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Saturday, June 15, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 14, 2013

A week of net selling by FIIs have changed the technical picture of the stock market in the near term – proving how dependent our market has become to FII flows. However, the longer-term bull markets – visible in the Sensex and Nifty charts below – are intact.

Note that FIIs sold across the emerging markets last week, but the slide in the value of the Rupee against the US Dollar – thanks to the large CAD - exacerbated the bearish mood in India. Contrary to popular belief, the fundamental picture is actually getting better.

The IIP number was lower than expected, in spite of two subsequent upward revisions (from 2% to 2.3%). But WPI inflation is moving down – partly due to the base effect. The Finance Minister made some positive noises about boosting the investment climate. If talk translates to action, the market will rejoice.

BSE Sensex index chart


Contrary to expectations, Sensex broke down below a ‘falling wedge’ pattern and closed below the 200 day EMA for a day, before Friday’s upward bounce on short covering and some investment buying pulled the index back towards the ‘wedge’. Such pullbacks are selling opportunities, so it won’t be surprising if the down move resumes next week.

Bulls may point out that the price action of the last three trading sessions has formed a small bullish ‘island reversal’ pattern. But the pattern will get confirmed only if the Sensex resumes its up move.

Daily technical indicators are looking bearish. MACD is falling below its signal line in negative zone. ROC has bounced up from its oversold zone to cross above its 10 day MA, but remains negative. RSI is crawling at the edge of its oversold zone. Slow stochastic is inside its oversold zone.

Keep a close watch on the blue up trend line connecting the Jun ‘12 and Apr ‘13 bottoms – currently at 18660. A drop below may lead to a deeper correction.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty dropped briefly below its 50 week EMA intra-week, but managed to close above it. The correction has completed 4 weeks, but the long-term uptrend (marked by the blue trend line) that started from the low of 4531 touched in Dec ‘11 is under no immediate threat. In fact, such corrections should be welcomed as they provide adding opportunities, and improve the technical health of the market.

Weekly technical indicators are beginning to turn bearish. MACD has crossed below its signal line in positive territory. ROC is showing positive divergence by rising above its 10 week MA in positive zone. RSI has slipped below its 50% level. Slow stochastic is falling towards its 50% level.

Some more correction is likely, but any drop towards the Apr ‘13 low of 5477 may trigger buying by the bulls.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are still correcting after touching 2 year highs. Both indices should rise to new highs after the corrections are over. Use the dips to add to existing portfolios, but maintain suitable stop-losses.

(PS: If you are thinking of adding good mid-cap/small-cap stocks to your portfolio but are not sure which stocks to pick, book your subscriptions in advance to my Monthly Investment Newsletter. New subscriptions will be offered from July 1 ‘13.)

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