Saturday, January 11, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 10, 2014

Infosys Q3 results positively surprised the market on Friday (Jan 10). IT stocks led a bull charge and both Sensex and Nifty indices briefly moved up into bull territory (i.e. above all three EMAs).

Bullishness disappeared by the end of the day as both indices struggled to hang on to support from their respective 50 day EMAs. Why is the market so jittery?

The IIP number was the culprit – contracting for the second month in a row. The economy seems to be stuck in reverse gear. Market participants are also spooked by the growing popularity of AAP, which may lead to a hung parliament in the upcoming general elections.

BSE Sensex index chart


The daily bar chart pattern of Sensex is desperately trying to cling on to its 50 day EMA. So far, it hasn’t formed a bearish pattern of ‘lower tops and lower bottoms’. But the respite may be temporary.

Daily technical indicators are not only bearish, but also showing negative divergences by touching lower bottoms (marked by blue arrows). MACD has slipped into negative territory below its signal line. ROC is also negative, and below its 10 day MA. RSI has dropped to the edge of its oversold zone. Slow stochastic has entered its oversold zone.

The following comments were made in last week’s analysis: “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.”

If 20200 gets breached on the down side, a test of the 200 day EMA may follow. More positive surprises from Q3 results will be required to change the negative sentiment.

NSE Nifty 50 index chart


The longer term weekly bar chart pattern of Nifty is still in a long-term bull market, despite two weeks of correction. The long-term up trend line (in blue) and both weekly EMAs are rising with the index trading above them.

However, weekly technical indicators are showing bearish signs. MACD is positive, but about to cross below its signal line. ROC has already entered negative territory. RSI is falling towards its 50% level. Slow stochastic has dropped from its overbought zone.

A drop below the 20 week EMA seems inevitable. A further drop below the 50 week EMA may lead to a test of the long-term up trend line. Rising volumes on down weeks means bears are active.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are facing bull market corrections. Periodic corrections help to improve ‘technical health’ of both indices and provide opportunities to add fundamentally strong stocks. Enter with strict stop-losses - an intermediate down trend is about to start.

(Note: Forget about index fluctuations. It is a bull market. Corrections are buying opportunities. Learn how to choose fundamentally strong mid-cap and small-cap stocks by becoming a paid subscriber of my Monthly Investment Newsletter. A limited number of new subscriptions are being offered till Jan. 21, 2014. Enrolments have started. Contact me for

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