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Saturday, March 7, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Mar 05, 2015

A holiday-shortened trading week witnessed sharp volatility. An out-of-turn 25 bps interest rate cut by RBI initially enthused the stock market. Both Sensex and Nifty rose to touch new highs on Wed. Mar 4 ‘15.

However, neither index could sustain at the higher levels, as profit booking ensued – firstly due to the possibility of a credit rating downgrade by S&P, and secondly because of the realisation that the country’s economy is far from being in the pink of health.

FIIs did not seem to be too bothered. They net bought Rs 4000 Crores worth equity during the first 4 days of the month. DIIs were net sellers of equity worth Rs 300 Crores. Both indices closed slightly higher on a weekly basis.

BSE Sensex index chart

Sensex_Mar0515

The daily bar chart pattern of Sensex closed above the ‘symmetrical triangle’ pattern on all four days of the week, and touched a new intra-day high of 30025 on Mar 4. But it formed a ‘reversal day’ pattern and pulled back to the top of the triangle.

On Mar 5, the index dropped inside the triangle intra-day, but bounced up to close higher after receiving good support from its rising 20 day EMA. Technically, the break out above the triangle hasn’t been convincing. Also, Sensex is yet to close above 29682 – the highest ever closing level on Jan 29 ‘15.

All three EMAs are rising, and Sensex is trading above them in a long-term bull market. The last of the bear shackles should get removed once the index closes above 29682.

Daily technical indicators are in bullish zones, but not showing much upward momentum. MACD is entangled with its signal line and moving sideways. ROC bounced up from the ‘0’ line but is yet to cross above its 10 day MA. RSI and Slow stochastic are moving down towards their 50% level.

Note that all four indicators are showing negative divergences by failing to touch new highs with the index. That may not necessarily trigger a strong correction. Expect the index to consolidate around current levels before resuming its up move in earnest.

(A bear case for a strong correction can be made by re-drawing the triangle as a ‘rising wedge’. Why should such a possibility be considered? Because of the unconvincing break out above the triangle, and the subsequent intra-day drop inside the triangle on Fri. Mar 5. Any breach below the lower edge of the triangle may push the index down inside the support zone between 27350 and 28800.)

NSE Nifty 50 index chart

Nifty_Mar0515

The following comment appeared in last week’s post on the weekly bar chart pattern of Nifty: “Nifty looks poised to touch new highs in the near future.”

The index touched new intra-week (9119 on Mar 4) and closing (8938 on Mar 5) highs – and closed higher for the fourth week in a row. Both weekly EMAs are rising, and the index is trading above them and the blue ‘Up trend line 2’ in a long-term bull market.

Weekly technical indicators are bullish. Three of them – MACD, ROC, Slow stochastic – are inside their respective overbought zones. RSI is moving sideways above its 50% level.

Bears are not completely out of the picture despite all the bullish signals. Nifty may be forming a bearish ‘rising wedge’ pattern – from which it may break downwards and drop inside the support zone between 8180 and 8630 (marked by dotted horizontal lines). A convincing move above the ‘wedge’ should send the bears packing.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are in long-term bull markets, and seem poised to move higher. However, the possibility of formation of bearish ‘rising wedge’ patterns on both charts may be a warning sign. Taking partial profits and reinvesting in a gilt or income fund – which should do well in a falling interest rate scenario – may be a good idea.

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