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Saturday, June 8, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 07, 2013

Both Sensex and Nifty indices faced a week of profit booking. FIIs decided to turn net sellers for a couple of days. Predictably, DIIs turned net buyers on those days. Some doomsayers have been predicting a big crash. Technical indicators are not showing any signs of such a calamity.

Depreciation of the Rupee against the US Dollar was the major talking point among experts trying to analyse the fall in the market. The Finance Minister increased the duty on gold imports in a bid to curb the increasing CAD (current account deficit).

Europe continues to struggle in a recession. Many Indian companies had shifted their export focus from USA to Europe in the aftermath of the subprime crisis 5 years back and made large acquisitions. The stocks of such companies – including Bharat Forge and Tata Steel – have taken a beating.

BSE Sensex index chart


The weekly bar chart of the Sensex has taken support from its 20 week EMA. The 50 week EMA is rising. The blue up trend line marking the up trend from the Dec ‘11 low is intact. The Sensex has undergone periodic corrections on its way up. All are pointers to a technically healthy bull market, now in its 18th month.

Weekly technical indicators are showing some weakness, but remain bullish. MACD is about to touch its rising signal line in positive territory. ROC is moving sideways above its rising 10 week MA in positive zone. RSI is moving sideways just above its 50% level. Slow stochastic has dropped from its overbought zone, but is in bullish zone.

The dip can be used as an adding opportunity.

NSE Nifty 50 index chart


The daily bar chart pattern of Nifty has formed what looks like a head-and-shoulders reversal pattern to the untrained eye. What looks like a snake may actually be a harmless piece of rope – unless it hisses or bites.

For a head-and-shoulders pattern to ‘hiss or bite’ and start a big slide in prices, volume confirmation is necessary. Volumes should be the highest during the formation of the ‘left shoulder’. Volumes can be equal or slightly less during the formation of the ‘head’. During the formation of the ‘right shoulder’, volumes should be much lower.

Note that volume action was just the opposite on the Nifty chart above, with volumes during the ‘right shoulder’ formation being the highest. The ‘snake’ is really a ‘rope’. In fact, the entire correction from the May 20 top has formed a bullish ‘falling wedge’ pattern, from which the eventual break out should be upwards.

Remember that technical analysis is an art and not a science. Patterns don’t always play out as expected. Protect the downside with a suitable stop-loss. Daily technical indicators are looking bearish, and a little oversold. That means the correction can continue a bit longer.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are correcting after touching 2 year highs. Both indices should rise to new highs after the consolidation is over. Use the dips to add to existing portfolios.

(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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