BSE Sensex and NSE Nifty 50 index chart patterns – Dec 12, 2014

FIIs turned heavy sellers of equity during the last 2 days of the week. DII’s turned buyers, but could not keep pace with FII selling. Both Sensex and Nifty indices suffered sharp falls that wiped out more than 50% of the gains made from their respective Oct ‘14 lows.

The IIP number for Oct ‘14 unexpectedly dropped to –4.2%, its lowest in 3 years. In Sep ‘14, IIP was at 2.5%, while in Oct ‘13 it was –1.2%. A sharp decline in manufacturing output – the lowest in nearly 6 years – was the main culprit.

Good news came in the form of lower CPI inflation of 4.4% in Nov ‘14 – compared to 5.5% in Oct ‘14. It was the fourth straight monthly fall. Coupled with a low IIP, the clamour for an interest rate cut will increase.

BSE Sensex index chart

 

Sensex dropped below its 50 day EMA but is seeking support from the 27350 level (which was the previous top in Sep ‘14). The next support is at 26300, which corresponds to its Jul ‘14 top. The index has so far corrected 1500 points (5.2%) from its Nov ‘14 top. Can it correct even more?

Three of the four technical indicators – ROC, RSI, Slow stochastic – have entered their respective oversold zones. MACD is about to enter negative territory. The downward momentum of all four indicators appear strong.

Some more correction seems likely, but the index may not breach the 26300 level. Why? The 61.8% Fibonacci retracement level of the entire rise from the Oct ‘14 low of 25911 to the Nov ‘14 top of 28822 is at about 27000. The index may find support in the zone between 26300-27000.

If you were waiting to enter after a correction, that opportunity has arrived.

NSE Nifty 50 index chart

Nifty lost more than 300 points for the week, and is close to the support level of 8180 (corresponding to its Sep ‘14 top). The next stronger support is at 7840 – its Jul ‘14 top. Up trend line 2 (in dark blue) is just below 7840.

Volumes were lower for the week despite the sharp fall in the index. The 20 week EMA (in light blue) is at 8070. It has provided support during the past 9 months, and may do so again.

Weekly technical indicators are correcting overbought conditions, but remain in bullish zones. MACD has crossed below its signal line inside its overbought zone. ROC has crossed below its 10 week MA in positive territory. RSI has dropped from its overbought zone. Slow stochastic is about to do the same.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices faced sharp bull market corrections during the week. Both indices are near support levels – so a big crash can be ruled out for now. Some stocks have corrected 10-20% from their recent tops – making them good SIPping targets.