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Sunday, August 31, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 28, 2014

For the first time since Feb ‘14, both FIIs and DIIs were net buyers of equity during the month. Feb ‘14 had a cumulative net buying of about Rs 2100 Crores by FIIs and DIIs. Cumulative net buying in Aug ‘14 exceeded Rs 5000 Crores.

No wonder both Sensex and Nifty touched new lifetime highs at the end of a holiday-shortened week. The bull charge shows no signs of abating, though index valuations are no longer cheap. However, valuations are still reasonable – around the long-term averages.

The 5.7% GDP growth number was the highest in 9 quarters – giving some respite to the NDA government, which has been criticised by some FIIs for not moving fast enough in announcing reform measures. A deficient monsoon – despite floods in certain areas – is a lingering concern.

BSE Sensex index chart

The upward ‘gap’ formed on the daily bar chart pattern of Sensex on May 13 has not been filled yet, and it doesn’t look like getting filled any time soon. Why? Because the new up trend post-elections is moving further away from the ‘gap’ with each trading day.

The up trend line 2 is about to cross above the ‘gap’, with the 200 day EMA following suit. They are likely to provide a strong line of defence above the ‘gap’. The bull rally for the past 12 months had frequent but small corrective moves that have kept the chart technically ‘healthy’ and prevented a big crash (expected by some Wave theorists).

Technical indicators are in bullish zones. RSI and Slow stochastic are in their overbought zones. MACD, ROC and Slow stochastic are showing negative divergences by failing to touch new highs with the index.

Expect the rally to continue – with intermittent corrective moves. Use the rally to get rid of junk. Invest the proceeds by adding to existing holdings instead of looking for new ideas. Hold on to your good stocks with trailing stop-losses.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty closed the week at a new lifetime high of 7954, and is giving indications that it wants to climb even higher. Sliding volumes during the past 3 months remain a concern, as bull rallies require volume support to sustain.

Weekly technical indicators are either inside or near their overbought zones – but that has been the case for the past 4-5 months. Just goes to show that a market index can remain overbought for long periods in a bull market.

Another indicator of bull domination is the number of stocks that are at or near their 52 week highs. More than 200 stocks touched their 52 week highs on Thu Aug 28. Snowman Logistics IPO was oversubscribed multiple times despite stiff pricing. Expect more IPOs to hit the market soon.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices touched new lifetime highs once again. Periodic corrections have kept charts of both indices technically ‘healthy’. Curb the urge to book small profits. Patience is the key to making large gains in bull markets.

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