Saturday, December 19, 2015

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 18, 2015

Net selling in equities by FIIs dropped drastically during the past week, barely touching Rs 20 Crores as per provisional figures. DIIs’ net buying crossed Rs 900 Crores. Sensex and Nifty gained about 2% on weekly closing basis, though FIIs and DIIs were both net sellers on Friday.

Slumping price of oil - mainly due to supply glut - and a crash in the price of natural gas also raised concerns about a global economic slowdown, which led to profit booking in global markets. 

The policy stalemate in the Rajya Sabha has ensured that the GST bill will not get passed during the winter session. Politicians seem more interested in tarnishing each other's reputations (or, the lack of it) than conducting legislative business.

BSE Sensex index chart

The following comment was made in last week's post on the daily closing chart pattern of Sensex: "The positive divergences (on the daily technical indicators) may have set the stage for a technical bounce."

The index tested the support level of 24850 and bounced up to close above its falling 20 day EMA on Thu. Dec 17. But Friday's profit booking by FIIs and DIIs ensured that the index closed below its three falling EMAs in bear territory.

Daily technical indicators have corrected oversold conditions, but are looking bearish. MACD just managed to cross above its signal line in negative zone. ROC climbed above its 10 day MA, but failed to enter positive zone. RSI is below its 50% level. Slow stochastic is facing resistance from its 50% level.

Lack of FII selling can be a near-term trigger for the index to move up till the end of the month. Advance tax figures of several large-cap companies may be a harbinger for better Q3 (Dec '15) results.   

NSE Nifty 50 index chart

The weekly bar chart pattern of Nifty is showing bullish and bearish signs. Since bearish signs appear stronger, let me recount them first.
  • The blue down trend line is still ruling the chart - as it has done for the past 9 months. 
  • The index is trading well below the trend line, as well as below its two weekly EMAs. 
  • The 20 week EMA has crossed below the 50 week EMA, and both EMAs are moving down.
  • All four technical indicators are in bearish zones.

Now, the bullish signs.
  • The index bounced up after testing the long-term support level of 7540.
  • It formed a weekly 'reversal bar' (lower low, higher close) - like it did in the week ending Sep 11 '15.
  • Volumes last week were higher than that in the week ending Sep 11 '15 - opening the door for a 'double bottom' reversal pattern.
A 'double-bottom' reversal pattern will technically be confirmed only if the index manages to move above its Oct '15 top of 8336. To do that, Nifty will need to overcome resistances from its two falling weekly EMAs and the down trend line. Bulls have a lot of work to do.

Bottomline? Chart patterns of Sensex and Nifty bounced up from long-term support levels - hinting at a likely reversal of the 9 months long down trend. Long-term bull markets are very much in force, since both indices are trading well above their rising 200 week EMAs (not shown). This may be a good time to enter large-cap and mid-cap stocks that are facing temporary headwinds. 

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