Sunday, June 8, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 06, 2014

When it comes to stock market investing, otherwise rational human beings start showing quirky behaviour. When the stock indices seemed down and out in Aug ‘13, no one was interested in buying and market sentiment was full of doom and gloom.

Now that Sensex and Nifty have hit all-time highs, investors are worrying about a big crash and selling at every rise. ‘Recency bias’ you think? The last time the indices corrected in a major way was after the ‘diamond’ reversal pattern formed during Oct - Dec ‘10.

A stock index rising in a long-term bull market is like a very large ship cruising at full speed. It may make small changes in direction quickly but takes a much longer time to turn around. So, use dips to add. If you are selling at every rise, you may not be able to get back in – except at higher prices.

BSE Sensex index chart


The upward ‘gap’ formed on the Sensex daily bar chart on May 13 continues to remain unfilled. Looks like it may not get filled anytime soon, and should act as a support to future down moves.

The index had entered a sideways consolidation within a symmetrical triangle pattern after touching a new high on May 16. A break out above the triangle with a ‘gap’ (on Fri. Jun 6) propelled the index to new all-time intra-day and closing highs.

Daily technical indicators are in bullish zones, but looking overbought. All four are showing negative divergences by failing to touch new highs with the index. A pullback towards the top of the triangle is likely. (A drop back inside the triangle will negate the triangle pattern.)

The vertical distance between the 50 day and 200 day EMAs is widening. That is also a sign of overbought conditions, which can lead to some correction or consolidation. So, stay invested but don’t be exuberantly bullish.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty ignored the previous week’s reversal bar pattern and rose to touch new intra-week and weekly closing highs. Reversal bars work best when they touch intermediate highs.

Weekly technical indicators have resumed their upward moves inside their respective overbought zones. However, barring MACD the other three – ROC, RSI, Slow stochastic – are showing negative divergences by failing to touch new highs with the index.

Volumes are still high, but have started to slide a bit. Some correction or consolidation can be expected, but the positive bias should remain till the budget in mid-July.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have closed at new lifetime highs and should continue to move higher. This is not a great time to enter, but you can always start a SIP in a good index or balanced fund.

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