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Saturday, August 10, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 09, 2013

Bulls received some respite at the end of a holiday-shortened week. Both stock indices paused close to important support zones – thanks mostly to short covering. The respite may be temporary, as the bears are likely to renew their aggressive selling.

Q1 results continue to be less than stellar. Even companies that have shown decent top line growth – like Sun Pharma – had different reasons for lower bottom lines. Industrial growth is sliding. Capital expenditures are being put on indefinite hold. Hiring has been frozen. Entrepreneurs are looking at overseas options to grow their businesses.

Government is trying to take some belated steps to turn the situation around – but it seems to be a case of too little too late. With general elections around the corner, industry appears to have gone into a wait and watch mode. That doesn’t augur well for a strengthening stock market.

BSE Sensex index chart


The good news for bulls is that the longer-term up trend from Dec ‘11 (marked by blue up trend line UTL1) is still intact. Though the daily bar chart pattern of Sensex has dropped below its 200 day EMA and the up trend line UTL2, it stopped short of the ‘gap’ formed in Sep ‘12 (marked by dotted parallel lines).

Daily technical indicators are bearish, but showing signs of correcting from oversold conditions. MACD is still falling below its signal line in negative territory. ROC is trying to climb out of its oversold zone, but remains below its falling 10 day MA. RSI is turning up from deep inside its oversold zone. Slow stochastic has stopped falling, but remains well inside its oversold zone.

Any attempt by the index to move up further is likely to face strong resistance from trend line UTL2 and the 200 day EMA (both are at 19200).

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty tested the lower edge of the rectangular zone (marked by dotted lines) within which it has been consolidating since Sep ‘12. It was the second week in a row that the index closed below its 50 week EMA. The index has been in a down trend – marked by blue parallel lines – since touching its May ‘13 top.

Weekly technical indicators are bearish and beginning to look oversold. MACD has slipped into negative territory below its signal line. ROC is falling below its 10 week MA, and about to enter oversold zone. Both RSI and Slow stochastic are falling towards their respective oversold zones.

In case the index breaches the lower edge of the rectangular consolidation zone, support is expected from the blue up trend line (at 5400). Any breach of the trend line may lead to a reversal of the long-term up trend.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are undergoing corrections, but technically these are corrections in a long-term bull market. Despite negative sentiments compounded by disappointing Q1 results, there are still no signs of a huge fall. The dips can be used to add fundamentally strong stocks, but with a long-term view and with appropriate stop-losses.

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