Sunday, September 29, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Sep 27, 2013

Improvement in merchandise and software exports coupled with lower oil price and import restrictions on gold and luxury items may finally bring down the current account deficit within manageable limits. However, Q1 (Jun) deficit may climb a bit due to seasonal reasons – as per this Reuters report.

Partial recovery in the value of the Rupee, and expectation that the Indian economy may have bottomed out finally have encouraged FIIs to turn net buyers. DIIs have become net sellers. Small investors are confused by index volatility and continued weakness in mid-cap and small-cap stocks.

The stock market is looking ahead to Q2 results – to be announced from Oct. onwards – for clearer direction in the stock indices. Not many positive surprises are expected. IT, pharma, FMCG should continue to do well. Metals, infra, power, real estate will drag.

BSE Sensex index chart


The daily bar chart of Sensex rallied a huge 3300 points from its 52 week low of 17449 (on Aug 28) to its 52 week high of 20740 (on Sep 19) in just 15 trading sessions. Even seasoned investors were taken aback by the ferocity of the bulls.

Such sharp rallies are difficult to sustain. The index dropped down to seek support from its 20 day EMA. Note that overbought conditions and reversal patterns were visible on the daily technical indicators last week, so the correction should not have come as a surprise.

Daily technical indicators are beginning to turn bearish, which means the correction may not be over yet. MACD has dropped from its overbought zone to touch its signal line. ROC dropped below its 10 day MA into negative territory after forming a double-top reversal pattern. RSI has formed a head-and-shoulders reversal pattern, and is falling towards its 50% level. Slow stochastic has slipped below its 50% level.

Use the dip to accumulate fundamentally strong stocks. If you think that the better stocks look expensive, you are right. They are. So, buy a small quantity from your savings every month, instead of chasing ‘cheap’ stocks.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty continues to trade in a long-term up-trend (marked by the blue up-trend line). In spite of three consecutive intra-week drops below the trend line recently, the index did not close below the trend line even once.

In fact, the weekly chart of Nifty has closed above the trend line every week for the past 22 months - since the up-trend started from the Dec ‘11 low. Nifty is trading above both its weekly EMAs and is back in a bull market.

Weekly technical indicators are showing signs of bearishness. MACD is just above its signal line, but in negative territory. ROC failed to enter positive territory, and has dropped down to its 10 week MA. RSI moved above its 50% level, but starting to slide down. Slow stochastic has reached the edge of its overbought zone, but its upward momentum is receding.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are back in bull territories after facing sharp bull market corrections. Bears are still active, so caution is advised. Remember that money is made in bull markets by buying – not by fearing disaster. Buy carefully with adequate stop-losses in place.

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