BSE Sensex and NSE Nifty 50 index chart patterns – Feb 07, 2014

Q3 results season is coming to an end. On aggregate, results have been better than expected – though margin pressure is quite evident. IT, Pharma, FMCG have continued to do well. So have private banks. Auto sector is in a slump – particularly commercial vehicles. PSU banks, metals, cement, construction companies are lagging behind.

In a reversal of roles last week, FIIs were net sellers to the tune of Rs 2700 Crores while DIIs were net buyers to the tune of Rs 3200 Crores. Both Sensex and Nifty indices received good support at the lower edge of the rectangles within which they have been trading for the past 4 months.

Is the correction over, or is it just a lull before the next selling storm? Sensex and Nifty charts (below) are showing patterns that indicate that the correction may continue a bit longer but an intermediate bottom may be in place.

BSE Sensex index chart

The good news for bulls is that Sensex breached the lower edge of the rectangle and the 200 day EMA only on intra-day basis, and managed to close above the two support levels during the past week. That means the sideways consolidation within the rectangle continues.

The bad news is that the rally from the week’s low of 19963 (touched on Feb 4 ‘14) has been weak. The index is trading below its falling 20 day and 50 day EMAs. Unless strong buying support emerges soon, the index may drop below the rectangle and the 200 day EMA into bear territory.

Daily technical indicators are bearish and looking oversold. MACD is below its signal line and deep inside negative territory, but has stopped falling. ROC is negative, but trying to cross above its falling 10 day MA. RSI has spent the entire week inside oversold zone where it usually doesn’t stay long. Slow stochastic is trying to emerge from its oversold zone.

The dip is providing a good opportunity to add fundamentally strong stocks to your portfolio. But remember to maintain stop losses in case bears resume their attack.

NSE Nifty 50 index chart

The long-term weekly bar chart pattern of Nifty breached the lower edge of the rectangle and its 50 week EMA intra-week, but closed above the support levels by the end of the week. The sideways consolidation within the rectangle remains intact. So does the long-term bull market.

In candlestick parlance, the weekly bar of Nifty has formed a ‘dragonfly doji’. That means the index may have formed an intermediate bottom at last week’s low of 5933. Which way is Nifty going to move next? Any one who can answer that question should make some serious money!

Weekly technical indicators are looking bearish. MACD is falling below its signal line in positive territory. ROC has dropped below its 10 week MA into negative territory. Both RSI and Slow stochastic have fallen below their respective 50% levels. The correction may not be over yet.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are correcting within ‘rectangle’ patterns. Both indices are in long-term bull markets. This is a good opportunity to gradually add fundamentally strong stocks to your portfolios. But maintain stop-losses in case the lower edges of the rectangles get convincingly breached.