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Sunday, June 1, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – May 30, 2014

The stock market was in a corrective mode through the week, with both Sensex and Nifty losing ground. The GDP number for 2013-14 was marginally higher than the previous year at 4.7%, but marked the second straight year below the 5% mark. The economy appears to have bottomed out.

Despite some recent profit booking, FIIs were net buyers of almost Rs 15000 Crores in equities for the month of May ‘14. DIIs were net sellers of Rs 4600 Crores. After the sharp price spurt from May 9 to May 16, both indices entered a sideways consolidation that has corrected overbought conditions.

Corrections and consolidations are essential ingredients of index movements. Such pauses in bull markets improve the technical ‘health’ of chart patterns and provide ‘energy’ for the next up move. You can either wait out these corrective moves, or use them to add to existing portfolios.

BSE Sensex index chart


The upward ‘gap’ on Sensex chart formed on May 13 has remained unfilled till date. It is expected to support the index from falling much further. Remember that part or complete filling of the ‘gap’ has bullish implications - the index is supposed to resume its up move thereafter.

Daily technical indicators are correcting overbought conditions. MACD has crossed below its signal line and looks ready to drop from its overbought zone. ROC has dropped sharply below its 10 day MA and is about to enter negative territory. RSI has slipped from its overbought zone. Slow stochastic has dropped to its 50% level.

Some more correction or consolidation is possible. Sensex may test support from the ‘gap’.

NSE Nifty 50 index chart


Nifty’s weekly bar has formed a ‘reversal week’ pattern (higher high, lower close) on strong volumes. The corrective move may continue next week – but a big correction is not expected.

Weekly technical indicators have started correcting overbought conditions, but remain in bullish zones. MACD is well inside its overbought zone, but its upward momentum is slowing down. ROC has dropped towards its 10 week MA inside overbought zone. RSI has formed a small ‘rounding top’ reversal pattern inside overbought territory. Slow stochastic has dropped to the edge of its overbought zone.

Hold existing positions, or use the dip to add.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have been correcting after closing at new lifetime highs in the previous week. Expect the indices to resume their up moves soon. If you want to enter now, start a SIP in a good index or balanced fund instead of trying your luck with individual stocks.

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