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Saturday, April 5, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 04, 2014

RBI maintained status quo on interest rates – as was widely expected by economists and analysts. The stock market treated it as a non-event. With predictions of El-Nino doing the rounds, a weak monsoon during Jun-Sep period is a possibility.

If the predictions do come true, food prices are going to move up. RBI may have no option but to raise interest rates once again to contain inflation. Whether an NDA-led government comes to power or not, a rapid turnaround in the economy is unlikely.

That is the bad news. The good news is that valuations are still at reasonable levels even though Sensex and Nifty are trading near life-time highs. FII buying has not only improved bullish sentiments, it has helped India’s forex reserves to cross the $300 Billion mark after many months.

BSE Sensex index chart


The daily bar chart pattern of Sensex met the upward target of 22500 (mentioned in last week’s post), and moved higher to touch a new intra-day high of 22621 on Apr 3 ‘14. But the index formed a ‘reversal day’ pattern (higher high, lower close) and started to correct.

Daily technical indicators are correcting overbought conditions, but remain in bullish zones. MACD is touching its rising signal line inside its overbought zone. ROC is about to cross below its 10 day MA in positive territory. RSI and Slow stochastic are inside their respective overbought zones, but have started falling.

A few more days of correction will be good for the technical ‘health’ of the Sensex chart, allowing it to move even higher.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty touched a new intra-week high of 6777 – meeting the upward target of 6750 – but formed a ‘reversal week’ pattern (higher high, lower close) on strong volumes. Some correction or consolidation is likely.

Weekly technical indicators are looking overbought. MACD has just entered its overbought zone. ROC is at the edge of its overbought zone. RSI has slipped down after failing to enter its overbought zone. Slow stochastic has been inside its overbought zone for 4 weeks, but showing signs of turning down.

The likely dip can be used to add selectively. It is also a good time to get rid of under-performing small-caps that have started to move up sharply.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are correcting overbought conditions after touching new highs. Both indices are in long-term bull markets – so avoid any impulse to short the indices.

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