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

BSE Sensex index chart

A 25 bps cut in the repo and reverse repo rates announced by the RBI Governor on Mar 19 ‘13 was widely expected by stock market players – and therefore, failed to act as a positive trigger. The sudden withdrawal of support by the DMK on an apparently flimsy issue gave a big shock to the market.

A CBI raid at the premises of the DMK supremo’s son the following day was probably a message sent by Congress troubleshooters to SP and BSP leaders about the likely consequences of pulling out of the UPA – in spite of subsequent condemnations of the timing of the raid by Congress leaders.

Sensex crashed to the lower edge of the resistance zone between 19000 and 19800, but could not sustain inside the zone. By the end of the week, the index had slid down to its 200 day EMA and is threatening to fall further.

Is this the end of the bull market that started from the Dec ‘11 low? Not yet. Even if the index falls below its 200 day EMA, it is likely to receive support from the ‘gap’ area between 18050 and 18290 that was formed back in Sep ‘12. (Note what happened in Nov ‘12.)

What if the index falls further and fills the ‘gap’ area? Since the ‘gap’ was formed during an up move, it is quite likely that Sensex will resume its up move after filling the ‘gap’.

Daily technical indicators are looking bearish. MACD has crossed below its signal line and falling deeper in negative territory – but is showing positive divergence by reaching a higher bottom while the Sensex has fallen to a lower bottom. ROC has fallen a bit too sharply into negative zone below its 10 day MA. RSI has slipped below its 50% level – but is also showing positive divergence by touching a higher bottom. Slow stochastic has entered its oversold zone.

An upward bounce from the 200 day EMA is possible. Bears are likely to use the bounce to sell.

NSE Nifty 50 index chart

Last Friday (Mar 22 ‘13), FIIs were net sellers along with DIIs. The higher volumes on a down week indicates that the correction is not over. Support from the 50 week EMA may get breached.

Divestment of SAIL shares by the government went through successfully – probably with a little help from LIC. If the divestment process had started a couple of months earlier, the government would have realised better prices.

Weekly technical indicators are looking bearish. MACD is still positive, but falling below its signal line. ROC is below its falling 10 week MA, and sliding deeper into negative territory. Both RSI and slow stochastic have slipped below their respective 50% levels after several months.

Which is the level below which all bullish bets should be taken off the table? The 50% Fibonacci retracement level of the entire rally from the Dec ‘11 low of 4531 to the Jan ‘13 top of 6112 is 5320. If Nifty falls below 5320, the bull market may end. (The corresponding level for the Sensex is 17670.)

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are poised at their respective long-term moving averages. Even if both indices fall further, it may not end the bull markets. However, breach of 50% Fibonacci retracement levels could change the trends. Remain cautiously optimistic. Accumulate good quality stocks that have been beaten down.