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Saturday, August 3, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 02, 2013

Q1 results season is proving to be a bit of a damp squib. Negative sentiments are hurting the stocks of the few companies that are meeting or beating analysts’ expectations. Most others that are missing top line and/or bottom line targets are getting hammered badly.

RBI kept a status quo on interest rates. The stock market didn’t like that at all. The Rupee also tanked, after a few days of consolidation due to a short-term liquidity squeeze. PSU banks are declaring poor results one after the other. Mid-cap and small-cap stocks are hitting 52 week lows, leaving small investors frustrated and perplexed.

Is this the beginning of a bear market, or is it another bull market correction? For answers, let us look at the charts of Sensex and Nifty below.

BSE Sensex index chart


The daily bar chart pattern of Sensex is tantalisingly poised at an important support. It has part-filled the small gap (marked by blue solid parallel lines) formed in Jun ‘13 by slipping below its 200 day EMA. However, the index found support from the blue up trend line and closed exactly on its 200 day EMA.

Daily technical indicators are looking bearish to the point of being oversold. MACD has dropped into negative territory below its signal line. ROC has fallen steeply below its 10 day MA to enter its oversold zone. Such steep falls are not sustainable. Both RSI and Slow stochastic have dropped inside their oversold zones.

The index can stay oversold for long periods. But because it is at an important support zone, the possibility of a bounce back can’t be ruled out. If the index closes the small gap and falls convincingly below the up trend line, support is likely from the earlier gap formed in Sep ‘12 (marked by dotted parallel lines).

Even if the Sep ‘12 gap gets filled (note that it was part-filled in Apr ‘13), the index should resume its up move thereafter. Though bears seem to be getting the upper hand, bulls still have a lot of ammunition to fight back.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty is beginning to turn bearish. The index has closed below its two weekly EMAs and the up trend line UTL2 (connecting the Jun ‘12 and Apr ‘13 lows). The ‘error trade’ of Oct 5 is being ignored for technical analysis since the trade didn’t show up on Sensex or Nifty Futures charts.

Nifty has been consolidating within a rectangle pattern for nearly a year. The lower edge of the rectangle is at about 5480 – which is just above the level of the up trend line UTL1 (connecting the Dec ‘11 and Jun ‘12 lows). Both should provide support to the falling index. If the index falls convincingly below UTL1 (currently at about 5400), a change of trend will occur.

Weekly technical indicators are turning bearish. MACD is falling towards negative territory below its signal line. ROC is falling below its 10 week MA and about to fall inside its oversold zone. RSI has slipped below its 50% level. So has Slow stochastic. A test of the lower edge of the rectangle is likely.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are undergoing corrections, but technically these are bull market corrections. There are still no signs of a huge fall - being predicted by some experts. The dips can be used to add fundamentally strong stocks, but with appropriate stop-losses.

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