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Saturday, March 15, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Mar 14, 2014

There was good news and bad news last week. First the good news. Both CPI and WPI inflation are coming down - due to lower food prices and higher base effect. The IIP number was marginally positive at 0.1% – not really good, but better than being negative. FIIs were net buyers through the week.

Now the bad news. Russia is refusing to vacate the Crimea region of Ukraine and is trying to annex the region – earlier a part of Russia - through a ‘referendum’. USA and EU have threatened economic sanctions, which have led to a rise in gold’s price and a drop in global stock markets. DIIs were net sellers through the week, and almost matched FII buying.

Several pre-election polls are pointing to a NDA victory – which the market has discounted already. In case of a likely coalition government, there is a possibility that NaMo may not be acceptable as the PM. The current bickering about seat allotments and accommodation of tainted leaders is a sign that all is not well within the BJP.

BSE Sensex index chart

SENSEX_Mar1414

The following remarks were made in last week’s analysis of the daily bar chart pattern of Sensex: “Such sharp break outs are often followed by a pullback to the break out point – which is the top of the rectangle (at about 21400). The pullback – if it occurs – will be a buying opportunity.”

The pullback is in progress and is providing a buying opportunity for those who may have missed out on buying on the upward break out from the rectangle a week ago. Note that the 20 day EMA is at the same level as the top of the rectangle – which should provide good support to the index next week.

Daily technical indicators have started correcting from overbought conditions. MACD is inside its overbought zone, but is in the process of turning down. ROC has crossed below its 10 day MA in positive territory. RSI is inside its overbought zone and forming a small double-top reversal pattern. Slow stochastic is also inside its overbought zone, but has started to slide down.

A test of support from the top of the rectangle is on the cards. If you are still waiting for a big crash to buy at much lower levels, you may have a long wait.

NSE Nifty 50 index chart

Nifty_Mar1414

The following comments were made in last week’s analysis of the weekly bar chart pattern of Nifty: “Though Nifty has touched a lifetime high, all four technical indicators are below their Nov ‘13 highs. The negative divergences may lead to a corrective pullback towards the top of the rectangle, which should be used as an adding opportunity.”

After three straight higher weekly closes that culminated in a lifetime high, Nifty’s weekly bar formed a ‘reversal week’ pattern (higher high, lower close) backed by strong volumes. A pullback towards the top of the rectangle has started.

Weekly technical indicators are looking bullish. MACD has crossed above its signal line in positive territory. ROC has crossed above its 10 week MA into positive zone. RSI is above its 50% level, but turning down. Slow stochastic has entered its overbought zone.

Use the pullback to add fundamentally strong stocks to your portfolio.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have started pulling back after breaking out above their respective ‘rectangle’ consolidation patterns. Both indices are in long-term bull markets and should continue to move higher. Use dips to add fundamentally strong stocks. If you are unsure of how to pick stocks, buy units of a good balanced fund.

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