Wednesday, April 3, 2013

Sensex and Nifty charts: a mid-week technical update

Sensex chart


After touching a high of 20204 on Jan 29 ‘13, the Sensex formed a ‘reversal day’ pattern and started on a down trend (marked by the blue line). Trends remain in force till they are broken. The index needs to move above the blue down trend line convincingly for the bull market to resume its up move.

Note that the index dropped below the 19000 level in early-Mar ‘13, but received good support from the 200 day EMA and bounced up all the way towards the 19800 level. It touched a lower top of 19755, and resumed its down move. By end-Mar ‘13, Sensex slipped below its 200 day EMA to touch a lower bottom – forming a bearish pattern of ‘lower tops and lower bottoms’.

The subsequent bounce faced twin resistance from the falling 20 day EMA and the 19000 level. Is the bull market over? Not yet. That doesn’t mean the index won’t fall more. Bearish daily technical indicators are suggesting a continuation of the down move.

The ‘gap’ between 18060 and 18290 - formed back in Sep ‘12 – is likely to provide support on the downside. Note what happened in Nov ‘12. Even if the ‘gap’ gets filled, Sensex should resume its up move subsequently.

Nifty chart


Nifty is following in the footsteps of Sensex. Strong volumes on down-days is an indication that the correction isn’t over. Daily technical indicators are bearish, but hovering near their oversold zones – so a further up move can’t be ruled out.

The ‘gap’ between 5450 and 5525 – formed back in Sep ‘12 – was filled by the ‘flash crash’ on Oct 5 ‘12. However, since it was caused by an ‘error trade’ and is not visible on the Sensex chart, the ‘flash crash’ will be ignored for the purposes of technical analysis. In other words, the ‘gap’ will be treated as ‘unfilled’.

Till the ‘gap’ gets filled, Nifty may consolidate sideways with a downward bias – with the blue uptrend line providing upside resistance and the ‘gap’ providing downside support.


Eswar Santhosh said...

Can you please look at the Mid-cap and Small-cap indices?

It's interesting that while Sensex is not too far off it's highs, BSE Small-Cap Index is trading about 47% off it's high made in Nov 2010:;range=20101018,20130407;;indicator=split+volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

Most of the retail investors typically invest in small-cap stocks based on tips. Nobody is sure how the newly introduced illiquid scrip periodic call auction is going to affect liquidity and exit in those small-caps. Besides, I don't think those who have been investing for more than 5 years have forgotten what the 2008 crash did to them. In forums too, people are typically active when the going is good, but become silent when the going gets tough.

So, it's hard to judge how portfolios and psyche of the typical small retail investor is affected by the recent free fall of mid and small-caps. I wonder how many would be ready to take advantage of correction in the Sensex at this stage! But then, everybody from the Govt to Mutual Funds to the so-called-experts want them to be 'active' irrespective of the market conditions ;-)

Subhankar said...

Yes, mid-cap and small-cap stocks have fallen more than index stocks. But that is what they do during down trends. FIIs prefer index stocks; their buying had helped to prop up Sensex and Nifty.

'Portfolio's of retail investors get decimated because they invest without a plan. Mere acquisition of stocks doesn't make a 'portfolio'. Financial goals and risk tolerances need to be assessed. Asset allocation plans need to be made and followed systematically. It isn't rocket science - but requires discipline and persistence. The latter qualities are singularly lacking in an environment of instant gratification.

Majority of small investors will do well enough if they just invest their savings every month in an index fund or a balanced fund. It is the 'get rich overnight' mentality that causes big losses.