Sunday, November 24, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 22, 2013

Bears continued their domination (i.e. DIIs continued to sell). Even FIIs turned net sellers during the last two days of the week. Both Sensex and Nifty indices had lower weekly closes despite some early flourish.

The spectre of US Fed tapering its QE3 bond buying apparently spooked the market. There is also some concern that NaMo has overplayed his hand and his constant personal attacks on Congress leaders is starting to create a negative impression among older voters.

‘Third front’ leaders are trying to band together with the misplaced hope that they may be in a position to form a government if the general elections produce a hung parliament. The more likely outcome is that NDA or UPA may require the third front’s support to form a government. Neither of the two options will enthuse the market.

Hopefully, the economy will start to turn around by Q4 ‘13 and company performances will improve. That will let the stock market take election results in its stride.

BSE Sensex index chart


The daily bar chart pattern of Sensex closed below its 50 day EMA for the first time in more than 2 months. A test of support from its rising 200 day EMA seems likely. Can the index drop below its 200 day EMA – like it did back in Aug ‘13.

Daily technical indicators don’t seem to suggest so. MACD is about to drop into negative territory. But the other three – ROC, RSI, Slow stochastic - are not only in bearish zones but are looking oversold. Buying interest may emerge as the index drops near its 200 day EMA.

At times like these, small investors are consumed by fear and stay out. To make money, one needs to be a contrarian. That means welcoming such opportunities to buy. The index is correcting after touching an all-time high. The next rally is likely to go higher.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty closed lower for the third week in a row. Bulls may point out that the 20 week EMA is providing good support. But that support may get breached next week. Why?

The weekly technical indicators are beginning to turn bearish. MACD is positive, but moving down towards its signal line. ROC has crossed below its 10 week MA, and looks ready to drop into negative territory. RSI is just below its overbought zone, but its upward momentum has dissipated. Slow stochastic has slipped down from its overbought zone.

A drop to the 50 week EMA is a possibility. Note that as long as the long-term up trend line (in blue) is not breached on a closing basis, there is no need to worry for the bulls.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are in corrective modes for the third straight week after touching life-time highs. This is a good time to study fundamentally strong mid-cap and small-cap stocks that are available at reasonable valuations. The correction is providing an opportunity to accumulate them gradually.

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