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Sunday, August 16, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 14, 2015

WPI inflation was –4.05% in Jul ‘15 against –2.4% in Jun ‘15. It was the 9th straight month of contraction – thanks to lower prices of food and manufactured items. The possibility of an interest rate cut by RBI due to low CPI and WPI cheered market participants.

All is not well on the balance of payments front. Merchandise exports contracted for the 8th month in a row, falling 10.3% on a YoY basis in Jul ‘15. Imports were also lower by 10.3% on a YoY basis. Trade deficit increased to $12.8 Billion in Jul ‘15 from $10.8 Billion in Jun ‘15.

FIIs were net sellers of equity worth Rs 2800 Crores last week, as per provisional figures. DIIs were net buyers of equity worth Rs 2000 Crores. However, both FIIs and DIIs were net buyers on the last day of the week – triggering a pullback. Sensex and Nifty closed lower on a weekly basis.

BSE Sensex index chart


The daily bar chart pattern of Sensex dropped below its 20 day and 50 day EMAs as well as the second blue up trend line, but bounced up strongly after receiving good support from its 200 day EMA. The index closed the week above all three EMAs in bull territory.

Bears are still in the picture. Since both the blue up trend lines have been breached on the down side, the possibility of another down move can’t be ruled out. The index has closed above its 200 day EMA on every trading day since Jun 19 ‘15 – showing that bulls have the advantage.

As mentioned last week, the index seems to be forming a bullish ‘rounding bottom’ or ‘cup and handle’ pattern. Either pattern – if they play out – should end with upward break outs to new highs.

Daily technical indicators are giving mixed signals. MACD and ROC are at their respective ‘0’ lines. Slow stochastic has bounced up weakly from the edge of its oversold zone. Only RSI is looking bullish by rising above its 50% level.

Sensex needs to move convincingly above the 28800 level (which is the upper boundary of the ‘support-resistance zone’) for bulls to regain control. Bears will try to ensure that doesn’t happen any time soon. Stay invested.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty dropped below its 20 week EMA and the blue up trend line intra-week, but bounced up to close above its two weekly EMAs and the trend line in bull territory. Resistance from the 8630 level (upper edge of the ‘support-resistance zone’) is proving to be strong.

Weekly technical indicators are looking bullish. MACD is gradually rising above its signal line in positive zone. ROC is about to enter its overbought zone. RSI is moving sideways above its 50% level. Slow stochastic is inside its overbought zone, but moving sideways.

The index may consolidate a bit before making another attempt to cross above the resistance zone between 8630 and 8670.

Bottomline? The bar chart patterns of Sensex and Nifty seem to be forming bullish continuation patterns. It may take another 4-6 weeks to complete the patterns. This isn’t the time to jump in feet first. Pick ‘good’ stocks and maintain appropriate stop-losses. First-timers should avoid individual stocks and regularly invest in units of a good balanced fund.

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