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Sunday, June 29, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 27, 2014

The general election results spurred the stock market to new lifetime highs. Annual results of India Inc. are done with. The wheat has been separated from the chaff. The usual culprits – FMCG, Pharma, IT, private banks – have been at the forefront.

The next trigger for the market will be the budget. FIIs are keeping their wallets in their pockets till they hear clear announcements on retrospective taxation (a la Vodafone) and FDI norms. If the government delivers on its promises, another wave of foreign funds will flow in.

Both Sensex and Nifty have traded in consolidation patterns for the past three weeks. The indices touched new lifetime highs, but have not accelerated away – giving good opportunities for accumulating fundamentally strong stocks.

BSE Sensex index chart


Sensex has been consolidating within a ‘flag’ pattern for the past three weeks. The pattern that had looked like a ‘falling wedge’ earlier, has been redrawn as a ‘flag’. Both patterns have bullish implications. An upward break out is likely.

Note that the index has been receiving support from its 20 day EMA (within the ‘flag’) for the past two trading sessions. A bounce up from here can breach the upper boundary of the ‘flag’.

Technical indicators are looking bearish. MACD is positive, but falling below its signal line. RSI and Slow stochastic are sliding below their respective 50% levels. ROC is indicating some bullishness by trying to emerge from negative territory.

The consolidation within the ‘flag’ may continue a bit longer. The back-to-back consolidations within a ‘symmetrical triangle’ and a ‘flag’ has helped improve the technical ‘health’ of the chart. They also provided opportunities to enter.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty has been trading within a bullish ‘flag’ pattern for the past three weeks, from which the likely break out is upwards. As mentioned in last week’s update, a new up trend line has been drawn by connecting the Aug ‘13 and Feb ‘14 lows.

The long-term up trend line (from the Dec ‘11 low) has lost its near-term relevance because Nifty is trading too far above it. This new trend line – currently located between the 20 week and 50 week EMAs will guide the next leg of the up move.

Despite the consolidation, weekly technical indicators have remained within their respective overbought zones - except ROC, which has crossed below its 10 week MA and is just below is overbought zone. Remember that a market can stay overbought (or oversold) for long periods.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are continuing their consolidations within bullish ‘flag’ patterns, after touching new lifetime highs. Bull market corrections/consolidations provide adding opportunities. Choose stocks that have provided consistent and steady returns instead of seeking mythical multibaggers.

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