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Saturday, July 6, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Jul 05, 2013

The big news of the week was the ordinance passing the Food Security bill. Though aimed at helping the rural poor, it will have a huge impact on the already ballooning fiscal deficit, and open the doors to more corruption in food procurement.

Like the earlier NREGA scheme of providing 100 days work to the rural poor, the real benefit will accrue to the Congress Party in the next elections. That such schemes lead to inflation is explained away as necessary for the ‘greater good’.

Further increase in inflation – already proving quite stubborn, thanks to hike in diesel and petrol prices – means RBI may not further decrease interest rates. That can’t be beneficial to India Inc. and therefore, for the stock market.

BSE Sensex index chart


The weekly bar chart pattern of BSE Sensex index shows two up trend lines in blue – a longer-term up trend connecting the Dec ‘11 and Jan ‘12 lows (marked ‘1’) and a shorter-term up trend connecting the Jun ‘12 and Apr ‘13 lows (marked ‘2’).

Note that up trend line ‘1’ is in tact. Up trend line ‘2’ was breached twice intra-week, but the breaches were within the 3% ‘whipsaw’ limit. That means, technically, up trend line ‘2’ is also in tact.

Both the 18 months long up trend from Dec ‘11 and the 12 months long up trend from Jun ‘12 remain in force. To make money in the stock market, one should follow the trend – which is clearly up, despite all the negative sentiment all around.

After forming a ‘reversal week’ pattern (lower low, higher close) in the previous week that marked the end of the correction from the May ‘13 top, Sensex has moved up to close above both its two weekly EMAs. This has been a gradual up trend rather than a runaway one – as can be seen from the proximity of the index and its weekly EMAs.

Weekly technical indicators haven’t quite turned bullish yet. MACD is moving sideways in positive territory, but is below its signal line. ROC has crossed below its 10 week MA and is barely positive. RSI is moving sideways above its 50% level. Slow stochastic is gently rising towards its 50% level.

Expect the rally to continue with periodic corrections.

NSE Nifty 50 index chart


The daily bar chart pattern of NSE Nifty 50 index consolidated between 5750 and 5900 during the week, and managed to remain above its 200 day EMA. The consolidation should help the index to gather technical strength for the next up move – though Friday’s low volumes is a concern.

Daily technical indicators are looking bullish. MACD is still negative, but continues to rise above its signal line. ROC has jumped back into positive territory. RSI is resting on its 50% level after a brief foray above it. Slow stochastic has dropped from its overbought zone, but is attempting to move back up again.

The 20 day EMA has bounced off the 200 day EMA, and looks ready to cross above the 50 day EMA. That should restore the bullish set up for the next up move.

Some technical experts have mentioned 5500 as the floor level for Nifty. That level is right in the middle of the ‘gap’ zone between 5450 and 5525 formed back in Sep ‘12 that has acted as a strong support for Nifty.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices received good support from their up trend lines after correcting from 2 year highs. Both indices are getting ready to rise to new highs on the back of renewed FII buying. This is as good a time as any to accumulate fundamentally strong stocks for the long-term.

(PS: If you are planning to add growth-oriented and fundamentally strong mid-cap/small-cap stocks to your portfolio, but are not sure which stocks to choose, book your paid subscription to my Monthly Investment Newsletter now. New subscriptions will be offered till July 21, ‘13.)


sid said...

Hello sir,
You said there is renewed FII buying. For the past two weeks and more, the data only suggests that FIIs are on a selling spree.

What can be the possible up-triggers for market ?

Subhankar said...

FIIs were net buyers in the spot market on Jul 2 and 5.

Monsoon has so far been better than expectation. Govt is taking steps to curb the fall in the Rupee. FDI proposals are getting cleared. Q1 results are likely to be better than Q4. All these can propel the indices higher.