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Sunday, December 7, 2014

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

Sensex and Nifty indices took a much-needed breather after rallying for six straight weeks. FIIs were net buyers of equity worth Rs 850 Crores during the week, but were net sellers on Monday and Friday. DIIs were net buyers on Friday, but were net sellers of equity worth Rs 1170 Crores during the week.

As expected by most market analysts, the RBI Governor left interest rates unchanged – but kept the door open for a rate cut early next year if inflation continues its downward trajectory. Some banks have reduced their longer term fixed deposit rates, as there seems to be adequate liquidity in the banking system.

A 5% equity disinvestment by the government in SAIL got oversubscribed by 2 times. More disinvestments are in the pipeline – including 10% in Coal India and 5% in ONGC – in the current fiscal year ending Mar ‘15. The divestments, and sliding oil price should help in considerably reducing India’s twin deficits.

BSE Sensex index chart

SENSEX_Dec0514 

Sensex consolidated sideways and closed 0.82% lower for the week. Negative divergences in all four technical indicators – observed in last week’s analysis – had provided advance warning of a possible correction or consolidation. Some investors were disappointed by the lack of an interest rate cut by the RBI, and resorted to profit booking.

Daily technical indicators have corrected overbought conditions, and are still in bullish zones. But their downward momentum is hinting at a continuation of the consolidation. The index has formed a small ‘double top’ pattern that can lead to a test of support from (or a drop below) the rising 20 day EMA.

Sensex is trading above all three EMAs in a long-term bull market. Consolidations and corrections improve the technical ‘health’ of the market and enable adding or entry opportunities. Anticipating corrections and benefitting from them are part of the learning process of becoming a better investor.

NSE Nifty 50 index chart

Nifty_Dec0514 

Nifty closed 50 points lower for the week and formed a small ‘reversal week’ pattern (higher high, lower close) that stalled the 6 weeks long rally. The index is trading above its two weekly EMAs and the blue up trend line in a long-term bull market.

All four technical indicators are inside their respective overbought zones. However, three of them – MACD, RSI, Slow stochastic – are either moving sideways or starting to slide down. ROC is the only one showing increasing upward momentum.

Volumes were strong on a ‘down’ week, which means some more selling or profit booking may be on the cards. That may improve technical conditions for the sustainability of the bull rally.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices took a pause last week after soaring to touch new lifetime highs. No need to be afraid of a big crash. Take part profits, or set a trailing stop-loss – if that will help you to sleep better. Riding out corrections in bull markets will help to build wealth for the long-term.

2 comments:

Unknown said...

You are poring over an astrology chart in your cover foto in a restaurant or is it a menu card?? I follow your blog..Sincere Regards
Atif ...Qatar

Subhankar said...

Thanks for visiting my blog, Atif.

That's a menu card in a Chinese restaurant. (Most astrology charts are useless - because they do not take into account the gradual tilt in earth's rotational axis.)