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Sunday, February 28, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Feb 26, 2016

FIIs were net sellers of equity for the 4th month in a row, and have been sellers in 6 of the last 7 months. Their net selling during Feb '16 has nearly touched Rs 10500 Crores. 

DIIs were net buyers of equity worth Rs 9000 Crores, as per provisional figures. That wasn't enough to prevent both Sensex and Nifty from touching new 52 week lows during the month, and losing 2.5% on a weekly closing basis.

The Railway Minister tried to walk a fine line between a populist and a realistic budget. The result was a bit of a damp squib, and questions were raised about resource generation for funding new projects.

The budget session has started on a combative mode, with the opposition pillorying the government for its ham-handed approach towards subduing various protest movements. There are very little expectations from the budget on Feb 29 - which may turn out to be a contraindicator for a market rally. 

BSE Sensex chart pattern


The following comments were made in last week's post on the daily bar chart pattern of Sensex: "Bears may use the pullback to sell. Sensex is likely to test the Feb 12 low, and even breach it if budget proposals disappoint the market."

As expected, bears (i.e. FIIs) used the pullback towards the 23840 level (marked by 2nd red arrow) to sell. The index stopped short of testing the Feb 12 low of 22600 - thanks to short covering on Fri. Feb 26 '16.

On the Sensex chart above, green arrows point to intermediate bottoms that acted as support levels, which subsequently turned into resistance levels (marked by red arrows).

Three of the daily technical indicators - MACD, RSI, Slow stochastic - are in bearish zones and not showing any upward momentum. ROC is the only one looking bullish by crossing above its 10 day MA and managing to enter positive zone.

The door remains open for bears to push the index down to a new 52 week low, if the budget doesn't contain any market-friendly proposals.

All three EMAs are falling, and the index is trading below them in a bear market. Sensex has closed below its 200 week EMA (not shown) for the second time in three weeks - keeping long-term bulls on tenterhooks.

NSE Nifty 50 chart pattern


The weekly bar chart pattern of Nifty is showing an interesting, but not surprising, phenomenon. Resistance levels that are almost 2 years old (intermediate tops marked by the two red arrows on the left of the chart) got breached on the up side and subsequently turned into support levels (marked by green arrows).

The support levels (intermediate bottoms) were breached on the down side almost 2 years later and then turned into resistance levels (marked by red arrows on the right of the chart).

Reminds me of Miles Davis' famous composition: So what? Just a reminder that calculated levels - like Fibonacci retracement levels - tend to be less reliable than actual support/resistance levels.

What if a Fibonacci retracement level coincides with a previous support level? For e.g. the 61.8% retracement level of the entire 4000 points rise in Nifty (from 5119 in Aug '13 to 9119 in Mar '15) is 6647, which happened to provide support to the index during Apr. '14.

Well, 6647 is likely to be a stronger support level (may be even a turning point) than the support/resistance level of 6869 (corresponding to the Feb 12 low).

In other words, if 6869 gets breached after the budget announcements, Nifty is likely to find strong support in the zone between 6647 and 6869. Remember that technical levels are never exact, but mostly approximate.

What if 6647 also gets convincingly breached on the downside? All bullish bets should be taken off the table.

Weekly technical indicators are in bearish zones, and looking oversold. That doesn't mean Nifty can't correct some more. The index closed below its 200 week EMA (not shown) again after two weeks, but touched a higher bottom - keeping faint bullish hopes of a revival alive.

Bottomline? Chart patterns of Sensex and Nifty have again closed below their respective 200 week EMAs. The threat to long-term bull markets has been renewed. Remain extremely cautious, but keep faith in your investment plans.

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