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Sunday, July 13, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Jul 11, 2014

The two budgets – railway and finance - are out of the way. As expected, both showed pragmatism rather than populism. The stock market used them as negative triggers and sold off. Even some good news was ignored.

The increases in individual tax exemption and 80C investments by Rs 50000 each will put extra cash in the hands of all tax payers. The increase in the PPF limit should be utilised by all investors who do not have the benefit of company provident funds.

The IIP number was a positive surprise. So was the Q1 result of Infosys. On Fri. Jul 11, FIIs and DIIs were both net sellers. On Thu. Jul 10, both were net buyers but still the indices fell. Go figure! Excess froth was building up – particularly in unknown small-caps. Better sense should prevail – thanks to the correction.

BSE Sensex index chart

SENSEX_Jul1114

The daily bar chart pattern of Sensex has dropped below its 20 day EMA, which is bearish in the near term. The index is seeking support from the 24900 level, which has acted as a support/resistance level for the past 2 months.

The 50 day EMA is about 200 points lower, and should provide support if 24900 gets breached on the downside. The 150 odd points ‘gap’, formed on May 13 ‘14 will be a stronger support level if the 50 day EMA gets breached. Even if the ‘gap’ gets filled, the index should resume its up move thereafter.

In last week’s analysis, combined negative divergences visible on all four technical indicators had warned about a consolidation or correction. Daily technical indicators are turning bearish, and again showing negative divergences – by dropping below their respective lows touched on May 30 ‘14. The correction isn’t over yet.

Note that the index is trading above its 50 day and 200 day EMAs in a long-term bull market. Such corrections provide adding opportunities. But be very selective when choosing stocks.

NSE Nifty 50 index chart

Nifty_Jul1114

The weekly bar chart pattern of Nifty has formed a ‘reversal week’ bar (higher high, lower close) after touching a lifetime high of 7809. In candlestick parlance, a bearish engulfing pattern has formed on increasing volumes.

Observant readers may note that 6 weeks ago (in the week ending on May 30), the index had also formed a ‘reversal week’ bar and a bearish engulfing candlestick on much higher volumes. But the index had continued to move up.

This time it may be different. In the week ending on May 30, the index had not touched a new high. So, Nifty may have begun an intermediate down trend.

Weekly technical indicators are still inside their respective overbought zones, but have started correcting. MACD is beginning to slide down towards its rising signal line. ROC has dropped to touch its 10 week MA. RSI has fallen to the edge of its overbought zone. Slow stochastic is drifting down inside overbought territory.

Downside support can be expected from 20 week EMA, up trend line 2 (in dark blue) and 50 week EMA. On the daily Nifty chart (refer this post), there is a 47 points ‘gap’, which is just below the current level of the 20 week EMA and above up trend line 2. The correction is expected to receive good support from the ‘gap’.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are undergoing bull market corrections after touching new lifetime highs. Use the dip to add. Learn how to choose fundamentally strong small-cap stocks by subscribing to my Monthly Investment Newsletter. A limited number of paid subscriptions are being offered till July 21, 2014.

2 comments:

Karthikraja K said...

24900 typed as 29400.
Plz correct. Thx

Subhankar said...

Typo corrected.

Thanks for pointing it out, Karthik.