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Saturday, October 11, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 10, 2014

FIIs were net sellers during another holiday-shortened week. Net buying by DIIs could not quite match up to FII selling. Both Sensex and Nifty closed 1% lower for the week. Poor growth numbers from Europe spooked FII sentiments.

The IIP number was a disappointing 0.4% for August ‘14 – much below consensus estimate of 2.4%. Manufacturing growth remains worrisome. Negative growth of capital goods and consumer durables sectors show that demand is yet to catch up with improved business sentiments.

Infosys declared good results for Q2, and threw in a surprising 1:1 bonus for shareholders. TCS, HCL Tech, Tech Mahindra are also expected to announce better results. Will Q2 results of India Inc. and state election results in Maharashtra and Haryana provide a much-needed pre-Diwali rally? Let us see what the charts foretell.

BSE Sensex index chart

SENSEX_Oct1014

The daily bar chart pattern of Sensex dropped to test support from the post-election up-trend line (marked UL3). The support held – just as it had done in Jul ‘14 and Aug ‘14. But this time looks a bit different as the up trend hasn’t resumed after the test.

Daily technical indicators are in bearish zones. MACD is negative, and falling below its signal line. ROC is also negative and facing resistance from its falling 10 day MA. RSI briefly moved above its 50% level, only to fall below it. Slow stochastic is struggling to emerge from its oversold zone. Expect some more correction or consolidation before the up move resumes.

Sensex is trading above UL3 and well above its rising 200 day EMA. The long-term bull market is under no immediate threat.

NSE Nifty 50 index chart

Nifty_Oct1014

The weekly bar chart pattern of Nifty closed 86 points lower for the week. In the process, it breached the post-election up-trend line (marked UL3) on intra-week as well as closing basis.

Is the up-trend over? Application of the 3% ‘whipsaw’ rule suggests that the breach of UL3 is not technically significant yet. But a breach is a breach, and should be respected.

Why the divergence with Sensex chart – where the UL3 has not been breached yet? The reason is the difference in the index constituents (shares of 30 companies comprise Sensex but shares of 50 companies comprise Nifty).

Weekly technical indicators are still in bullish zones, but showing bearish signs. MACD is falling below its signal line inside its overbought zone. ROC is below its 10 week MA in positive zone, and trying to move up. RSI has dropped to its 50% level. Slow stochastic is falling towards its 50% level.

Some more correction or consolidation is likely. The long-term bull market remains intact, as Nifty is trading above its two weekly EMAs and longer-term up-trend line 2.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are in corrective modes. The long-term bull market is intact, so don’t panic and sell if the indices correct some more. Watch Q2 results closely for adding outperformers to your portfolio.

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