Saturday, August 16, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 14, 2014

A holiday-shortened trading week often means both bulls and bears turn circumspect and reduce positions. But last week was a bit different, as FIIs and DIIs turned net buyers. Technically, both indices were at important support levels – so the upward bounce wasn’t a total surprise.

WPI moderated a bit, but CPI inflation rose due to higher food prices. The IIP number was positive, but lower than expected. The ‘green shoots’ of growth are showing signs of withering. PM’s slogan of “Come, make in India” during his Independence Day speech indicates the need for more FDI to kick-start growth.

India’s trade deficit crossed the $12 Billion mark, increasing by $0.5 Billion over the previous month and putting pressure on the Rupee. The unrest in Ukraine and economic sanctions on Russia are beginning to affect Eurozone economies. Stock markets in USA, Europe and even some markets in Asia are trying to recover from sharp corrections. Sensex and Nifty have been comparative outperformers.

BSE Sensex index chart


Sensex bounced up nicely after receiving good support from its 50 day EMA, and is trading above all three EMAs in bull territory. Fears of a big crash have been belied. Wave theorists are scrambling to review their counts – proving once again that it is futile to predict index movements.

Is the index all set to scale new highs? It would appear so from the bullish signals emanating from the technical indicators. MACD is ready to cross above its falling signal line in positive zone. ROC has crossed above its 10 day MA into positive territory. RSI is showing a bit of weakness by moving sideways just below its 50% level. Slow stochastic has climbed sharply above its 50% level.

The index is at the same level that it was on Jul 7 more than 5 weeks back. However, the rising 50 day and 200 day EMAs shows that the up trend is clearly in force. As small investors, we should make the trend our friend, instead of trying to second-guess index movements. Two dips during Jul and Aug provided adding opportunities.

Keep investing your savings regularly according to a plan. Let others worry about why the Sensex is moving up, down or sideways.

NSE Nifty 50 index chart


In last week’s analysis of the weekly bar chart pattern of Nifty, technical signals were used to explain why bulls were at an advantage in the near term. For the third time during the past 14 weeks, the index bounced up after finding support from the lower edge of the upward-sloping channel.

The index is trading above all three weekly EMAs in a long-term bull market. Weekly technical indicators continue to look overbought. MACD has merged with its signal line inside its overbought zone. RSI dropped down from its overbought zone, but looks ready to climb back in. Slow stochastic is moving sideways inside overbought territory.

An index (or stock) can remain overbought for long periods during a bull market. Instead of worrying about a correction, which can happen at any time, stay invested with a trailing stop-loss.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are in long-term bull markets. Periodic corrections should be used as adding opportunities. Both indices are near their all-time highs. It may be better to add to existing positions than to look for new ideas all the time. Selling one stock at a small profit and immediately jumping on to another one is unlikely to provide great returns.


Amit Bose said...

Sir, isnt there negative divergence in RSI of Nifty (both daily & weekly)

Subhankar said...

Good question, Amit.

Negative divergences are visible in all the indicators, which are not moving up with Nifty. Divergences don't always lead to corrections.

Note that Nifty is where it was 5 weeks ago - the divergences may have caused a sideways consolidation.

However, there is no doubt that Nifty continues to trade within the upward-sloping channel, and the long-term trend is up.

rallabandi said...

excellent technicals for beginners and traders.trend is friend.yes.good saying. let us pracice the same in trading times. but can we?

Subhankar said...

@rvr: Thanks for your comments. Trend following is easier for long-term investors.

Minute-to-minute price gyrations tend to confuse inexperienced traders.

Since I don't indulge in short-term trading, I have no idea how easy or difficult it is for traders to practice trend following.