Saturday, December 12, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 11, 2015

Net selling in equities by FIIs tapered down during the past week, but exceeded Rs 1400 Crores, as per provisional figures. DIIs’ net buying touched Rs 2100 Crores. Yet, Sensex and Nifty lost about 2.2% on weekly closing basis.

The IIP number for Oct ‘15 shot up to a 5 year high of 9.8% – albeit on a lower base. The Oct ‘14 figure was –2.7%. For the Apr-Oct ‘15 period, IIP was 4.8% compared with 2.2% in the same 7 months during the previous year.

Domestic passenger vehicle sales rose more than 10% during Nov ‘15 – aided by festive season sales. It was the 13th consecutive month of growth in sales.

The stock market won’t be able to ignore such good news much longer. Both Sensex and Nifty are near long-term support levels. Bulls may get encouraged to put up a fight.

BSE Sensex index chart

The daily closing chart pattern of Sensex tested the Sep ‘15 intra-day low of 24834 (marked by dotted horizontal line), but bounced up to close above the 25000 level.

Note that the Sep ‘15 closing low of 24894 was also tested on a closing basis (as mentioned in last week’s post), but not breached.

The blue down trend line continues to dominate the chart. All three EMAs are falling, and Sensex is trading below them in bear territory.

A convincing breach of the 24834 level can cause a sharp drop to the 150 points ‘gap’ formed on the chart in May ‘14 due to the NDA election victory euphoria.

All four daily technical indicators are looking bearish, and oversold. None of the four have fallen lower than their Nov ‘15 lows – unlike the index. The positive divergences may have set the stage for a technical bounce.

Will it be just a short-covering bounce? Or, will the index form a ‘double bottom’ reversal pattern and resume its up trend?

The answer to the first question is: ‘Yes – as per current technical set-up’. Only if FIIs resume buying of index stocks –  unlikely before the beginning of the New Year – can the second question be answered in the affirmative.

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty closed lower for the 2nd straight week due to selling in index stocks by FIIs. The Sep ‘15 low of 7540 – which also happens to be a longer-term support/resistance level – was tested.

The index continues to trade below the blue down trend line and its two weekly EMAs in bear territory. If the 7540 level gets breached convincingly, Nifty can fall another 10%.

Weekly technical indicators are in bearish zones. MACD and ROC are showing downward momentum. Slow stochastic is moving sideways with a downward bias.

RSI is showing positive divergence by rising during the past four weeks, while the index has fallen lower. That may provide bulls with enough incentive to fight back.

Bottomline? Chart patterns of Sensex and Nifty have dropped to long-term support levels. Long-term bull markets are intact because both indices are trading above their respective 200 week EMAs (not shown in above charts). Prolonged corrections test the patience and mettle of small investors. Those who have the courage to swim against the tide will make bigger gains. But do wear a life jacket (i.e. keep suitable stop-loss levels).

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