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Saturday, September 19, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Sep 18, 2015

The US Fed’s decision to maintain status quo on interest rates on Thu. Sep 17 – due to slow growth in China and Europe and recession in Canada - came as a big relief to India’s stock market participants.

FIIs turned net buyers of equity on Fri. Sep 18, though they were net sellers of equity worth Rs 550 Crores during the week, as per provisional figures. DII net buying of equity exceeded Rs 1500 Crores.

During a holiday-shortened trading week, both Sensex and Nifty gained more than 2% each on a weekly closing basis. However, both indices are near strong resistance levels. Further gains will depend on continued FII buying.

BSE Sensex index chart

SENSEX_Sep1815

The daily closing chart pattern of Sensex had corrected sharply after forming a downward ‘gap’ on Aug 24 ‘15. It subsequently formed a small ‘inverse head and shoulders’ reversal pattern with a downward-sloping neckline. The index broke out above the neckline last week, followed by a pullback to the neckline and then rose to cross above its falling 20 day EMA.

Volumes (not shown) during the upward break out above the neckline wasn’t significantly higher – which is a requirement for technical validity of the break out. ‘Inverse head and shoulders’ pattern has target implications. The fall below the neckline (of 860 points) should be added to the neckline level to arrive at an upward target of about 26580.

That will still leave the index below the ‘gap’ and its falling 50 day and 200 day EMAs. The ‘death cross’ (marked by light blue circle) of the 50 day EMA below the 200 day EMA technically confirmed a bear market.

Only a convincing up move (i.e. one accompanied by rising volumes) above the ‘gap’ will reverse the bear market. That may not happen in a hurry – unless FIIs turn buyers.

Daily technical indicators are turning bullish. MACD has crossed above its signal line and emerged from its oversold zone. ROC has entered positive zone above its rising 10 day MA. Slow stochastic has climbed above its 50% level. RSI is moving sideways after facing resistance from its 50% level.

Sensex formed a ‘shooting star’ pattern (in candlestick parlance) on Fri. Sep 18, which can end the rally from the intra-day low of 24833 touched on Sep 8.

NSE Nifty 50 index chart

Nifty_Sep1815

The weekly bar chart pattern of Nifty failed to overcome resistance from the downward ‘gap’ formed in the week ending on Aug 28 ‘15, despite combined buying by FIIs and DIIs on the last day of the week.

The index continues to trade below its falling 20 week and 50 week EMAs and the blue down trend line connecting the Mar ‘15 and Jul ‘15 tops. However, it closed well above its rising 200 week EMA (not shown) in a long-term bull market.

Nifty will need to close the ‘gap’ and then move convincingly above the down trend line for bulls to regain control of the chart. The ongoing price wise and time wise correction is improving the technical ‘health’ of the chart.

Weekly technical indicators are in bearish zones but showing some signs of turning around. MACD is falling below its signal line in negative territory, but its downward momentum has slowed down. ROC has emerged from its oversold zone, but remains below its sliding 10 week MA in negative territory. RSI has moved up to its 50% level after receiving good support from the edge of its oversold zone. Slow stochastic is seeking support from the edge of its oversold zone.

Bottomline? The bar chart patterns of Sensex and Nifty are in down trends and trading below bearish ‘gaps’. However, there are some signs of trend reversal. Long-term bull markets are still intact. Hold on to existing portfolios or add very selectively. Maintain stop-losses – whether you decide to add or hold.

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