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Saturday, August 24, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 23, 2013

Both Sensex and Nifty indices moved up and down like a yo-yo during the past week – sending shivers down the spines of investors who braced for a big crash. As per experts, the real culprit for the unsteady market was the value of the Rupee – which touched an all time low against the US Dollar and crossed the 3-digit mark against the UK Pound.

FIIs were in a selling mood, but it wasn’t a huge sell-off. DIIs, particularly LIC, helped by stepping in to buy. Both indices are poised once again near important supports – with bears trying to get the upper hand. But bulls are refusing to surrender without a fight. Since the broader market is scraping bottom, it is possible that large-caps may correct a bit more while mid-caps and small-caps may see some buying interest.

Meanwhile, there appears to be no truth behind the rumours that ‘Chhota Bhai’ and his well-endowed partner will be jointly nominated for an Oscar for playing the role of “Most Forgetful Couple” in a real-life drama by failing to remember the names of their own companies and senior executives.

BSE Sensex index chart


The daily bar chart pattern of Sensex (above) has several interesting patterns that may encourage bears as well as bulls. First, the bear case:

  • Sensex is trading below all three EMAs; the 20 day EMA has crossed below the 200 day EMA, and the 50 day EMA is likely to follow suit – technically confirming a bear market
  • The index has formed a bearish pattern of lower tops and lower bottoms
  • The ‘gap’ that formed back in Sep ‘12 and had provided good support to the index has been completely filled
  • All four daily technical indicators are in bearish zones

Now, the bull case:

  • The correction from the Jul 23 top has been very steep and unlikely to sustain
  • Even if the 50 day EMA crosses below the 200 day EMA (‘death cross’), it may reverse directions quickly if the rally continues
  • A rally started immediately after the ‘gap’ got filled; this is typical bullish behaviour after an upward ‘gap’ that has acted as a strong support gets partly or completely filled
  • Daily technical indicators have corrected from oversold conditions; three of the four indicators – ROC, RSI, Slow stochastic – are showing positive divergences by touching higher bottoms while the index dropped lower;RSI has formed a small inverted head-and-shoulders pattern in its oversold zone

If the rally continues next week – which is F&O expiry week – it is unlikely to cross above its 200 day EMA (currently at 19100); if the down move resumes, expect support from the blue up-trend line (currently at 17500).

NSE Nifty 50 index chart


After two tests of the lower edge of the rectangle – within which Nifty had been trading since Sep ‘12 – the index broke downwards on good volumes and comfortably breached the blue up-trend line intra-week. The index closed lower for the 5th straight week. Both the 20 week and 50 week EMAs are falling - showing bear domination.

However, bulls did fight back. The index closed the week above the up-trend line and almost on the lower edge of the rectangle. Technically, the week’s close above the up-trend line and just below the lower edge of the rectangle means neither the up trend nor the rectangle have been breached convincingly – leaving the door open for bulls to start a rally.

Weekly technical indicators are bearish, but showing some signs of turning around. MACD is falling deeper into negative territory below its signal line. ROC has bounced up from the edge of its oversold zone. RSI has slipped inside its oversold zone. Slow stochastic is inside its oversold zone, but trying to turn up. Note that ROC and Slow stochastic are showing positive divergences by touching higher bottoms while Nifty touched a lower bottom (marked by blue arrows).

Bottomline? Chart patterns of BSE Sensex and NSE Nifty 50 indices are undergoing strong corrections and are in danger of falling into bear markets. Q1 results and other macroeconomic data continue to disappoint. But the government is trying to take belated steps to steady the market. This is not the time to sell in a panic. Stick to regular investment plans. Better buys are available when the market is down, but don’t be aggressively bullish.

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