BSE Sensex and NSE Nifty 50 index chart patterns – Feb 28, 2014

Bad news on the economic front keeps piling up. Contraction in industrial production and slowdown in capital expenditure due to high interest rates led to a lower than expected Q3 GDP growth rate of 4.7%. Fiscal deficit during Apr ‘13 to Jan ‘14 has already exceeded the target for the whole year.

The good news is that the services and export sectors are growing. In a bid to boost production, the government has cleared a slew of projects under the ministries of road and shipping. That may not have much effect on GDP growth for this financial year.

For the month of Feb ‘14, FIIs were net buyers once again after being net sellers in Jan ‘14. Even DIIs were net buyers for the first time since Aug ‘13. The net buying by FIIs and DIIs contributed to the strong rallies visible in Feb ‘14 on Sensex and Nifty charts below.

BSE Sensex index chart

Sensex overcame the resistance from the 20750 level – which is the mid-point of the rectangle – to move up close to the top edge of the ‘rectangle’ within which it has been consolidating for 5 months.

The index is trading above all three EMAs and is back in bull territory. The 20 day EMA has formed a bullish rounding bottom pattern and is ready to cross above the 50 day EMA.

Daily technical indicators are bullish, but looking overbought. MACD is rising sharply above its signal line in positive territory. The signal line has formed a bullish ‘rounding bottom’ pattern. ROC is moving up towards its overbought zone above its rising 10 day MA. RSI has just entered its overbought zone, where it doesn’t like to stay for long. Slow stochastic is well inside its overbought zone.

Expect some profit booking to emerge as Sensex approaches to test the 21350 level – which is the top edge of the ‘rectangle’. A break out above the rectangle should be accompanied by a significant increase in volumes, otherwise the break out may turn out to be a false one (like in Dec ‘13).

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty is trading above both its 20 week and 50 week EMAs in a bull market and closed more than 120 points higher for the week. Trading volumes remain a concern. Without a pick up in volumes, the rally may taper off as the index approaches the top edge of the ‘rectangle’ (at about 6350).

Weekly technical indicators are turning bullish. MACD is forming a bullish ‘rounding bottom’ pattern in a bid to cross above its falling signal line in positive zone. ROC is facing resistance from its falling 10 week MA at the ‘0’ line. RSI has moved above its 50% level. Slow stochastic has climbed towards its 50% level, but hasn’t crossed it yet.

Expect the index to test the upper edge of the ‘rectangle’ in an effort to break out above it. If it does break out, there should be a spurt in volumes. Otherwise the break out may be a ‘false’ one (like in Dec ‘13).

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices seem to be getting ready to break out above their respective ‘rectangle’ consolidation patterns. An increase in trading volumes will be the key. Both indices are in long-term bull markets. Use dips to add fundamentally strong stocks.