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Saturday, October 17, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 16, 2015

Exports fell by 24.3% YoY to $21.84 Billion in Sep ‘15. It was the 10th month of degrowth in a row due to weak global demand. Imports also fell - by 25.4% YoY to $32.32 Billion. Trade deficit narrowed to $10.48 Billion from $12.5 Billion in Aug ‘15.

Bullish sentiment is returning to the stock market. FIIs were net buyers of equity on all 5 days of the week. As per provisional figures, their net buying almost touched Rs1450 Crores. DIIs were net sellers of equity worth Rs450 Crores, but were net buyers during the last 2 days of the week.

Reliance declared a decent set of numbers for Q2 (Sep ‘15), but it is unlikely to affect the stock price too much as the top line dropped sharply. A few companies that declared good results faced selling pressure as the numbers were lower than market expectations.

Expect better results from India Inc. from Q3 onwards – as a lower base-effect will also come into play.

BSE Sensex index chart

Sensex_Oct1615

The daily closing chart pattern of Sensex has nearly reversed its 9 months long down trend. After forming an ‘inverse head and shoulders’ reversal pattern with a downward-sloping neckline, the index broke out upwards into the ‘gap’ zone (formed on the daily bar chart on Aug 24 ‘15).

The 200 day EMA provided strong resistance inside the ‘gap’ zone. The index corrected down to the lower edge of the ‘gap’ before bouncing up to close above all its three EMAs and the upper edge of the ‘gap’ in bull territory.

Note that the close above the ‘gap’ isn’t a convincing one yet (i.e. Sensex is within the 3% ‘whipsaw’ limit). Also, the long-term ‘support-resistance zone’ between 27350 and 28800 is looming overhead. Bears may use the opportunity to fight back.

Complete filling of the ‘gap’ was the first condition for bulls to start regaining lost ground. That milestone has been covered. The ‘support-resistance zone’ will be the next big hurdle that the index will need to cross before the bull market can resume in right earnest.

Daily technical indicators are in bullish zones but looking a little overbought. Also, ROC and Slow stochastic are showing negative divergences by failing to touch new highs with the index.

Expect some consolidation or correction as Sensex tries to re-enter the ‘support-resistance zone’ (marked by dotted horizontal lines) after nearly 2 months.

If you are planning to enter the market, but not sure which stocks to buy, start a SIP in a good balanced fund.

NSE Nifty 50 index chart

Nifty_Oct1615

The weekly bar chart pattern of Nifty closed higher for the 3rd week in a row – managing to close just above the ‘gap’ formed on the chart in the week ending on Aug 28 ‘15.

The ‘gap’ – which had acted as a resistance zone to the index for 6 weeks in a row - has now been completely filled. That will enthuse bulls to attempt a reversal of the down trend from the Mar ‘15 top by crossing above the blue down trend line.

Expect bears to put up a fight to defend the zone between the down trend line (now at 8430) and the upper edge (8630) of the long-term ‘support-resistance zone’ (marked by dotted horizontal lines).

Weekly technical indicators are showing signs of bullishness. MACD has formed a bullish ‘rounding bottom’ pattern and moved up to touch its falling signal line in negative zone. ROC is touching its falling 10 week MA and is poised to emerge from its oversold zone.

RSI is making an attempt to cross above its 50% level. Slow stochastic has just crossed above its 50% level to enter bullish zone.

Volumes have dipped during the past week, which raises some concerns about the immediate sustainability of the rally. Dussehra holiday next week may also keep a check on bullish fervour.

Bottomline? Chart patterns of Sensex and Nifty are still in down trends, but bearish downward ‘gaps’ have been filled after formation of reversal patterns on daily charts. Long-term bull markets remain intact. If you are still waiting for another down leg of correction to start buying, you may have to wait for a long time.

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