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Saturday, September 12, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Sep 11, 2015

FIIs remained net sellers of equity during the week, with their net sales exceeding Rs 2800 Crores. DIIs were net buyers of equity worth Rs 2600 Crores. Yet, both Sensex and Nifty closed higher on a weekly basis after 4 straight weeks of lower closes. So, who else bought? As per anecdotal evidence, it was you and me (i.e. small investors).

There was good news on the manufacturing front. The IIP number for July ‘15 was 4.2%, which was a huge improvement over the 0.9% figure of Jul ‘14, but slightly less than the revised figure of 4.4% in Jun ‘15. The consumer non-durables sector was a concern, as it contracted 4.6%.

The Current Account Deficit was lower at $6.2 Billion during Q1 (Jun ‘15) compared with $7.8 Billion in Q1 (Jun ‘14). Lower crude oil prices contributed significantly to the reduction in deficit. The lack of strength in the Rupee has not been commensurate because of falling exports.

BSE Sensex index chart

Sensex_Sep1115

The daily bar chart pattern of Sensex had formed a downward ‘gap’ on Aug 24 ‘15. It has been trading below the ‘gap’ since then. The ‘death cross’ of the 50 day EMA below the 200 day EMA has technically confirmed a bear market.

However, there is a good chance that the bear market will be a short one – more of a strong correction in a bull market. Why? Because of certain technical patterns formed during the week.

The index touched an intra-day low of 24852 and closed at a 52 week low of 24894 on Mon. Sep 7. On Tue. Sep 8, the index touched a lower intra-day low of 24834 but closed almost 400 points higher – forming a ‘reversal day’ pattern. The 12 days of trading since forming the ‘gap’ was within a ‘falling wedge’ pattern.

On Wed. Sep 9, Sensex broke out above the ‘falling wedge’ with an upward ‘gap’ – thanks to DII buying. A break out with a ‘gap’ is considered to be technically more significant. As often happens after a break out, the index pulled back to the top of the ‘falling wedge’ the next day before bouncing up.

Does that mean the down trend from the Mar ‘15 lifetime high is over? That can only be confirmed once Sensex moves up to fill the ‘gap’ and crosses above its three falling EMAs. Bears (read FIIs) may not allow that to happen any time soon.

Daily technical indicators have corrected oversold conditions but are yet to turn bullish. MACD has moved up to touch its falling signal line inside its oversold zone. RSI bounced up from its oversold zone, but is moving sideways below its 50% level. Slow stochastic is trying to climb up to its 50% level.

Sensex line chart based on daily closing levels (not shown) may be forming an inverse head-and-shoulders reversal pattern, with a neckline at 25750. If the index can close above 25750 with strong volume support, it will provide a good buying opportunity for long-term investors.

NSE Nifty 50 index chart

NIFTY_Sep1115

The weekly bar chart pattern of Nifty formed a ‘reversal bar’ (lower low, higher close) that may have ended the intermediate down move of the past 4 weeks. But it may be too soon to expect an immediate reversal of the 6 months long down trend from the lifetime high touched back in Mar ‘15.

The 20 week and 50 week EMAs are both falling and the index is trading below them as well as below a rare weekly ‘gap’ formed on the chart in the week ending on Aug 28 ‘15. However, the 200 week EMA is still rising, and the index has closed more than 850 points above it. The long-term bull market is intact.

Weekly technical indicators are in bearish zones and looking oversold. MACD and Slow stochastic have dropped to the edge of their oversold zones. RSI has bounced up a bit near the edge of its oversold zone.

The monsoon rain deficiency has caused drought-like conditions in Rajasthan and a couple of other states. Water reservoirs in several states have fallen enough to cause serious concerns. Agricultural output is likely to be affected – so expect food prices to rise. Already price of pulses have reached the three figure mark. That may put a question mark on further interest rate cuts by RBI.

Bottomline? The bar chart patterns of Sensex and Nifty are trading below bearish ‘gaps’, but there are some technical signs of trend reversal. Long-term bull markets are still intact. Stay cautiously optimistic. Maintain stop-losses – whether you decide to add or hold. If FIIs continue their selling spree, all bullish bets will be off.

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