifty 50 index chart

Hike in the price of diesel and re-introduction of FDI in multi-brand retail by the beleaguered UPA government is likely to further boost bullish fervour in the coming week. Nationwide protests against these unpopular but necessary decisions have been planned by the opposition parties and some UPA allies.

These are nothing but cheap vote-bank politics. The former BJP-led NDA government had first raised the issue of FDI in retail – which could be a game-changer for the Indian economy. Now the BJP is taking the lead in opposing the policy instead of supporting it. Talk about hypocrisy!

Nifty_Sep1412

The weekly bar chart of Nifty index has technically entered a bull market as the 20 week EMA has crossed above the 50 week EMA (the ‘golden cross’ marked by light blue circle). The uptrend from the Dec ‘11 bottom is now approaching a strong resistance zone between 5700 and 5950. Some correction or consolidation can be expected before the Nifty overcomes the resistance and tests its Nov ‘10 top.

Technical indicators are looking bullish. MACD is rising above its signal line in positive territory. ROC is also positive, and has moved up to touch its 10 week MA. RSI is at the edge of its overbought zone. Slow stochastic is inside its overbought zone. Three of the four indicators – ROC, RSI, slow stochastic – have touched lower tops while the index has moved higher. The negative divergences are hinting at a correction.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are in up trends and have entered new bull markets. For the past few weeks, investors were urged to buy fundamentally strong, low debt companies. There are several such companies whose stocks are still selling at reasonable valuations. Start accumulating them at every dip. Waiting works best when you already have a portfolio of good stocks bought at lower prices.

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