BSE Sensex and NSE Nifty 50 index chart patterns – Jan 04, 2013

BSE Sensex index chart

The first trading week of the year showed renewed buying interest from FIIs, and net selling by DIIs – a trading pattern that has continued since the low touched by the Sensex in Jun ‘12. The expected end of the year selling by FIIs didn’t happen or, their buying exceeded their selling.

Thanks to continuous net selling by DIIs, there has been no runaway rally by the Sensex. The weekly bar chart pattern of the Sensex shows that the rally within the upward-sloping channel from the Dec ‘11 low has been regularly interspersed with periods of consolidation and correction. That has maintained the technical health of the rally.

However, the index is likely to face twin resistance from the top of the resistance zone at 19800 and the upper edge of the upward-sloping channel at around 19900. Some consolidation or correction is quite likely – prior to Q3 results that will start hitting the market within the next 2-3 weeks.

Weekly technical indicators are bullish. MACD is above its signal line, and both are rising in positive territory. ROC has crossed above its 10 week MA in positive zone. RSI is moving in and out of its overbought zone since Aug ‘12. Slow stochastic is back inside its overbought zone after dropping below in Nov ‘12.

Note that three of the four technical indicators – ROC, RSI, slow stochastic – touched lower tops while Sensex touched its highest level since Apr ‘11. The negative divergences is a warning of an impending consolidation/correction.

Is there a possibility of a steep correction down to the lower edge of the upward sloping channel? Yes, if Q3 results fall short of expectations, and RBI keeps interest rates intact. No point in worrying about such an event. Maintain a suitable stop-loss if you decide to buy or hold on to your existing portfolio.

NSE Nifty 50 index chart

Unlike the Sensex, which has reached the top of its resistance zone, Nifty 50 has broken out above its resistance zone and the psychological 6000 level. However, volumes during the break out were not significantly higher – though volumes are not low by any means.

Note that the top edge of the upward-sloping channel, within which Nifty has been trading for more than a year, is still 200 points away. That opens up the possibility of a further rise in the index before a meaningful correction can happen.

Observant readers may notice that the upward-sloping channels on the Sensex and Nifty charts are similar but not identical (in terms of where the index is trading with respect to the upper end of the channel). Why the difference? Remember that the two indices are structurally different – Sensex comprising 30 stocks whereas Nifty has 50 stocks.

All four daily technical indicators are looking bullish, but have touched lower tops while Nifty has reached a 2 years high. The combined negative divergences may be hinting at a consolidation or correction. All three EMAs are rising and the index is trading above them – which means the bulls are on top.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices have enjoyed bull rallies from their Jun ‘12 lows, and appear ready for some consolidation or correction. Upcoming Q3 results should be checked before jumping in to buy. However, one can keep accumulating fundamentally strong stocks trading at reasonable valuations regardless of index levels.

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