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Saturday, October 10, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 09, 2015

Indirect tax collections (from service tax, customs and excise duties) rose nearly 36% during Apr-Sep ‘15 – to Rs 3.24 Lakh Crores from Rs 2.38 Lakh Crores during Apr-Sep ‘14 - giving a boost to the government’s coffers. The budget had estimated a 19% growth.

In another sign of improving economic activity, commercial vehicle sales rose 12% in Sep ‘15 on a YoY basis while passenger vehicle sales rose nearly 10%. However sales of utility vehicles, 2 and 3 wheeler sales dipped.

FIIs have resumed buying in equities. As per provisional figures, their net buying touched Rs 1500 Crores last week. DIIs turned net sellers of equity worth Rs 950 Crores.

BSE Sensex index chart

Sensex_Oct0915

The daily closing chart pattern of Sensex is making an honest attempt to reverse a 9 months long down trend.

The index formed a complicated ‘inverse head and shoulders’ reversal pattern (whose left and right shoulders were small ‘double bottom’ reversal patterns and the head was itself a small ‘inverse head and shoulders’ pattern) with a downward-sloping neckline.

An expected upward breakout from the pattern was followed by a rally past its 20 day and 50 day EMAs (both of which have formed bullish ‘rounding bottom’ patterns) and a part-filling of the ‘measuring gap’ formed in Aug 24 ‘15 in the daily and weekly bar charts.

Note that the index is facing strong resistance from its 200 day EMA, which is just below the upper edge of the ‘measuring gap’. A complete filling of the ‘gap’ on closing basis will be the first requirement for bulls to regain some control over the chart.

However, bears will be in no mood to give up easily. Just above the ‘gap’ is the long-term ‘support-resistance zone’ between 27350 and 28800. Sensex has failed to close above this zone since Apr ‘15.

Daily technical indicators are looking bullish and a little overbought. MACD is rising above its signal line in positive zone. ROC has entered its overbought zone. RSI is moving sideways just below its overbought zone. Slow stochastic is well inside its overbought zone.

RSI and Slow stochastic are showing negative divergences by failing to touch a new high with the index. Expect the index to go through some consolidation or correction.

Can the index resume its down trend and fall below the ‘head’ of the ‘inverse head and shoulders’ pattern? The possibility can’t be ruled out – specially if you are an ardent follower of Elliott Waves.

But the probability of such an event is low because of the formation of (and an upward breakout from) a clearly visible reversal pattern. The closing level (24894 on Sep 7) of the ‘head’ should be a near-term bottom for the index.

Time to start picking up stocks from your ‘buy list’.

NSE Nifty 50 index chart

Nifty_Oct0915

The weekly bar chart pattern of Nifty had spent 6 straight weeks below the rare weekly ‘gap’ formed on the chart in the week ending on Aug 28 ‘15. It finally moved up to close the ‘gap’ last week.

Though the index failed to close above the ‘gap’, it managed to close just above the lower edge of the long-term ‘support-resistance zone’ between 8180 and 8360 – and above its 20 week and 50 week EMAs in bull territory.

In a full week of trading after three holiday-shortened weeks, volumes picked up considerably. Weekly technical indicators are still in bearish zones, but showing signs of upward momentum.

Bulls have their work cut out. Expect overhead resistances from the upper edge of the ‘measuring gap’, the blue down trend line and the 8630 level.

Bottomline? Chart patterns of Sensex and Nifty remain in down trends but bearish ‘measuring gaps’ are on the verge of getting filled. Further down sides can’t be ruled out entirely, but upward breakouts from reversal patterns formed on daily charts are indications that the corrections are over. Long-term bull markets are intact. This is a good time to add/enter.

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