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Saturday, November 24, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 23, 2012

BSE Sensex index chart

In last week’s post on the daily bar chart pattern of the Sensex, several bullish and bearish possibilities were discussed. The breach of the blue uptrend line was bearish. Support from the ‘gap’ in the chart was bullish. Has last week’s trading tilted the balance?

May be slightly – in favour of the bulls. Why? Three days in a row – on Fri. Nov 16, Mon. Nov 19 and Tue. Nov 20 – the index dropped inside the ‘gap’ but closed above it. So, at best, the ‘gap’ was only partly filled. The index closed above its 50 day EMA on the last two days of the week, after spending 4 days below it.

Bears (read DIIs – who remain net sellers) are still in the game. The index failed to move above its falling 20 day EMA or the blue uptrend line. As long as Sensex trades above its rising 200 day EMA, the bull market remains intact.

SENSEX_Nov2312

Can the bulls prevail even if the index fails to cross above the uptrend line? Yes. It is quite possible for the index to keep climbing higher while staying below the uptrend line. In that case, a second uptrend line may need to be drawn by connecting the Jun ‘12 and Nov ‘12 lows. A chart evolves over time, and technical analysis needs to be flexible to adjust to the pattern being generated.

Daily technical indicators are bearish, but showing some signs of turning around. MACD is below its signal line in negative territory and moving sideways, while the histogram has started to rise. ROC is also negative, but has moved up slightly towards its falling 10 day MA. RSI failed to climb past its 50% level, and is dropping towards its oversold zone. Slow stochastic has emerged from its oversold zone, but is well below its 50% level.

Bears are unlikely to give up easily. Bulls have their work cut out.

NSE Nifty 50 index chart

The winter session of parliament was expected to begin with fireworks, but the UPA government seems to have done their homework. The no-confidence motion by Mamata Banerjee’s Trinamool Congress was a damp squib. Revelations by a former CAG staff member about the 2G telecom scam has put the BJP on the back foot.

The FDI in retail issue may not cause the kind of embarrassment the opposition parties were hoping for. The net effect may be that some pending policy bills may actually get passed. That will be good for the stock market.

Nifty_Nov2312 

After a close just below the uptrend line in the previous week, the weekly bar chart pattern of Nifty pulled back to close exactly on the uptrend line last week. Despite the brief drop below the uptrend line, the index is trading above its 20 week and 50 week EMAs. The bull market is alive and kicking.

Weekly technical indicators are bullish, but showing some weakening signs. MACD is positive, but has dropped to touch its signal line. ROC has fallen sharply below its 10 week MA, but hasn’t entered the negative zone yet. RSI is moving sideways below its overbought zone. Slow stochastic has drifted down to the edge of its overbought zone.

As long as the FIIs keep buying, there is no need to worry about a big fall in the index.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are still in consolidation mode, with bulls and bears about evenly matched. As long as the indices trade above their 200 day and 50 week EMAs, the bulls will have the upper hand. This is a good time to accumulate fundamentally strong but below-the-radar stocks (like those suggested in my paid monthly newsletter).

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