Saturday, February 13, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Feb 12, 2016

FIIs were heavy net sellers of equity worth more than Rs 3000 Crores last week, as per provisional figures. DIIs were net buyers of equity worth Rs 2050 Crores - not enough to prevent vertical plunges on Sensex and Nifty charts.

Retail (CPI) inflation inched up to 5.69% in Jan '16 from 5.61% in Dec '15, due to higher food prices. The Jan '15 number was 5.19%. Rising inflation may prevent any further interest rate cuts by RBI.

The IIP number for Dec '15 was -1.3%. It was the second month of contraction. In Nov '15 IIP was -3.4%. In Q3, IIP was 1.5% vs. 4.8% in Q2. However, for the 9 months period from Apr to Dec '15, IIP was 3.1% against 2.6% for the same period in 2014. 

Auto sales slipped marginally (-0.72%) in Jan '16 on a YoY basis after 14 straight months of growth. The good news is robust double-digit growth in CV sales.

BSE Sensex chart pattern

The daily bar chart pattern of Sensex dropped vertically like a falling knife, as it sliced through known support levels to touch a 21 months low of 22600 on Friday, Feb 12. The unfilled 'gap' formed back in May '14 in the euphoria of NDA's election victory was filled easily.

Daily technical indicators are inside their oversold zones. However all three are showing positive divergences by not falling lower with the index.

Though an index can stay oversold for long periods during bear phases, a technical bounce may be imminent. The index formed a 'reversal day' pattern (lower low, slightly higher close) with strong volume support (not shown on chart).

Sensex closed the week more than 3000 points below its 200 day EMA. Such a huge drop below the 200 day EMA in a short span of time is unsustainable.

In candlestick parlance, Friday's trading formed a 'hammer' pattern, which usually has bullish implications when formed at the end of a down trend. Next week's trading will indicate whether bulls will be in a mood to fight back.

The index dropped below its 200 week EMA (not shown) for the first time since Aug '13, but managed to close within the 3% 'whipsaw' limit. The long-term bull market is now under threat.

NSE Nifty 50 chart pattern

The weekly bar chart pattern of Nifty 50 collapsed on heavy selling by FIIs, touching its lowest level since May '14 and breaching the 200 week EMA for the first time since Aug '13.

A close below the 200 week EMA is considered very bearish. But a single week's breach should not cause panic. Faint bullish hopes were kept alive as the index closed the week within the 3% 'whipsaw' limit below its 200 week EMA.

Weekly technical indicators are looking oversold and showing downward momentum. If the index fails to bounce up within the next 2-3 trading weeks, much lower levels may be on the cards.

How much lower? Check the previous post on Nifty. Likely lower support levels have been mentioned there.

Bottomline? Chart patterns of Sensex and Nifty have closed below their respective 200 week EMAs. Long-term bull markets are now under real threat. This is not the time to panic and sell off. Stick to your investment plans. Bottom fishing should be attempted in a very gradual manner - if at all.

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