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Saturday, January 30, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 29, 2016

Stock markets worldwide reacted bullishly to economic stimulus announcements by ECB and China and a cut in interest rate (to -0.1%) by Japan. 

All is not well on the economic front, as India's GDP growth rates for FY14 was revised down to 6.6% from 6.9% and for FY15 to 7.2% from 7.3%.

As per provisional figures, FIIs were net sellers of equity worth Rs 14350 Crores in Jan '16. The figure exceeded their combined sales in Nov '15 and Dec '15. DIIs were net buyers of equity worth Rs 12900 Crores.

A combination of short covering and value buying at lower levels ensured that both Sensex and Nifty made weekly gains for the first time in Jan '16.

BSE Sensex chart pattern

The daily bar chart pattern of Sensex, which had twice received support from the 24830 level (in Sep '15 and Dec '15 - marked by green arrows), breached the support level and dropped to a low of 23840 last week - correcting more than 20% from the Mar '15 top of 30025.

The index formed a small 'double bottom' pattern and pulled back to the 24830 level (marked by red arrow). The likelihood of a counter-trend move and resistance from the 24830 level were explained in last week's post.

Daily technical indicators are turning bullish. MACD has crossed above its signal line in negative zone. ROC has entered positive zone. RSI has moved up to its 50% level. Slow stochastic has climbed above its 50% level.

Bears (read FIIs) are still dominating in the near term, and will continue to do so as long as the index trades below it falling 200 day EMA and the blue down trend line.

However, the long-term bull market is intact because Sensex is trading more than 1300 points above its 200 week EMA. 

If the pullback to the 24830 level is used as a selling opportunity by bears, the index will fall into 'attractive valuation' zone.

NSE Nifty 50 chart pattern

The weekly bar chart pattern of Nifty had received good support from the 7540 level in Sep '15 and Dec '15 (marked by green arrows). The support level got broken and the index dropped to an intra-week low of 7241 in the week ending on Jan 22 '16 - correcting more than 20% from its Mar '15 peak of 9119.

A 20% correction from an index top is often considered a confirmation of a bear market by technical analysts. So, last week's pullback to the 7540 level may be used as a selling opportunity by bears.

Bulls may point to the weekly bar of the previous week, which formed a 'dragonfly doji' candlestick pattern. The pattern has bullish implications when formed at the bottom of an intermediate down move.

Weekly technical indicators are looking bearish, but showing faint signs of reversal. MACD below its signal line in negative zone but stopped falling. ROC is facing resistance from its 10 week MA at the edge of its oversold zone. RSI has bounced up weakly from the edge of its oversold zone. Slow stochastic is trying to emerge from its oversold zone.

Bulls need to muster a lot of buying support if they wish to turn the pullback into a full-fledged rally.

Bottomline? Chart patterns of Sensex and Nifty have pulled back to previous support levels. Bears may use the opportunity to sell. Long-term bull markets are still intact, as both indices are trading above their rising 200 week EMAs (not shown), and near long-term P/E averages, which make them fairly valued.

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