BSE Sensex and NSE Nifty 50 index chart patterns – Oct 26, 2012

BSE Sensex index chart

A trading week shortened by Dussehra holiday plus F&O expiry meant that trading interest remained subdued. The BSE Sensex index consolidated within a narrow 300 point rectangular range, from which a break out can occur in either direction.

Any upward break out is likely to face resistance from the resistance zone between 19000 and 19800. On the downside, the unfilled gap, the rising 50 day EMA and the blue uptrend line should provide good supports.

The UPA government is getting ready for a long overdue cabinet reshuffle. Several ministers have resigned to make way for younger and more efficient claimants. The reshuffle is unlikely to have much of an effect on the stock market, unless there is greater coordination among the various ministries to fast-track important infrastructure projects.

FIIs were in a profit booking mood last week. The index may see lower levels if they continue selling in the coming week. Retail investors are still not participating whole-heartedly. Anecdotal evidence shows profit booking during the recent rally.

Daily technical indicators have turned bearish. MACD is positive, but falling below its signal line. ROC has turned negative after a brief foray into positive territory. RSI has dropped below its 50% level. Slow stochastic bounced up weakly from its oversold zone, and is moving down.

Expect some more consolidation or a shallow 200-300 points correction. Use the opportunity to enter or add good quality stocks.

NSE Nifty 50 index chart

Q2 results are showing pressure on both top and bottom lines of companies. PSU banks have expectedly come out with disappointing results. Even HUL showed growth slowdown. CESC announced a di’worse’ification by acquiring FirstSource and the stock price got hammered.

A lot of infrastructure projects are stuck – either due to lack of clearances from various ministries or lack of funds of the implementing authorities/companies. Some companies had over-leveraged during the boom period 5-6 years back and have fallen into debt traps. Others are waiting for interest rates to come down.

The weekly closing chart of the NSE Nifty 50 index shows a sideways drift with a slight downward bias. However, the index is trading above its rising 20 week and 50 week EMAs. The nascent bull market is under no immediate threat.

Weekly technical indicators are showing weakening upward momentum. MACD is positive and above its signal line, but moving sideways. ROC is also positive, but has crossed below its 10 week MA. RSI is clinging on to the edge of its overbought zone. Slow stochastic is inside its overbought zone, but sliding down.

The 20 week EMA and the blue uptrend line are supports on the down side. The resistance zone between 5750 and 6000 is likely to prevent Nifty from shooting up.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are consolidating within narrow ranges from which break outs can occur in either direction. Add/accumulate good quality stocks, but maintain suitable stop-losses. Despite all the scams and political posturing, the indices are unlikely to crash.