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Saturday, September 26, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Sep 24, 2015

Clarifications by the Finance Ministry about non-applicability of MAT for Foreign Portfolio Investors (FPIs) and Foreign companies with no permanent establishment in India failed to have much effect on the negative sentiment in the Indian market.

FIIs stepped up their selling. As per provisional figures, their net selling in equities exceeded Rs 2300 Crores in a holiday-shortened week. DII were net buyers of equity worth about Rs 1400 Crores. That could not prevent both Sensex and Nifty from losing more than 1.3% on weekly closing basis.

Prime Minister Narendra Modi met 42 CEOs of Fortune 500 companies – including CEOs of 8 of the top 10 financial institutions – during his recent visit to New York. He is also expected to meet CEOs of top tech companies in the Silicon Valley in an attempt to improve increasing FDI inflows for development of India’s infrastructure.

A late surge in monsoon rains has brought down the total rain shortfall across India to –13% – though the shortfall in some parts of the country is much higher. That should help the standing kharif crop and provide adequate moisture for sowing of the rabi crop.

BSE Sensex index chart

SENSEX_Sep2415 

The daily closing chart pattern of Sensex has been trading below its three EMAs in bear territory since the large ‘gap’ formed on the bar chart pattern on Aug 24 ‘15. The ‘death cross’ (marked by light blue circle) of the 50 day EMA below the 200 day EMA has technically confirmed a bear market.

Sensex appears to be forming a complicated ‘inverse head and shoulders’ reversal pattern, which can finally end the 8 months long down trend that started after the index closed at 29682 on Jan 29 ‘15. The pattern has not completed yet, so caution is suggested.

The left shoulder (marked LS) was itself a small ‘double bottom’ reversal pattern – formed during Aug 24-26. The index then dropped to form the ‘head’ during Sep 1-14 – which was itself a small ‘inverse head and shoulders’ pattern with a downward-sloping neckline (marked ‘1’). This neckline (‘1’) has since acted as a support for the index.

The index rose to touch downward-sloping neckline (marked ‘2’) of the larger and more complicated ‘inverse head and shoulders’ pattern, only to drop down to neckline (‘1’) before bouncing up to form the possible right shoulder (marked ‘RS?’).

If the pattern plays out as expected – and it would require revival of FII buying to do so – the index should rally above neckline (‘2’) and close the ‘gap’. What can be the trigger for FII buying? A widely expected interest rate cut by RBI on Sep 29.

Will the RBI oblige? Low WPI and CPI inflation may just force the RBI Governor’s hand. A 25 bps rate cut has already been discounted by the current index level. A 50 bps cut should encourage FIIs to start buying again.

Daily technical indicators are giving mixed signals. MACD is rising above its signal line in negative zone. ROC is about to cross below its rising 10 day MA and fall back into negative zone. RSI is seeking support from its 50% level after briefly rising above it. Slow stochastic is falling towards its 50% level.

Wait for the RBI Governor’s decision before deciding to buy or sell.

NSE Nifty 50 index chart

Nifty_Sep2415

The weekly bar chart pattern of Nifty has spent 5 straight weeks below the weekly ‘gap’ formed on the chart in the week ending on Aug 28 ‘15. The 20 week and 50 week EMA are falling and the index is trading below them in bear territory.

However, the index closed more than 900 points above its rising 200 week EMA (not shown). That means the long-term bull market is intact, though bears are ruling the chart in the near term.

Weekly technical indicators are in bearish zones and showing downward momentum. MACD is falling below its signal line in negative territory. ROC has dropped back inside its oversold zone, and remains below its sliding 10 week MA. RSI has started to move down after facing resistance from its 50% level. Slow stochastic has bounced up weakly from the edge of its oversold zone.

Bottomline? The chart patterns of Sensex and Nifty remain in down trends and are trading below bearish ‘gaps’. Daily bar charts may be forming trend reversal patterns. Long-term bull markets are still intact. Hold on to existing portfolios and await RBI Governor’s pronouncements on Sep 29.

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