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Saturday, September 5, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Sep 04, 2015

Economic slowdown in China and Europe, steep falls in commodity and oil prices, a strong Dollar and likely increase in US interest rates later this month are reasons being put forth by analysts to explain plummeting stock indices in global bourses.

When important technical support levels on stock index charts get breached – the big spenders (read: FIIs) rush towards the exit door. Then margin calls kick in, long positions get hurriedly squared off and panic sets in among small investors.

Both Sensex and Nifty touched new 52 week lows on intra-day, intra-week, daily and weekly closing basis. FIIs net sold Rs 4500 Crores worth equities last week as per provisional figures. DIIs were net buyers of equity worth Rs 4000 Crores.

Is the bull market over? The short answer is: Not yet.

BSE Sensex index chart


The daily bar chart pattern of Sensex continued to trade below the ‘measuring gap’ formed on the chart on Aug 24. The index touched and closed at new lows – the possibility was mentioned in last week’s post – and may be slipping into a bear market.

All three EMAs are falling, and the index is trading well below them. The 50 day EMA has crossed below the 200 day EMA (marked by light blue circle) – the ‘death cross’ that technically confirms a bear market.

However, other technical confirmations of a bear market are still awaited. Sensex has corrected 16% from its all-time high of 30025, touched on Mar 4 ‘15. A 20% correction usually signifies a bear market.

Also, the index has retraced about 40% of its entire rise of 12100 points from its Aug ‘13 low to its Mar ‘15 high. More than a 50% Fibonacci retracement is necessary to term it a bear market.

In other words, Sensex will need to fall another 1200 points (to 24000) for a long-term trend change from bull to bear. Can the index fall that far? The answer is: Yes, specially if FIIs remain in sell mode.

Chances are, many fundamentally strong stocks will then appear to be at ‘mouth-watering’ levels – and buyers will surely step in.

All four technical indicators are inside their oversold zones and showing downward momentum. But ROC and RSI are showing positive divergences by touching slightly higher bottoms.

A technical bounce is likely. Will it be a buying opportunity? That will depend on the extent of volume support.

On longer-term weekly chart (not shown), Sensex is trading well above its rising 200 week EMA (which is currently at 23000). The index is undergoing a correction in a long-term bull market. So, dips can be used to add/enter – but with appropriate stop-losses.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty tried to test the ‘gap’ formed in the last week of Aug ‘15, but faced strong resistance and dropped to a new 52 week low.

The index has corrected a little more than 16% from its Mar ‘15 peak of 9119, and can continue with its correction if FII selling exceeds DII buying.

As per anecdotal evidence from fund house managers, HNIs and small investors, there is no real panic in the market yet. That is usually a sign that the correction isn’t over.

All four weekly technical indicators are in bearish zones and showing downward momentum. Only ROC is inside its oversold zone.

There are no immediate triggers in the market for a sustained rally. The monsoon is rain deficient by 13% so far. Corporate results are unlikely to improve much in Q2 (Sep ‘15). Important reform measures, like GST and land bill, are pending.

Expect volatility to remain high. If you like to play contrarian, be very selective and slowly accumulate instead of buying in one large lot.

Bottomline? The bar chart patterns of Sensex and Nifty continue to trade below bearish ‘gaps’. Long-term bull markets are still intact. If in doubt, stay out. Take a vacation. There is much more to life than the stock market.

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