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Saturday, December 1, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 30, 2012

BSE Sensex index chart

In last week’s post on the daily bar chart pattern of the Sensex, it was explained that the part-filling of the ‘gap’ on the chart, and the week’s close above the 50 day EMA had slightly tilted the balance in favour of the bulls.

Neither a holiday-shortened week, which was also F&O expiry week, nor the worse-than-expected GDP number of 5.3% could stop the charging bulls (viz. FIIs). Sensex broke out of its 10 weeks long trading range above the ‘gap’ to enter a long-term resistance zone between 19000 and 19800.

Many were taken aback by the force of the up move. Umpteen reasons were put forth to explain the sudden break out. Fundamentally, nothing has changed on the ground. It was simply a break in the supply-demand equilibrium as FII buying eventually overwhelmed DII selling.

Sensex_Nov2912_ST

Is this a good time to start buying? For the past 3 months, readers have been exhorted in this blog to do just that. In a post on Sep 1, the suggestion was: “This is a good time to start buying into fundamentally strong, low debt stocks with earnings visibility and proven management.” On Sep 30, the advice was: “Use dips to enter, but be very selective about the stocks and funds you choose.” On Nov 4, it was suggested that: “Continue to add/accumulate good quality stocks, but maintain suitable stop-losses.”

If you haven’t started buying yet, when will you buy? Technically, it is a good time to sell. Why? Because for nearly a year, Sensex has been trading within an upward-sloping channel (in blue), and the upper edge of the channel (not visible) is close to the 19800 level – which is the top edge of the long-term resistance zone. There is a good possibility of the Sensex facing resistance from the 19800 level and correcting down.

Daily technical indicators are looking bullish, but a bit overbought. MACD is rising above its signal line in positive territory. ROC has climbed sharply above its 10 day MA towards its overbought zone. RSI is about to enter its overbought zone. Slow stochastic is already inside its overbought zone.

NSE Nifty 50 index chart

The UPA government appears to have cobbled together the requisite numbers, and have agreed to a debate and vote on the FDI in retail issue. Other contentious issues like FDI in aviation and insurance may also get through the parliament logjam.

The poor GDP number may force the RBI governor’s hand in reducing interest rates. The stock market is rejoicing in anticipation. Successful negotiation of the US ‘fiscal cliff’ will be another booster for the market.

Nifty_Nov2912_LT

The weekly bar chart pattern of Nifty broke out of its 10 weeks long trading range on a huge volume surge to rise well inside its resistance zone. Will it cross above the 5950 level?

All indications point to a resounding ‘Yes’. However, 5950 is a long-term resistance level and bears may put up a fight to defend it.

Weekly technical indicators are bullish. MACD has bounced off its rising signal line in positive territory. ROC has bounced up from the ‘0’ line, but is below its 10 week MA. RSI is about to re-enter its overbought zone. Slow stochastic has remained inside its overbought zone for the past 4 months.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices have broken out of trading ranges to enter long-term resistance zones. Bears may put up a last-ditch stand to halt the bull rally. Buy the likely dip, or add on a break out above the resistance zones.

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