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Saturday, October 18, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 17, 2014

For the third straight holiday-shortened trading week, FIIs remained net sellers of equity. Their cumulative net selling this month has crossed Rs 6500 Crores. DIIs have been net buyers on all 9 trading days in Oct ‘14. Their cumulative net buying is a bit less than Rs 4800 Crores.

The euphoria in the stock market after BJP’s thumping victory in the Lok Sabha election has dissipated. Both Sensex and Nifty have breached their respective post-election up-trend lines. Is the bull market coming to an end?

The short answer is: Not yet. Why? Two technical reasons. First, both indices are trading well above their long-term moving averages. Second, both indices have corrected a little over 40% of their entire gains from the lows made on May 16 ‘14 (the day Lok Sabha election results were declared) – which is less than the Fibonacci retracement level of 50%.

BSE Sensex index chart

Sensex_Oct1714

The daily bar chart pattern of Sensex dropped and closed below the post-election Up trend line 3 on Thu Oct 16 ‘14, but formed a ‘reversal day’ pattern (lower low, higher close) on Fri Oct 17 ‘14.

Before bulls get too excited and think that the correction from the Sep 8 ‘14 intra-day top of 27355 is over, it must be pointed out that Friday’s trading action may be just a pullback to the up-trend line. Such pullbacks are usually selling opportunities.

Daily technical indicators are in bearish zones, but showing faint signs of recovery. MACD is below its signal line, and both lines are sliding deeper in negative territory. ROC has moved up towards its falling 10 day MA in negative zone. RSI dropped briefly inside its oversold zone for the first time since Feb ‘14, before bouncing up. Slow stochastic has re-entered its oversold zone.

Note that ROC and Slow stochastic are showing positive divergences by failing to drop lower with the index. The index may consolidate a bit before it can resume its up move.

If BJP wins majority in the state elections of Maharashtra and Haryana (results to be announced on Sun Oct 19 ‘14) – as one exit poll has predicted – the prevailing bearish sentiment may change quickly.

NSE Nifty 50 index chart

Nifty_Oct1714

The weekly bar chart pattern of Nifty closed lower for the 4th straight week, and below UL3 (its post-election up-trend line) for the 2nd straight week.

In case bulls are getting disheartened and thinking about selling out, note that the index has received good support from its 20 week EMA. If the index corrects some more, expect stronger support from Up trend line 2 (currently at 7500).

Weekly technical indicators are in bullish zones, but giving mixed signals. MACD is below its signal line, and about to drop from its overbought zone. ROC is below its 10 week MA in positive territory, but showing positive divergence by not falling lower with the index. RSI is also showing positive divergence by bouncing up from its 50% level. Slow stochastic is falling towards its 50% level.

Nifty is trading above its two weekly EMAs and the longer-term up-trend line 2. That means the long-term bull market is intact despite 4 weeks of correction.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have breached their post-election up-trend lines. However, the long-term bull market is intact. Q2 results declared so far have thrown up a handful of positive surprises. Election victory for the BJP in Maharashtra and Haryana can turn market sentiments in favour of bulls. Expect more selling if BJP fails to win a majority in either state.

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