Sunday, December 8, 2013

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

FIIs were net buyers and DIIs were net sellers during the week – so, what else is new? All kinds of speculations about state election results and their likely effect on stock index movements.

The only results the market isn’t expecting are the BJP-led NDA losing in all four states and one union territory, or in four out of the five. If either happens – and the probability appears negligible - only then will Sensex and Nifty face big selling. The other options have already been ‘discounted’, so any index gyrations will be temporary.

The economy is still underperforming, and may continue to do so for another couple of quarters – regardless of whether the NDA sweeps the state elections or not. But the market tends to look ahead. Increasing exports and decreasing imports leading to a more manageable current account deficit, plus rising forex reserves are positive signs.

No wonder both indices have broken out of consolidations/down trends.

BSE Sensex index chart


In the previous week, the daily bar chart pattern of Sensex had broken out above the down trend line (in blue). As often happens after such bullish break outs, the index pulled back towards the trend line – giving another opportunity to enter to those who may have missed buying on the break out.

Sensex bounced up after receiving good support from the down trend line and the rising 20 day EMA, and looks all set to cross above its life-time high of 21294 (touched on Nov 1 ‘13). All three EMAs are rising and the index is trading above them. The bulls are back in control.

Daily technical indicators are looking bullish. MACD is rising above its signal line in positive territory, but its upward momentum is weak. ROC is also rising – above its 10 day MA in positive territory. RSI has turned down towards its 50% level. Slow stochastic has slipped down from its overbought zone.

There can be a brief correction or consolidation – but nothing to cause real worry for bulls.

NSE Nifty 50 index chart


The expected upward break out from the ‘falling wedge’ pattern, mentioned in last week’s analysis of the weekly bar chart pattern of Nifty, was accompanied by an increase in volumes. The index closed higher for the second week in a row, and is likely to move above its Nov 1 ‘13 top soon.

Weekly technical indicators are bullish. MACD is climbing towards its overbought zone. ROC is about to cross above its 10 week MA. RSI is at the edge of its overbought zone. Slow stochastic has re-entered its overbought zone.

Remember that the index can remain overbought for long periods. That doesn’t mean there will be a one-way rally. Corrections/consolidations are essential for a bull market to sustain.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have broken out above technical resistances following bull market corrections. The corrections gave opportunities to accumulate fundamentally strong mid-cap and small-cap stocks that are available at reasonable valuations. Both indices look ready to touch new life-time highs.

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