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Saturday, February 9, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Feb 08, 2013

BSE Sensex index chart

Note the following comment in last week’s analysis of the daily bar chart pattern of BSE Sensex index: “Daily technical indicators are looking bearish, which means the correction isn’t over.”

It was no great surprise that the correction continued, despite continued buying by FIIs. DIIs remained net sellers. There were reports that LIC turned seller in several index stocks - though the Chairman mentioned in a TV interview that the company was a net buyer.

The 50 day EMA provided only a couple of days’ support before the index slipped lower. The 19000 level, which is the lower edge of the resistance zone, should provide stronger support. Should the 19000 level get breached on the downside, the rising 200 day EMA would be the next support (currently at 18500).

Sensex_Feb0813

Can the Sensex fall even lower – to the lower edge of the upward-sloping channel? The possibility can’t be ruled out. But if it does, it will provide a good opportunity to buy.

Daily technical indicators are looking bearish to the point of being oversold. MACD is falling below its signal line, and about to enter negative territory. ROC is dropping deeper into negative zone, and is below its falling 10 day MA. Both RSI and slow stochastic have entered their respective oversold zones.

A more bearish sign is the negative divergences visible in all four technical indicators, which have touched lower bottoms than the ones touched in Dec ‘12 while the index has touched a higher bottom. The correction is likely to last a bit longer.

NSE Nifty 50 index chart

The expected low GDP number of 5% for the year has dampened the enthusiasm of domestic investors – both institutional and retail. Q3 results failed to act as a positive trigger, as there were very few positive surprises and clear evidence of margin pressure.

Exports are down. So is government spending – probably in an effort to curtail the fiscal deficit. Disinvestment in PSU shares have started in earnest. That may be one of the reasons for selling by DIIs in the secondary market.

Pushing through the FDI in retail proposal despite vehement opposition from several quarters has yielded zero result till date. The forthcoming budget is unlikely to change the gloomy market sentiment.

Nifty_Feb0813

The weekly bar chart of NSE Nifty 50 index has dropped inside the long-term resistance zone between 5750 and 5950. The Nifty is trading above its rising 20 week and 50 week EMAs. Two weeks of correction haven’t changed the longer-term bullish outlook.

Weekly technical indicators have begun to correct overbought conditions. MACD has slipped below its signal line in overbought zone. RSI has crossed below its 10 week MA, and seems ready to enter negative territory. RSI is falling towards its 50% level. Slow stochastic is about to drop from its overbought zone after 6 months. The correction in the Nifty isn’t over yet.

Bottomline?  Chart patterns of BSE Sensex and NSE Nifty 50 indices have dropped back into their long-term resistance zones after correcting from 2 year highs. Some more correction is on the cards. No need to sell in a panic. The indices are in early stages of bull markets. Look for opportunities in fundamentally strong stocks that are being beaten down.

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