Saturday, November 2, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 01, 2013

On the last trading day before Diwali, the inevitable happened. Sensex soared to touch life-time intra-day and closing highs. While Nifty may have missed all-time intra-day and closing highs by the smallest of margins, it did touch a life-time monthly closing high on Oct 31, ‘13.

Strangely, there was very little celebration on Dalal Street. No champagne bottles were popped open, no business TV channel anchor kissed his laptop, and many small investors had glum faces because of reduced Diwali bonuses and decimated stock portfolios.

Is this bull market for real? How can the stock market surge when the economy is doing so poorly? However counterintuitive it may feel, economic growth and stock market performance are inversely correlated. How else can you explain the stellar performance of the S&P 500 index and the dog that the Shanghai Composite has become? 

BSE Sensex index chart


The daily bar chart pattern of BSE Sensex index is soaring upwards, and trading above all three EMAs which are rising together. Bulls (read: FIIs) are clearly in control, but the index is showing signs of a temporary top.

Three of the four technical indicators – MACD, RSI, Slow stochastic – are in their overbought zones, with the RSI forming a small head-and-shoulders reversal pattern. All four indicators are showing negative divergences (marked by blue arrows) by failing to touch new highs with the index.

A few days of correction/consolidation will remedy the overbought condition and improve the technical ‘health’ of the chart pattern. The likely dip will be another opportunity to add.

NSE Nifty 50 index chart


A ‘reversal week’ pattern observed in last week’s analysis was ignored by the bulls as the weekly bar chart pattern of NSE Nifty index rose to touch a new 52 week high on intra-day and closing basis. The strong weekly volume bar indicates return of buying interest.

The long-term up-trend line continues its steady rise. All four technical indicators are bullish, with ROC and Slow stochastic inside their overbought zones.A bout of correction or consolidation will enable the index to move even higher.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are at life-time highs. This is not a time to feel scared because of what had happened in Jan ‘08 and Nov ‘10 when the previous index peaks were touched. Nor is it a good time to buy the cats and dogs. Choose fundamentally strong stocks that are still available at fair prices, and accumulate gradually. Both indices are likely to rise to much higher levels.

Related Post

Why Sensex should touch 25000 – a long-term view

(Wishing all blog visitors and investment newsletter subscribers a safe and peaceful Deepavali. May the new year bring happiness and prosperity to all.)

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