BSE Sensex and NSE Nifty 50 index chart patterns – May 10, 2013

BSE Sensex index chart

FIIs continue to pour in money into the Indian stock and debt markets. Their inflows year-to-date are much higher than the amount they brought in during the same period last year when the bull rally started. DIIs are selling, but a look at the daily bar chart pattern of Sensex shows which side is winning.

The index is on the verge of touching a new 52 week high, and is just 5% below its life-time high touched in Jan ‘08. Retail participation is still low, and there is a lot of uncertainty about the political and economic environment. But a bull market is supposed to climb a wall of worries – and it seems to be doing just that.

Once the beaten-down mid-cap and small-cap stocks join the party, and some of them are already showing signs of doing so, retail investors will jump in. That will be a good time to book part profits.

Daily technical indicators are looking bullish, but overbought. MACD is rising above its signal line, and has entered its overbought zone. ROC formed a small head-and-shoulders reversal pattern inside its overbought zone, and has crossed below its 10 day MA – perhaps giving an early warning of a correction, or consolidation. RSI and Slow stochastic are inside their respective overbought zones.

However, all four indicators are showing positive divergences by touching higher tops than the ones they touched in Jan ‘13. Remember that a market can remain overbought for some time, so stay invested with a trailing stop-loss. The index has crossed above its Mar ‘13 top of 19760, so a new uptrend line connecting the Jun ‘12 and Apr ‘13 lows have been drawn.

NSE Nifty 50 index chart

Loss in the Karnataka state election and replacement of Law and Railways ministers have taken some of the wind out of the opposition’s sails. However, the clamour for the PM’s head hasn’t quite subsided.

The IIP number wasn’t great, but it was better than expectations. Hike in diesel’s price will reduce the subsidy burden. Annual results from the non-performing sectors – like metals, capital goods, realty – are awaited and may decide the rate of progress of the bull market.

The weekly bar chart pattern of Nifty had four straight weeks of higher closes – last seen in Sep ‘12. But volumes have not been great (even though the previous three weeks had only 4 trading days each). The 20 and 50 week EMAs are rising and the index is trading above them. A new 52 week high is imminent.

Weekly technical indicators are turning bullish. MACD has crossed above its signal line after three months. ROC is rising above its 10 week MA in positive territory. RSI has crept above its 50% level. Slow stochastic is about to enter its overbought zone. Looks like bulls won’t stop till a life-time high is reached.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are on the verge of touching new 52 week highs, and may move up to touch life-time highs. This is not the time for across-the-board buying. Be selective. Pick fundamentally strong mid-cap and small-cap stocks, and do maintain a stop-loss.