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Saturday, August 22, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 21, 2015

Economic slowdown in China leading to a sharp fall in commodity prices, recession in countries like Brazil and Chile, renewed turmoil in Greece were several reasons cited for massive selling by FIIs across global markets including India.

As per provisional figures, FIIs were net sellers of equity worth Rs 3900 Crores during the week - bulk of the selling occurring on the last 2 days. DIIs tried to stop the rot. Their net buying in equities totalled Rs 2800 Crores.

Despite the gloomy predictions of much lower levels in the Indian market by some analysts, bulls managed to stage a recovery – triggered by the possibility of restoring status quo on restrospective MAT for FIIs. Both Sensex and Nifty managed to hold on to important supports.

BSE Sensex index chart

Sensex_Aug2115

The daily bar chart pattern of Sensex dropped below the ‘triangle’ pattern (within which it was consolidating for the past month) and its 200 day EMA with a downward ‘gap’ on Fri. Aug 21. A fall below an important support with a ‘gap’ is considered to be more significant than a fall without a ‘gap’.

However, the index managed to recover most of its losses on the last day of the week and closed just inside the ‘support-resistance zone’ between 27350 and 28800. In the process, it formed a ‘hammer’ pattern (in candlestick parlance), which may trigger a reversal of last week’s down trend.

Due to F&O expiry, a sharp recovery by bulls is unlikely next week. Daily technical indicators are in bearish zones, and starting to look oversold. Some more correction or consolidation is possible, but don’t be surprised if the index bounces up.

Sensex lost about 2.5% on a weekly closing basis. But many fundamentally strong large-cap stocks have fallen much more – either due to brokerage guidance or due to the general panic triggered by margin calls. This may be a good time to start accumulating them slowly.

NSE Nifty 50 index chart

Nifty_Aug2115

The weekly bar chart pattern of Nifty dropped below its 20 week EMA, but received good support from its 50 week EMA and closed inside the ‘support-resistance zone’ between 8180 and 8630.

Though the index lost 2.5% on a weekly closing basis, it is trading in a long-term bull market. Weekly technical indicators are in bullish zones but showing downward momentum.

MACD is touching its signal line just above the ‘0’ line. ROC faced resistance from the edge of its overbought zone and has slipped down. RSI is resting on its 50% level. Slow stochastic has moved down from its overbought zone.

Some more correction or consolidation can’t be ruled out. Note that the possibility of forming a “cup and handle” or “rounding bottom” pattern (mentioned in last week’s post) will be negated if the index falls below its Jun ‘15 low of 7940.

Bottomline? The bar chart patterns of Sensex and Nifty managed to hold on to important supports despite strong bear attacks. Bull markets are far from over. Accumulate ‘good’ stocks and maintain appropriate stop-losses. If you are planning to enter the market for the first time, choose a good balanced fund.

3 comments:

Andy M said...

Namaste Subhankarji,

Please provide another midweek update now that Nifty has gone way below the 7940 levels to 7809.

What should our strategy be going forward ?

Subhankar said...

Hi Andy

Please note the following comment that appeared in the mid-week Nifty update on Aug 5 '15:

"Any fall below the Jun ‘15 low of 7940 can lead to a drop to 7500 – however remote the possibility may seem now."

Andy M said...

Thank you Subhankarji