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Saturday, June 20, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Jun 19, 2015

Sensex and Nifty completed 6 straight trading sessions with gains, marking their highest percentage weekly gains in nearly 5 months – thanks mainly to a rally in RIL stock. Above average monsoon rainfall also boosted investor sentiments.

FIIs remained net sellers of equity worth Rs 3200 Crores in the past week, as per provisional figures. DIIs were net buyers of equity worth Rs 4300 Crores. Unless FIIs turn buyers, down trends on both Sensex and Nifty charts may not get reversed any time soon.

Greece is again on the brink of defaulting on loan repayments to IMF and ECB. More than $100 Billion worth of Euros have been withdrawn by small savers from their bank accounts. Only an emergency fund injection can save Greek banks from going under. Russia may play the ‘white knight’ if IMF and ECB act tough.

BSE Sensex index chart

Sensex_Jun1915

The following comments in last week’s post on the daily bar chart pattern of Sensex may be worth repeating: “…all is not gloom and doom – yet. Why? Because the index has so far closed within the 3% ‘whipsaw’ limit below the 200 day EMA. Technical nitpicking, you think? On such nitpicking are fortunes made! In other words, there is a possibility of a technical bounce from current level.”

The expected technical bounce effortlessly crossed above the 20 day and 200 day EMAs into bull territory, but faced twin resistance from the falling 50 day EMA and the lower edge of the ‘support-resistance zone’ between 27350 and 28800.

The ‘death cross’ of the 50 day EMA below the 200 day EMA – which would have technically confirmed a bear market – has been averted for the time being. Is the down trend from the lifetime high touched in Mar ‘15 coming to an end?

Hanging like the ‘Sword of Damocles’ overhead is the blue down trend line – ready to provide stronger resistance if the rally continues. Does the index have sufficient upward momentum to cross above the down trend line – after failing to do so on three previous occasions?

Daily technical indicators are giving mixed signals. MACD has formed a bullish ‘rounding bottom’ pattern and crossed above its signal line, but remains in negative zone. ROC is showing good upward momentum by crossing above its 10 day MA to enter positive zone. RSI is below its 50% level, and showing weak upward momentum. Slow stochastic has risen sharply from its oversold zone, but is yet to cross above its 50% level.

Bears can be expected to defend the down trend line, i.e. selling can start at any time. Remember that a trend line increases in ‘strength’ the more it is tested without being breached – as opposed to a support (or resistance) level, which ‘weakens’ with every test.

Technically, next week’s trading can be crucial for both bulls and bears. A convincing cross above the down trend line will mean a shift of control to bulls. Bears will try to retain control by keeping the index below the trend line and the 200 day EMA.

NSE Nifty 50 index chart

Nifty_Jun1915

The following remarks appeared in last week’s post on the weekly bar chart pattern of Nifty: “Oversold conditions may prevail for long periods during bear markets. In bull markets – and technically Nifty is still in a bull market – oversold conditions are usually of shorter durations. Slow stochastic and ROC (not clearly visible) have both touched slightly higher bottoms than the ones they touched in May ‘15. The positive divergences may lead to a technical bounce, if not a rally.”

Nifty bounced up strongly after touching an intra-week low of 7940 in the week ending on Jun 12 ‘15. The index closed above its 50 week EMA inside the ‘support-resistance zone’ between 8180 and 8630. Is the correction coming to an end finally?

Too soon to say. The index is trading below its 20 week EMA and the blue down trend line. That means bears are still in control. Note that last week’s trading volumes were lower than the volumes in each of the previous three weeks. Unless volumes pick up, Nifty may not be able to convincingly cross above the down trend line.

Weekly technical indicators are in bearish zones, but showing some signs of turning around. MACD is negative, and moving sideways below its falling signal line. ROC (not clearly visible) is below its falling 10 week MA inside its oversold zone, but crawling up. RSI has bounced up strongly from the edge of its oversold zone, but is still below its 50% level. Slow stochastic is yet to emerge from its oversold zone.

An intermediate bottom may have formed at 7940. In case of bear selling, a stronger support is at 7840.

Bottomline? Despite 6 days of rallying, bears are still in control of BSE Sensex and NSE Nifty charts - and will remain so as long as both indices trade below their respective down trend lines. Bulls need to muster stronger buying support to cross above the down trend lines. Stay invested, but remain cautiously optimistic.

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