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Saturday, March 14, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Mar 13, 2015

The stock market was clearly disappointed by the economic data announced last week. The IIP number was positive, but lower than the previous two months. CPI inflation has started inching up again – mainly due to higher food prices. That may force the RBI’s hand into postponing any further interest rate cuts.

The insurance bill was passed in the Rajya Sabha – thanks to the support from Congress. The land acquisition bill is facing stiff opposition, and the government was forced to climb down and consider certain amendments. If the land bill also gets passed by the upper house, it will be a feather in the cap of the NDA government.

As per provisional figures, FIIs have been net buyers of equity worth Rs 4500 Crores in Mar ‘15, while DIIs were net sellers of equity worth Rs 800 Crores. Yet, both Sensex and Nifty touched their lowest levels in a month.

BSE Sensex index chart


The formation of a bearish ‘rising wedge’ pattern and the possibility of a break down below it was mentioned in last week’s analysis of the daily bar chart pattern of Sensex.

The index dropped below the ‘wedge’ on Mon. Mar 9; received good support from its 50 day EMA and pulled back to the lower edge of the ‘wedge’ on Fri. Mar 13; but dropped below its 20 day and 50 day EMAs to close inside the ‘support zone’ (marked by dotted horizontal lines).

Technical indicators are looking bearish and showing downward momentum. Some more correction can’t be ruled out. The index had touched a lifetime high of 30025 on Mar 4, but all four technical indicators showed negative divergences by touching lower tops (marked by blue arrows). That was a warning of a likely correction.

The 200 day EMA is rising, and Sensex is trading well above it in a long-term bull market. The index has corrected about 5.25% from its Mar 4 top – so there is no need to press the ‘panic button’. The index had corrected 8% in Dec ‘14 – but had very little effect on the bulls.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty broke down below the ‘rising wedge’ pattern and closed at the upper edge of the ‘support zone’ between 8180 and 8630. Can the index correct some more?

Weekly technical indicators are suggesting so. MACD has crossed below its signal line, and slipped down from its overbought zone. ROC has dropped sharply from its overbought zone, and crossed below its 10 week MA. ROC is seeking support from its 50% level. Slow stochastic is about to drop from its overbought zone.

In case the index falls inside the ‘support zone’, its rising 20 week EMA and the Up trend line 2 should provide strong support. The correction is providing another opportunity to enter fundamentally strong stocks.

India’s economic growth has slowed down considerably, but it is still strong compared with most emerging market economies. That should keep FIIs interested.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have corrected below bearish ‘rising wedge’ patterns on both charts. Both indices are in long-term bull markets. Such corrections provide adding opportunities.

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