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

In a full week of trading, FIIs were net buyers of equity while DIIs were net sellers. FIIs have so far bought equity worth Rs 7600 Crores in Nov ‘14. DIIs have sold worth Rs 5200 Crores. That may explain why both Sensex and Nifty have traded within narrow bands, but with upward biases – touching new highs in the process.

Reportedly, PSU insurance companies have been selling. But why? A probable answer is that they are moving to cash to enable them to subscribe to upcoming PSU divestments/FPOs in the pipeline.

Falling inflation and a better-than-expected IIP number is increasing the pressure on the RBI governor to cut interest rates. But there is a possibility that inflation may rise from Jan ‘15 as the effect of a higher base starts wearing off. So, a rate cut is unlikely before Feb ‘15 – provided inflation remains benign.

BSE Sensex index chart

The daily bar chart pattern of Sensex traded within a 360 points range with an upward bias – touching new intra-day (28126 on Nov 12) and closing (28047 on Nov 14) highs during the week. All three EMAs are rising, and the index is trading above them in a long-term bull market.

The ‘gap’ formed on the chart 6 months ago has remained unfilled, and is becoming increasingly irrelevant for technical analysis purposes with each passing day. So why is it still being drawn on the chart? As a reminder of where the floor of the current rally is, in case there is a stronger correction at some point. (Near-term support at 27350 has been marked with blue dotted horizontal line.)

Technical indicators are in bullish zones, but giving mixed signals. MACD is rising above its signal line, but its upward momentum is waning. ROC is showing negative divergence by correcting overbought conditions and crossing below its rising 10 day MA. RSI and Slow stochastic are well inside their respective overbought zones, but showing some signs of slipping down.

There is no need to jump in when the index has closed at a lifetime high. Stay invested, and use dips to add to existing holdings.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty touched new intra-week (8415) and closing (8390) highs during the week, gaining about 50 odd points. The index is trading above its weekly EMAs and Up trend line 2 in a long-term bull market. Volumes have started picking up, which is a sign that the rally may sustain.

Weekly technical indicators are looking overbought again. MACD has just crossed above its falling signal line inside overbought zone. ROC has slipped down from its overbought zone, and crossed below its 10 week MA. RSI and Slow stochastic have re-entered their respective overbought zones.

Note that all four indicators are showing negative divergences by failing to touch new highs with the index. Some more consolidation is possible before the up move resumes in earnest. Near-term support at 8180 has been marked with blue dotted horizontal line.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices touched new highs while consolidating sideways in long-term bull markets. Stay invested. Buy only if you find compelling value. Ignore SMS tips about unknown stocks and sure-shot multibaggers. If those ideas are so great, they would not be given away for free!