Saturday, January 4, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 03, 2014

It had looked like another trading week of sideways consolidation by both indices, as the New Year celebrations were expected to keep many FIIs and DIIs away from the market. But all hell seemed to break lose during the last hour of trading on Thursday, Jan 2.

Both indices crashed on a sudden burst of basket selling of index stocks – reportedly by an FII – that sent those who had held long positions towards the exit gate. While large-cap stocks took a beating, mid-cap and small-caps more than held their own. Interestingly, FIIs were net buyers for the day.

Order seemed to get restored on Friday, Jan 3 as both Sensex and Nifty received good support from their respective 50 day EMAs and recovered well from day’s lows. Is this the beginning of another intermediate down trend, or will the indices recover further and move higher?

Let us have a look at the charts of Sensex and Nifty below for answers.

BSE Sensex index chart


The daily bar chart pattern of Sensex shows that the long-term bull market is very much intact, as the 200 day EMA is rising and the index is trading above it. The fact that the index hasn’t fallen below its 50 day EMA (yet), and touched a higher bottom is positive in the near term.

Daily technical indicators have clearly lost their upward momentum, but remain in bullish zones. MACD is still positive, though it has crossed below its signal line. ROC bounced up from its ‘0’ line, and is touching its 10 day MA. RSI has moved above its 50% level. Slow stochastic has dropped towards its 50% level.

A drop below 20569 (Dec ‘13 low) will confirm an intermediate down trend as the index will form a bearish ‘lower top-lower bottom’ pattern. There is a good support zone between 20200 and 20450. The index may not make any major moves till Q3 results start hitting the market.

NSE Nifty 50 index chart


Of late, the weekly bar chart pattern of Nifty has been correcting after every 2 or 3 weeks of up moves. This was mentioned in last week’s analysis. So, the correction should not have come as a surprise.

The long-term up trend line (in blue) and the two weekly EMAs are rising with the index trading above them. The long-term bull market is doing fine. However, strong volumes on a ‘down week’ is a bit of a concern for bulls because it could be a sign of distribution.

Weekly technical indicators are in bullish zones. MACD is above its signal line and just below the edge of its overbought zone, but is turning down. RSI is forming a ‘rounding bottom’ pattern above its 50% level. Slow stochastic is moving sideways along the edge of its overbought zone. But ROC is showing weakness by falling below its 10 week MA towards its ‘0’ line.

An intermediate down trend may start if Nifty falls below its 20 week EMA. Some caution is called for.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are in long-term bull markets, but facing corrective moves. Periodic corrections improve ‘technical health’ of both indices and provide opportunities to add fundamentally strong stocks. Enter with strict stop-losses - in case an intermediate down trend starts.

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