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Saturday, February 7, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Feb 06, 2015

After strong rallies in Jan ‘15, both Sensex and Nifty were in corrective modes during the first trading week of Feb ‘15. As per provisional figures, FIIs were net sellers of equity on all 5 days, for a total of Rs 1100 Crores. DIIs were net sellers during the first 3 days, but their net buying on the last 2 days covered their selling. Both indices closed about 1.6% lower for the week.

Disappointing Q3 results declared so far – particularly by PSU banks – have affected bullish sentiments. There was some good news. India’s forex reserves rose by nearly $6 Billion. The market will be looking forward to GDP, IIP and CPI numbers - to be announced next week. A strong set of numbers can trigger a pre-budget rally.

The outcome of Delhi elections may have some temporary impact on market sentiment. The budget at the end of the month can be a game-changer for bulls if expected pro-market reforms announcements are made. But be prepared for some serious profit booking if the budget doesn’t quite live up to market expectations.

BSE Sensex index chart


The daily bar chart pattern of Sensex has dropped inside the support-resistance zone between 27350 and 28800, where it is seeking support from its 20 day EMA. The 200 day EMA continues its steady rise, with the index trading well above it in a long-term bull market.

All four daily technical indicators have corrected overbought conditions. MACD and RSI are falling, but are still in bullish zones. ROC has entered negative territory. Slow stochastic is also looking bearish by dropping below its 50% level.

Note that all four indicators formed reversal patterns inside their respective overbought zones. MACD and Slow stochastic formed ‘rounding top’ patterns; ROC formed a ‘double top’; and RSI formed a ‘head-and-shoulders’.

Some more correction is likely. But there are no signs yet of a deep correction.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty has corrected for two straight weeks, and is seeking support from the 8630 level (which is the top edge of the support-resistance zone marked by the two blue dotted horizontal lines on the chart).

The 20 week EMA and the ‘Up trend line 2’ are both within the support-resistance zone, and should provide stronger support in case the index corrects some more. Volumes were strong on a down week – which means bears are trying to wrest control.

Weekly technical indicators are in bullish zones, but looking a bit bearish. MACD is entangled with its signal line, just below the overbought zone. ROC has crossed below its 10 week MA, and is poised to enter negative territory. RSI has dropped from its overbought zone. Slow stochastic is about to do likewise.

The index is trading above both its weekly EMAs in a long-term bull market. Periodic corrections have kept the chart technically ‘healthy’ – enabling the index to touch new highs on a regular basis.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices continue to correct after touching new lifetime highs. Corrections should be expected in a bull market – and used as opportunities to add. If you are planning to enter near a lifetime high, choose a diversified equity fund or a balanced fund instead of trying to pick individual stocks.

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