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Sunday, August 2, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Jul 31, 2015

Auto sales of several manufacturers showed healthy double-digit growth during Jul ‘15, with M&M being an exception. That was the good news. Now, some bad news.

India’s fiscal deficit during Q1 (Jun ‘15) touched almost $45 Billion, more than 50% of the target set for the whole year. 16% surplus monsoon rains in Jun ‘15 was followed by 17% deficit across the country in Jul ‘15.

However, rainfall was fairly widespread (except in South India) with several states receiving heavy rainfall.

After 2 months of net selling, FIIs were net buyers of equity worth Rs 2300 Crores during Jul ‘15 (as per provisional figures). DIIs became marginal net buyers of equity worth Rs 72 Crores – thanks to heavy buying on the last day of the month.

BSE Sensex index chart


A steep up trend line drawn on the daily bar chart pattern of Sensex last week (marked 1) got breached by heavy selling during the first 2 days of the week.

Steep up trend lines tend to get breached easily (the possibility was mentioned in an earlier post) so it should not have come as a surprise.

The index found strong support from the lower edge of the ‘support-resistance zone’ and the 200 day EMA, and bounced up sharply above its 20 day and 50 day EMAs into bull territory.

A second (less steep) up trend line has been drawn, which is expected to support the index during the next leg of the up move.

What if Sensex is undergoing a pullback to up trend line 1? Wouldn’t that become a selling opportunity? Technically, no. Why? Because Sensex is clearly undergoing a bull market correction/consolidation.

How can one be sure? By looking at the 50 day and 200 day EMAs. The 50 day EMA moved down towards the 200 day EMA, but has started moving up again – preventing a ‘death cross’.

The rising 200 day EMA flattened out during May and Jun ‘15, but has started to rise again. Also, the index appears to be forming a ‘rounding bottom’ or a ‘cup-and-handle’ pattern.

Either pattern – if it plays out – will lead to upward break outs. The strategy should be to ‘buy on dips’ and not to ‘sell on rises’ (which is a bear market strategy).

Daily technical indicators are turning bullish, though ROC and Slow stochastic are still in bearish zones. Stay invested.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty dropped below its 20 week EMA intra-week, but bounced up strongly with good volume support to make marginal weekly gains.

Likely resistance from the zone between 8630 (top edge of the ‘support-resistance zone’) and 8670 (the 61.8% Fibonacci retracement level of the entire fall from the Mar ‘15 top of 9119 to the Jun ‘15 bottom of 7940) will be the next hurdle for bulls.

Three of the four weekly technical indicators are looking bullish. MACD is rising above its signal line in positive zone. RSI has crossed above its 50% level. Slow stochastic has climbed to the edge of its overbought zone. Only ROC is looking bearish by falling towards the ‘0’ line.

Nifty is trading above its two weekly EMAs in a bull market. Bulls are regaining their control over the chart.

Bottomline? The bar chart patterns of Sensex and Nifty may be in the process of forming bullish continuation patterns. Long-term trends remain bullish, so dips can be used as adding opportunities. Choose ‘good’ stocks and maintain suitable stop-losses. Stick to MFs if stock picking is not your cup of tea.

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