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Sunday, June 7, 2015

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

As per provisional figures, FIIs were net buyers of equity on Mon. and Thu., but net sellers on the other three days. Their net selling for the week totalled Rs 1250 Crores, which was more than compensated by DIIs, who were net buyers of equity on all 5 days totalling Rs 2400 Crores.

Then why did both Sensex and Nifty fall to their lowest levels in 4 weeks? The obvious answer is: selling by retail investors and HNIs. Panic selling on the Nestle counter due to the ‘Maggi’ noodles fiasco spread like a contagion to other FMCG counters.

There were other concerns for small investors: a deficient monsoon; a hawkish stance on further interest rate cuts by RBI; encouraging jobs data in the US that can lead to a rate hike soon; a stalemate between Greece and IMF regarding the former’s debt repayment ability.

Technically, blue down trend lines have continued to dominate the two index charts (below) for the past three months. A trend is supposed to remain in force till it gets reversed.

BSE Sensex index chart

The following comment appeared in last week’s post on the daily bar chart pattern of Sensex: “Failure to cross above the blue down trend line means that bears still have the upper hand.”

Note that the index rose to test the down trend line on Jun 1, failed to cross above it, and then collapsed below the ‘support-resistance zone’ and its three EMAs into bear territory.

Both the 20 day and 50 day EMAs are falling towards the 200 day EMA. A convincing cross of the 50 day EMA below the 200 day EMA (‘death cross’) will technically signal a bear market.

Technical indicators are bearish and looking oversold. MACD has crossed below its signal line, and is falling towards its oversold zone. ROC and RSI have reached the edges of their respective oversold zones. Slow stochastic has dropped inside its oversold zone.

Some more correction can’t be ruled out – but a technical bounce may occur at any time. The index formed a bullish ‘hammer’ pattern (in candlestick parlance) on Thu. Jun 4. Similar patterns formed at the end of down trends on Jan 7, Mar 27 and May 7 ‘15 had led to strong rallies.

If the technical bounce is accompanied by strong volumes, the index may form a ‘double bottom’ reversal pattern. Good progress of the monsoon – despite a late onset - can be a positive trigger for bulls.

Bears still have the upper hand, but it may be prudent to suppress your urge to go short.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty briefly rose above its sliding 20 week EMA intra-week, but failed to test its blue down trend line.

The index dropped on huge volumes below the ‘support-resistance zone’ and the 50 week EMA intra-week, but managed to close exactly on its 50 week EMA.

Weekly technical indicators are looking bearish. MACD is falling below its signal line and looks ready to enter its negative zone. ROC is sliding towards its 10 week MA in negative zone. RSI has dropped to the edge of its oversold zone. Slow stochastic is moving down towards its oversold zone.

Some more correction is possible. A technical bounce is also a possibility. The NSE TRIN (a market breadth indicator) is inside its oversold zone, where it doesn’t remain for long.

Bottomline? BSE Sensex and NSE Nifty charts are still in strong bear grips, and will remain so as long as they fail to cross above their respective down trend lines. Technical bounces in both indices appear imminent. Stay invested, and add to fundamentally strong stocks in your portfolios.

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