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Saturday, October 20, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 19, 2012

BSE Sensex index chart

The weekly bar chart of the BSE Sensex index seemed to run out of breath trying to keep up with the thrill-a-day accusations and counter-accusations of various political groups that unfolded on TV channels and newspapers during the past week. The weekly bar shows an ‘open’ and ‘close’ almost at the same level of the previous week’s close – a clear sign of indecision among market players.

The educated and politically aware among the ‘mango people’ (the new term for ‘aam aadmi’ coined by the utterly corrupt son-in-law) must be shaking their heads and having a good laugh. All the posturing about a new-found zeal in announcing reforms was swept away as the IAC brought out one scam after the other to the forefront. The boorish attempts by the UPA to threaten and demean the anti-corruption movement shows that the accusations have begun to hit home.

SENSEX_Oct1912

FIIs remained net buyers, but their buying fervour has abated a bit. DIIs continued to be net sellers. That hasn’t changed the trend, which remains up. The 20 week EMA has merged with the blue up trend line. The 50 week EMA is rising. The index is trading above the trend line and both weekly EMAs. The index has expectedly corrected after hitting the strong resistance zone between 19000 and 19800. Expect support from the combined 20 week EMA and the blue uptrend line on the down side.

Weekly technical indicators are bullish, but the upward momentum has weakened. MACD is positive and rising above its signal line, but the histogram is falling. ROC is also positive, but has dropped to its 10 week MA. RSI has re-entered its overbought zone. Slow stochastic is inside its overbought zone, but sliding down.

The present correction will improve the technical health of the Sensex chart, and enable bulls to gather strength to push the index past the resistance zone.

NSE Nifty 50 index chart

Q2 results declared so far show that proven performers are getting separated from non-performers. ITC declared a good set of numbers. So did TCS. Yet, these two stocks are absent from portfolios of most small investors.

High WPI inflation was a disappointment. The clamour for an interest rate cut by India Inc. may once again fall on deaf ears. The 2G spectrum auction (re-farming of earlier spectrum) didn’t evoke the kind of response the government had hoped for. They have no one to blame but themselves for setting a high reserved price. Supreme Court’s licence cancellation turned off overseas groups like Sistema and Etisalat from participating in the auction.

Nifty_Oct1912 

After the ‘flash crash’ on Oct 5 ‘12, the daily bar chart pattern of NSE Nifty 50 index has got stuck in a narrow 100 point range. The 20 day EMA has not only provided good support to the index; it has also continued to rise – albeit slowly. The 50 day and 200 day EMAs are also rising, and the uptrend in the Nifty is under no real threat.

Daily technical indicators are beginning to turn bearish. MACD is positive, but falling below its signal line. ROC is in negative territory, and below its falling 10 day MA. RSI has slipped below its 50% level. Slow stochastic is however still looking bullish as it is moving sideways inside its overbought zone.

Note that the gap in the chart – marked by a narrow blue oval – was closed by the ‘flash crash’. But that hasn’t changed the technical position in any way. The up move should resume in the near future. Don’t stay away thinking that there will be a big crash – as some Elliott Wave theorists have suggested. The economic tide has turned, and the Nifty is reflecting that.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are in corrective modes after touching strong resistance zones. Use the opportunity to enter or add to your existing holdings. Remember to maintain suitable stop-losses, just in case the Elliott Wave theorists are proven right.

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