BSE Sensex and NSE Nifty 50 index chart patterns – May 08, 2015

Lack of clarity on retrospective MAT on capital gains continued to spook FIIs, who were net sellers of equity worth Rs 4200 Crores during the past week (as per provisional figures). Thanks to DIIs, who were net buyers of equity worth Rs 4850 Crores, both Sensex and Nifty closed marginally higher for the week.

A falling Rupee, rising oil prices, a spate of IPOs in China, tepid Q4 results declared so far were other reasons put forth by analysts to explain the FII pull out. The good news for bulls is that long-term funds are keeping their faith in India’s growth story. If the GST bill gets passed by the Rajya Sabha, it may provide a boost to bullish sentiment.

Q4 results declared by Hindustan Lever and Dabur came as positive surprises for the market. Slow growth in rural markets remain a concern – as does the disappointing results declared by several PSU banks. Credit growth is yet to pick up, and will remain slow unless interest rates come down further.

BSE Sensex index chart

The daily bar chart pattern of Sensex went on a roller-coaster ride during the week – gaining almost 500 points on Mon. May 4, losing 700 points on Wed. May 6, and again gaining 500 points on Fri. May 8.

On Thu. May 7, the index touched an intra-day low of 26424 – its lowest level since Oct ‘14. Note that the 26350 level was tested but not breached. (The significance of the 26350 level was explained in last week’s post.)

The index pulled back to its 200 day EMA after falling below it. Such pullbacks are often used to sell. But there are three technical reasons for not initiating shorts aggressively. First, by not closing below 26350, the breach below the 200 day EMA has not been validated technically – as the index bounced up within the 3% ‘whipsaw’ limit.

Second, all four daily technical indicators are recovering from oversold conditions, and three of them – ROC, RSI, Slow stochastic – are showing positive divergences by failing to touch new lows with the index. Third, the index may have formed a ‘double bottom’ pattern by touching a low of 26469 in Dec ‘14 and 26424 in May ‘15.

The Sensex is poised at a crucial crossroad. A close below 26350 can lead to much lower levels. Any rally is likely to face resistance from the falling 20 day and 50 day EMAs. The scales are still tilted towards the bears – so any buying should be done gradually, with strict stop-losses.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty dropped below its 50 week EMA intra-week to its lowest level since the week ending on Dec 19 ‘14, but bounced up to close marginally higher inside the ‘support-resistance zone’ between 8180 and 8630.

Weekly technical indicators are bearish and looking oversold. MACD is falling below its signal line in positive zone. ROC and Slow stochastic are inside their respective oversold zones. RSI is moving sideways just above its oversold zone.

Some more correction can’t be ruled out. But the formation of a ‘reversal week’ bar (lower low, slightly higher close) has raised bullish hopes that an intermediate bottom is in place.

A convincing close below the 50 week EMA may drop Nifty to much lower levels. Any rally is likely to face resistance from the 20 week EMA and the 8630 level. Refrain from aggressive buying or selling. Technically, Nifty is still in a bull market – so gradual accumulation with strict stop-losses is suggested.

Bottomline? BSE Sensex and NSE Nifty charts are trying to recover from strong bear attacks after touching lifetime highs. Any further correction may lead to trend reversals. Add/hold, but maintain appropriate stop-losses for individual stocks in your portfolios.