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

An appreciating Rupee, falling inflation, contracting Current Account Deficit, growing exports and concerns about economic slowdown in China and many emerging markets have turned India into a favoured destination for overseas investors.

RBI extended the deadline for implementation of Basel III capital raising norms by a year. PSU banks celebrated the news. With inflation coming under control, RBI is expected to maintain status quo on interest rates.

Both Sensex and Nifty indices are at life-time highs – in ‘blue sky’ territory with no known resistances. Does that mean they will continue to move higher? For how long? Till elections, or even after that? Let us see whether the price charts can throw some light.

BSE Sensex index chart

The daily closing chart pattern of Sensex shows an upward break out from the rectangular consolidation zone, followed by a further consolidation within a small ‘falling wedge’ pattern and another up ward break out from the wedge.

Rectangles have measuring implications: the height of the rectangle (about 1150 points) should be added to the top level of the rectangle (about 21350) to arrive at a minimum target of 22500. Sensex is just 160 points short of the target.

Technical indicators are bullish, but looking overbought. MACD has re-entered its overbought zone. ROC has crossed above its 10 day MA in positive zone. RSI has dropped to the edge of its overbought zone. Slow stochastic is inside its overbought zone.

All four indicators are showing negative divergences by failing to reach new highs with Sensex. A correction or consolidation can be expected. The pause will enable the index to move even higher.

With macro-economic conditions turning favourable, even a fractured mandate in the elections may not cause a huge fall.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty has thumbed its nose at all the naysayers to soar to lifetime highs. The 5 months long consolidation within a ‘rectangle’ had given a good opportunity to accumulate fundamentally strong stocks. Hope blog readers paid heed to my exhortations to buy.

The upward break out from the rectangle has measurement implications: the height of the rectangle (about 400 points) should be added to the top level of the rectangle (about 6350) to arrive at a minimum target of 6750. Nifty is just 50 points short of the target.

Technical indicators are bullish, but looking overbought. MACD is rising above its signal line towards its overbought zone. ROC has crossed above its 10 day MA and about to enter its overbought zone. RSI has reached the edge of its overbought zone. Slow stochastic is inside its overbought zone.

A correction or consolidation may be around the corner. Remember that markets can stay overbought for a long time – so don’t be surprised if Nifty continues to rise. Whatever you do, don’t try to short the index when bulls are in complete control.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are in ‘blue sky’ territory with no known resistances. If you have invested at lower levels, enjoy the ride but maintain a trailing stop-loss to protect profits. If you have that ‘missed the bus’ feeling, suppress your impulse to jump in. Most of the low-hanging fruits have been plucked. Be very selective about the stocks you do choose to enter.