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Saturday, November 14, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Nov 13, 2015

The festival of lights failed to bring much joy to stock market bulls. During the holiday-shortened week, FIIs were net sellers of equity worth almost Rs 2300 Crores, as per provisional figures. Net buying by DIIs – worth Rs 1350 Crores – could not prevent the market indices from sliding down further.

Macroeconomic picture is not helping bulls. CPI inflation for Oct ‘15 rose to 5% - compared with 4.41% in Sep ‘15 and 4.62% in Oct ‘14. The IIP number dropped to 3.6% in Sep ‘15 – higher than 2.6% in Sep ‘14 but much lower than the revised figure of  6.2% in Aug ‘15.

Q2 (Sep ‘15) results have not shown much improvement over Q1 (Jun ‘15) results. Revenue growth has been meagre. Profits have grown mainly because of lower commodity prices. Capital expenditure has stalled. Exports and imports are still falling – indicating lower overseas demand and shrinking domestic industrial activity.

It is not all doom and gloom. Governments coffers are getting full due to rising indirect tax collections. Increased government spending will lead to a turnaround in the overall investment sentiment. Growth in sales of medium and heavy commercial vehicles is a sign of an improving economy.

BSE Sensex index chart


The daily closing chart pattern of Sensex has been in an intermediate down trend for the past three weeks after breaking out upwards from an ‘inverse head and shoulders’ pattern.

By slipping below the extended neckline (marked NL) and the ‘right shoulder (marked RS), the ‘inverse head and shoulders’ pattern has been negated. That means lower index levels – and a likely test of the Sep ‘15 low (of 24833 – marked ‘Head’).

There is a possibility of bulls fighting back for two reasons:

  1. The downward breach of NL has not been a convincing one yet.
  2. All four daily technical indicators are looking oversold.

Any upward bounce may be a weak one, as both RSI and Slow stochastic are still displaying negative divergences (marked by blue arrows) by touching lower bottoms while Sensex touched a higher bottom.

Your asset allocation plan should be your guide now. If it indicates buying equity, don’t wait for lower levels because it is almost impossible to catch a bottom. Start slowly accumulating fundamentally strong stocks. This bull market correction is on its last legs.

NSE Nifty 50 index chart


The weekly bar chart pattern of Nifty has entered the 9th month of a corrective move after touching a lifetime high of 9119 in Mar ‘15. The 20 week EMA has crossed below the 50 week EMA for the first time in more than 2 years.

Though the index is at the same level of Oct ‘14, it is trading almost 750 points above its 200 week EMA – indicating that the long term bull market is intact.

Weekly technical indicators are looking bearish. MACD has crossed below its signal line in negative zone. RSI and Slow stochastic are falling below their respective 50% levels.

Some more correction, and a test of the Sep ‘15 low of 7540 is likely. The dip can be used to add fundamentally strong stocks to your portfolio.

Bottomline? Chart patterns of Sensex and Nifty are in intermediate down trends and seeking lower levels. Long-term bull markets are still intact since both indices are trading above their respective 200 week EMAs. This may be the last dip before the next leg of the bull market begins.

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