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Saturday, September 14, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Sep 13, 2013

Global stock markets are anxiously awaiting the US Fed’s probable announcement of a tapering (i.e. reducing) of the QE3 bond-buying programme. Indian stock market is likely to be impacted if the US Fed announces a larger than US $10 Billion per month tapering. Why? Because markets have already ‘discounted’ the US $10 Billion figure. Anything more may lead to a partial sell-off by FIIs.

FIIs have turned net buyers of late, and that has helped the bulls to extricate themselves from a strong bear grip. However, the bears are not out of the game yet – as the Sensex and Nifty charts below will show. The IIP number came as a positive surprise. The economy may be finally turning up.

Narendra Modi received the much-expected official endorsement as the BJP’s Prime Ministerial candidate for the upcoming general elections, despite opposition from senior leaders within the party. India Inc. seem to have thrown their lot behind NaMo. It is a moot point whether BJP will be able to form a government or not.

BSE Sensex index chart

Sensex_Sep1313

Some interesting technical patterns are visible on the daily bar chart pattern of Sensex. After crossing above all three EMAs during the recent rally, Sensex formed a small ‘upward gap’. Profit booking ensued. Charts don’t like gaps, and most gaps eventually get filled – though sometimes they remain unfilled for many months or even years. So, expect the ‘gap’ to be filled soon. Since it is an ‘upward gap’, the index may resume its up move subsequently.

The blue down trend line, connecting the May ‘13 and Jul ‘13 tops, is likely to provide upside resistance. Note that the 50 day EMA, after briefly falling below the 200 day EMA, is trying to cross above the long-term moving average. The 20 day EMA is doing likewise. All three EMAs have converged together (marked by light blue circle). A sharp move usually follows. Will the move be up or down?

That’s a good question. Daily technical indicators are bullish, but correcting from overbought conditions. Profit booking may continue next week. However, two of the four indicators are showing positive divergences. ROC has touched a higher top, and Slow stochastic touched its previous top while Sensex touched a lower top last week. Since the index is trading in bull territory above its three EMAs, it is quite possible that Sensex may first drop down to fill the small gap, and then move up sharply. The sharp move could be downwards if the US Fed announcement disappoints the market.

NSE Nifty 50 index chart

Nifty_Sep1313

The weekly bar chart pattern of Nifty returned back to bull territory after 6 weeks, by climbing above its 20 week and 50 week EMAs. The 20 week EMA has merged with the 50 week EMA without crossing below it – keeping the bull market intact. However, weekly volumes have dropped while the index moved up. The blue down trend line (marked DTL) is likely to provide upside resistance. Bears may not be ready to give up the fight.

Weekly technical indicators are turning bullish. MACD is negative, but looks ready to cross above its falling signal line. ROC is about to enter positive zone after crossing above its 10 week MA. RSI has moved up to its 50% level. Slow stochastic has just entered bullish zone above its 50% level.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have re-entered bull territories but are likely to experience some headwinds. Maintain a cautiously optimistic outlook. That means sticking to existing investment plans, and/or buying very selectively. Conservative investors may wait and watch the market’s reaction to the US Fed announcement.

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