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Sunday, September 9, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Sep 08, 2012

BSE Sensex index chart

In last week’s analysis of the BSE Sensex index chart, the following comment was made: “The zone between 17150 and 17300 should provide strong support to any further fall in the Sensex.”

The index touched a weekly low of 17251 – right inside the support zone mentioned above – and bounced up strongly. Though the index dropped below the blue uptrend line (connecting the Jun and Jul ‘12 bottoms), it received good support from the top of the symmetrical triangle and the entwined 20 week and 50 week EMAs.

Those who don’t believe in, nor understand, technical analysis concepts may say that it was ECB President Mario Draghi’s announcement of an unlimited bond purchase programme that caused global stock markets to jump up – and they wouldn’t be entirely wrong. But it is funny how time and again, stocks or indices tend to bounce up from strong support zones on some pretext or the other.

SENSEX_Sep0712

Have the bears - read DIIs - been vanquished? They did join the bullish bandwagon of the FIIs by turning net buyers on Fri. Sep 7 ‘12. Will there be follow-up buying next week? There is every possibility of that – considering the bullishness visible in the weekly technical indicators.

MACD is positive and above its signal line. RSI has re-entered its overbought zone. Slow stochastic has remained inside its overbought zone for the past 4 weeks. Only the ROC is showing loss of upward momentum by touching a lower bottom and crossing below its 10 week MA. The ‘golden cross’ of the 20 week EMA above the 50 week EMA, which will technically confirm a bull market - is still awaited.

Don’t expect a runaway rally – but any time an index (or stock) bounces up from known support, it provides a buying opportunity. Remember that stock markets tend to discount good and bad news in advance. In this case, the Indian economy is showing signs of bottoming out – and that is definitely good news for the stock market.

NSE Nifty 50 index chart

The main opposition party held the nation to ransom by stalling the functioning of parliament during the entire monsoon session. Only 4 out of the 31 or so bills that were supposed to get tabled were passed. Their motives for demanding the PM’s head was less than altruistic. It was a desperate effort by a party to topple an elected government.

For more than 60 years, corrupt and self-serving politicians have impeded the economic progress of India. It is to the credit of businessmen and entrepreneurs that they have built and fostered companies that are respected for their expertise, innovation and staying power despite a thousand hurdles thrown in their way. India may not be shining as brightly as China, but there is no doubt that the country will grow and prosper economically. 

Nifty_Sep0712

The NSE Nifty 50 index dropped below its 50 day EMA to an intra-day low of 5216 during the past week – just short of the 200 day EMA and the 5200 level – before bouncing up with a gap on Fri. Sep 7 ‘12. The strong support zone between 5200 and 5250 held, and the uptrend from the Jun ‘12 low is intact.

Technical indicators are beginning to turn around from oversold conditions, but aren’t quite bullish yet. MACD has bounced up from the ‘0’ line but remains below its falling signal line. ROC has crossed above its 10 day MA but is yet to climb out of negative territory. RSI has bounced up from the edge of its oversold zone, but hasn’t reached its 50% level. Slow stochastic is emerging from its oversold zone.

If you are still waiting for lower index levels for buying, it may be a long wait. The time to accumulate good stocks is now. But the key word is ‘good’. Don’t expect to get rich by buying several thousand shares of an unknown penny stock. Wealth building takes time, patience and planned effort.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices have bounced up from strong support zones – providing buying opportunities. Bank FD rates are being lowered, even though RBI has not cut interest rates. That shows adequate liquidity in the system. FIIs are still in buying mode – despite the lack of policy reforms. This isn’t a time for pessimism. Be cautiously optimistic instead.

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