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Saturday, August 31, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 30, 2013

Volatility dominated trading in both Sensex and Nifty indices during the week – in sync with the value of the Rupee, which threatened to touch the 70 mark against the US Dollar before recovering a little.  According to an unconfirmed report, speculators with inside information about RBI intervention action went short on the Rupee in the forex market and made a killing.

FIIs continued to sell – even long-only funds getting spooked by the passing of the food security bill. The Finance Minister tried to restore some confidence in the market by stating that the fiscal deficit won’t worsen as there will be cuts in other subsidies to finance the food bill. DIIs played contrarian by turning net buyers.

The Q1 GDP number came in lower than expectations after market hours on Friday. To meet the year-end target of 5.5%, each of the next three quarters would need growth close to 6%. There are a few signs that exports to Europe and USA are in revival mode. Good monsoon should help agricultural growth. But the joker in the pack will be manufacturing growth.

BSE Sensex index chart


The daily bar chart pattern of Sensex continued to oscillate about the ‘gap’ that was completely filled in the previous week’s trading. The index tested the long-term up-trend line (in blue) and bounced up – keeping the up-trend intact. However, the falling 20 day EMA resisted the up move. The 50 day EMA has crossed below the 200 day EMA – the ‘death cross’ signifying a bear market.

Daily technical indicators have corrected from oversold conditions, but remain in bearish zones. MACD has bounced up from the edge of its oversold zone and is ready to cross above its signal line. ROC has climbed above its 10 day MA and about to enter positive territory. Both RSI and Slow stochastic have risen from their oversold zones and are just below their respective 50% levels. 3 of the 4 indicators – ROC, RSI, Slow stochastic – are showing positive divergences (marked by blue arrows) by touching higher bottoms.

If the rally continues next week, expect twin resistance from the 50 day and 200 day EMAs (around19000). On the downside, the up-trend line is likely to prevent a deep fall.

NSE Nifty 50 index chart


The long-term up-trend line on the weekly bar chart pattern Nifty was breached intra-week 2 weeks in a row (ignoring the Oct ‘12 breach that was caused by an ‘error’ trade).  However, the index has failed to close below the up-trend line, which technically keeps the up-trend intact. The index formed a ‘reversal week’ bar (lower low, slightly higher close) on strong volumes, which may be the sign of a ‘selling climax’.

Weekly technical indicators are trying to recover from oversold conditions. MACD is falling below its signal line in negative zone, but its downward momentum is slowing. ROC has touching its 10 week MA after bouncing up from the edge of its oversold zone. RSI and Slow stochastic are trying to emerge from their respective oversold zones.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices appear to have survived strong bear attacks, and look ready to recover and fight back. Q1 GDP number was a disappointment. The UPA government is belatedly clearing FDI proposals and making bullish noises about curtailing twin deficits. Ignore the gloom and doom mongers: neither is the economy as dismal as in 1991, nor are there any global headwinds like in 2008. Use the weak sentiment to accumulate fundamentally strong stocks with a 2-3 years timeframe.

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