BSE Sensex and NSE Nifty 50 index chart patterns – Sep 05, 2014

FIIs continued their buying spree, putting in a net Rs 4500 Crores in equities during the week. DIIs were net sellers of Rs 2100 Crores. Both Sensex and Nifty touched new lifetime highs, crossing psychological levels of 27000 and 8000 respectively.

PM had a successful tour of Japan, receiving pledges for huge investments. The nuclear deal signed with Australia was another feather in his cap. Business sentiment is definitely improving - though it has not led to credit growth or M&A activity yet. However, several proposals from overseas investors to pick up equity stakes in Indian companies are awaiting approval.

Q2 (Sep '14) results and upcoming elections in a few states may provide the next sentiment boost to the market - as if the market needs any additional boost! A deficient monsoon with floods in certain pockets is likely to keep food costs high. That may prevent RBI from lowering interest rates.

BSE Sensex index chart

The daily bar chart pattern of Sensex crossed and closed above the 27000 level for the first time ever. The moderate correction during the last 2 days of the week helped to correct overbought conditions. All three EMAs are rising in tandem and Sensex is trading above them in a long-term bull market.

Daily technical indicators have started correcting from their respective overbought zones, after showing negative divergences by failing to touch new highs with the index. MACD is above its signal line but has stopped rising. ROC is just below its 10 day MA in positive zone. RSI has started falling inside its overbought zone. Slow stochastic is also falling inside its overbought zone. A bit more correction or consolidation is possible.

This is not the time to feel excited or nervous. Keep calm and be patient. Hold on to your good stocks. Book part profits in small-cap or mid-cap stocks that have run up a lot. Redeploy by adding to your existing holdings.  

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty crossed and closed above the 8000 level. It was the fourth straight week of gains. The last time the index managed 4 continuous weeks of gains was a year back.

Weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index. Some correction or consolidation is likely; that will enable the index to rise higher.

More than 325 stocks touched their 52 week highs on Fri. Sep 5 - showing increasing bullishness, but not yet showing signs of euphoria. That doesn't mean one should not be a little circumspect near life-time highs. Always remember that capital protection should get a higher priority than profit maximisation.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices again touched new lifetime highs last week. FIIs and DIIs are playing bulls and bears respectively, with FIIs having an advantage. Corrections can and will occur - no need to worry about them. As long as the overall trend is up, and it clearly is, use corrections to add to existing positions. The way to make money in bull markets is to get rid of dud shares and let profits ride in good shares.