BSE Sensex and NSE Nifty 50 index chart patterns – Feb 22, 2013

BSE Sensex index chart

For the past 10 trading sessions, the daily bar chart pattern of BSE Sensex has behaved more like a yo-yo – moving up and down without going anywhere. There has been a lot of volatility intra-day as well – opening higher and closing lower, or opening lower and closing higher.

With unimpressive Q3 results season almost over and the union budget around the corner, such uncertainty is understandable. The underlying theme since Jun ‘12 remains the same. FIIs are bulls and DIIs are bears. With more PSU disinvestments in the pipeline, emphasis has shifted slightly from the secondary to the primary market.

The Sensex remains in a corrective mood, as it drifts down within the long-term resistance zone between 19000 and 19800. As long as the support level of 19000 is not breached, and the 200 day EMA continues to rise, the bull market won’t be under any threat.

What if the budget disappoints the market? Can the Sensex drop below its 200 day EMA and enter bear territory? Anything is possible in the market. Sensex had dropped below its 200 day EMA in May ‘12, and provided a good buying opportunity for those who missed the initial rally during Dec ‘11 - Feb ‘12. A drop towards the lower edge of the upward sloping channel may provide a similar buying opportunity for those who missed the rally from the Jun ‘12 low.

Daily technical indicators have corrected from oversold conditions but remain bearish. MACD is falling below its signal line in negative territory. ROC is also negative, though it has bounced up after receiving support from its rising 10 day MA. RSI and slow stochastic have moved up from their respective oversold zones, but have failed to move higher.

Observant readers may note that three of the four indicators – ROC, RSI, slow stochastic – have touched higher bottoms during the month while the index has touched a slightly lower bottom. The positive divergences may lead to some consolidation within the resistance zone – at least till the budget on Feb 28.

NSE Nifty 50 index chart

The UPA government has been cornered by the Opposition for another scandal – caused by the procurement of expensive helicopters for VIP travel. It is an open secret – highlighted by the Bofors gun scandal – that large procurement deals by the government involve kickbacks. So, it is difficult to understand the song-and-dance about it in the media.

Of much greater importance to a common citizen is the trickery performed by the government in ‘tom-tom’ing the reduction in WPI inflation, when every housewife knows that CPI inflation (particularly food inflation) is going through the roof. Reduction in interest rate by the RBI only compounds the housewife’s problems, as her savings get depleted. Inflation caused by the government’s reckless expenditure in unproductive areas is the real problem.

The weekly bar chart pattern of NSE Nifty 50 index shows four straight weeks of correction. The good news for the bulls is that the 20 week EMA has provided good support so far. A further fall is likely to receive strong support from the 5750 level (lower edge of the resistance zone), and below it, from the rising 50 week EMA.

Weekly technical indicators are suggesting that the correction is still not over. MACD has crossed below its signal line and has slipped from its overbought zone. ROC has dropped below its 10 week MA into negative territory. RSI is above its 50% level, and the odd man out by moving up slightly. Slow stochastic is falling towards its 50% level.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are still undergoing corrections, and are trading inside their long-term resistance zones. The forthcoming budget may provide the trigger for the next index moves, though for the past couple of years the budget had very little effect on the market. Stay invested.