Saturday, September 7, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Sep 06, 2013

The new RBI governor made a strong start by announcing a number of proposals that is likely to help the value of the Rupee to stabilise by ensuring more forex inflows. Banks will be given freedom to raise overseas funds. RBI will subsidise hedging costs incurred by banks in attracting NRI deposits. The value of the Rupee, which had fallen to almost 70 to the US Dollar, recovered to 66. The stock market celebrated. FIIs turned net buyers on the last two days of the week.

The Finance Minister is trying to reduce the current account deficit by curtailing import of gold, luxury and electronic goods by increasing import duty. However, such a stop-gap measure may be counter productive as it will encourage smuggling. The need of the hour is to promote production and export of quality goods without too many bureaucratic hurdles.

Sensex has managed to re-enter bull territory, which will be clear from the daily bar chart pattern of Sensex below. Nifty hasn’t quite regained bull territory yet, but has retraced more than 50% of its fall from its May ‘13 top of 6229 to its Aug ‘13 low of 5119, by touching an intra-week high of 5689. A retracement of more than 50% often means that the previous trend has been reversed.

BSE Sensex index chart


The Sensex chart shows a spirited fightback by bulls after a successful test of the long-term up-trend line connecting the Dec ‘11 and Jun ‘12 lows. The index is trading above all three EMAs in bull territory. The 50 day EMA had slipped below the 200 day EMA (‘death cross’), which technically confirms a bear market; but it has started to turn up again – as has the 20 day EMA.

The ‘gap’ formed back in Sep ‘12, which was partly filled in Apr ‘13, has been completely filled. Contrary to popular belief, filling of an ‘upward gap’ - formed when the index was moving up - is not bearish. The up move was expected to resume after the ‘gap’ got filled. Can the rally last a bit longer?

Daily technical indicators seem to suggest so. MACD is still negative, but is rising sharply above its signal line. ROC is above its 10 day MA, and about to enter its overbought zone. RSI has climbed above its 50% level. Slow stochastic has just entered its overbought zone. The lack of any significant profit booking before a long weekend is a bullish sign.

NSE Nifty 50 index chart


The weekly bar chart of Nifty rallied strongly, but is facing twin resistance from its 20 week and 50 week EMAs. Note that the 20 week EMA is almost touching the 50 week EMA, but hasn’t crossed below it – keeping the long-term bull market intact. The long-term up-trend line is also intact technically – despite three consecutive intra-week drops below it – because Nifty’s weekly closing level has been above the trend line since Dec ‘11.

Weekly technical indicators are beginning to turn bullish, but haven’t done so yet. MACD has started to rise, but remains below its signal line in negative zone. ROC is also negative, but has managed to cross above its 10 week MA. RSI and Slow stochastic have emerged from their respective oversold zones, but remain below their 50% levels.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have survived strong bull market corrections, and look all set to rise to new highs. It is not expected to be smooth sailing, as bears won’t give up without a fight. The gloom and doom analysts and their talk of much lower levels on both indices will keep investors cautious. That doesn’t mean investment should be avoided. This is a good time to pick fundamentally strong but beaten down stocks with a 2-3 years timeframe.

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