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Saturday, January 12, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 11, 2013

BSE Sensex index chart

From an intra-day low of 15136 touched on Dec 20 ‘11, the daily bar chart pattern of Sensex touched an intra-day high of 19856 on Jan 7 ‘13 – a gain of 4720 points (31%) in just over a year. It has traded within an upward-sloping channel during the entire period of 13 months, and gradually transitioned from a bear market to a bull market.

For the past 4 months, the long-term resistance zone between 19000 and 19800 has prevented the index from moving up too fast – despite continuous buying by the FIIs. After briefly entering the resistance zone in early Oct ‘12, the index retreated. It made another abortive attempt to enter the resistance zone in early Nov ‘12.

Finally, Sensex entered the resistance zone on Nov 29 ‘12, only to spend Dec ‘12 in a sideways consolidation in the middle of the resistance zone – receiving good support from its 20 day EMA. In Jan ‘13, the index attempted to break out above the resistance zone but failed. It is trading sideways at the upper edge of the resistance zone.

SENSEX_Jan1113

This is an interesting example of how a long-term resistance (or support) level can impact progress in a bull (or bear) market. Drawing long-term support/resistance levels on charts is an art that improves with practice and experience. But it is a good skill to acquire because such support/resistance levels tend to have stronger implications than calculated levels (like Fibonacci retracement levels).

Daily technical indicators are giving mixed signals – which often happens during periods of consolidation. MACD is positive, but about to slip below its signal line. ROC is barely positive, and has become entangled with its 10 day MA. RSI has moved up to the edge of its overbought zone. Slow stochastic has dropped down from its overbought zone.

All three EMAs are rising and the index is trading above them. The bull market is under no immediate threat. The weak IIP number and falling exports will add downward pressure on the index. Infosys came out with pleasantly positive Q3 results. A few more such positive surprises may push the index above the resistance zone.

NSE Nifty 50 index chart

The weekly bar chart pattern of the Nifty 50 index looks similar to the Sensex – trading within an upward sloping channel for more than a year. But there is an important difference. The long-term resistance zone between 5750 and 5950 is narrower, and the index managed to cross it in the previous week.

Last week’s correction caused the index to pullback to the top of the resistance zone, after briefly entering it intra-week. The volume spurt on the pullback is a concern, and may be an indication that the break out above the resistance zone was a ‘false’ one. However, both the weekly EMAs are rising and the Nifty is trading above them, which is bullish.

Nifty_Jan1113

Weekly technical indicators are bullish, but showing signs of weakness. MACD is positive and above its signal line, but moving sideways. ROC is also positive, but has dropped down to touch its 10 week MA. After moving in and out of its overbought zone since Aug ‘12, RSI has started moving down towards its 50% level. Slow stochastic has remained inside its overbought zone since Aug ‘12, but may be slipping down.

Any further correction should find twin support from the lower edge of the resistance zone and the rising 20 week EMA. Unless there are several negative surprises in Q3 results, the 5750 level is unlikely to be breached.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are continuing with their upward moves within parallel channels. Long-term resistance zones are impeding the upward momentum. The indices are likely to make steady progress with periodic corrections/consolidations. Q3 results are likely to trigger the next move.

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