Saturday, January 25, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 24, 2014

For the second week in a row, there was a strong sell-off on the last day of the week. Both Sensex and Nifty indices withstood the onslaught by bears and managed to stay in bull territories (i.e. above their daily and weekly EMAs).

Q3 results declared so far have been mostly as per expectations. Large-cap stocks have fared better than mid-cap and small-cap stocks. Margin pressure is visible across the board. All eyes seem to be on the RBI policy announcement on Jan 28. A cut in interest rates, though unlikely, may propel both indices higher.

The sideways rectangular consolidations (marked by blue dotted lines on charts below) of both indices are now in their 4th month. The longer the consolidation, the stronger the eventual break out. Though an upward break out is the likely outcome, it may be prudent to await the break out because rectangles can sometimes form reversal patterns.

BSE Sensex index chart


The upper boundary of the rectangle pattern on the Sensex chart - at about 21350 – has been strongly defended by bears. Despite several recent tests, bulls have failed to overcome the resistance. Bears may try to get the upper hand in the near term.

Daily technical indicators are in bullish zones, but exhibiting weakness in upward momentum. MACD is positive, but moving down towards its rising signal line. ROC is also positive, but looks ready to cross below its rising 10 day MA. RSI has turned down from the edge of its overbought zone. Slow stochastic is about to drop down from its overbought zone.

Any dip can be a good adding opportunity. The long-term bull market is intact.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty is consolidating sideways within a rectangle pattern. However, it is trading above both weekly EMAs (which are rising) and the blue up trend line – indicating a long-term bull market.

For the second straight week, the index closed higher. But the weekly bar has formed a ‘shooting star’ pattern (in candlestick terminology), which can have bearish implications. Also, weekly volumes indicate that bears may be gaining the upper hand.

Weekly technical indicators are in bullish zones, but showing weakness. MACD is positive, but moving sideways and becoming merged with its signal line. ROC has crossed above its 10 week MA in positive territory, but its upward momentum is slowing down. RSI has fallen to its 50% level. Slow stochastic is falling towards its 50% level.

The sideways consolidation may continue some more.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are consolidating within ‘rectangle’ patterns. Both indices are in long-term bull markets, so the eventual break outs from the rectangles are expected to be upwards. This is a good opportunity to gradually add fundamentally strong stocks to your portfolios. If you are unable to choose the right stocks, invest in an established large-cap fund. 

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