Saturday, March 5, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Mar 04, 2016

The Finance Minister stuck to the fiscal deficit target of 3.5% of GDP, and maintained status quo on long-term capital gains tax on equity holdings in his budget proposals. 

FIIs were reassured - despite lack of clarity on retrospective taxation - and have turned buyers. During the first 4 days of Mar '16, their net buying in equities crossed Rs 5900 Crores, as per provisional figures. DIIs were net sellers of equity worth Rs 2400 Crores.

India's manufacturing PMI (Purchase Manager's Index) was 51.1% in Feb '16 - the same as in Jan '16. A number above 50% indicates growth. However, services PMI dropped to a 3 months low of 51.4% in Feb '16. It was 54.3% in Jan '16 - a 19 months high.

RBI relaxed capital adequacy requirements of banks by allowing 45% of readily-saleable property value and foreign currency translation reserves to be included in Tier - I capital calculations. This has come as a big relief for PSU banks struggling with huge NPAs.  

BSE Sensex chart pattern

The daily bar chart pattern of Sensex touched a new 52 week low of 22495 on budget day (Feb 29 '16) but recovered to close just above the 23000 level. It rallied during the next 3 days as FIIs suddenly turned bulls.

The index easily crossed above its 20 day EMA, the support/resistance level of 23840 and its 50 day EMA before facing resistance from the next support/resistance level of 24830.

All four daily technical indicators touched higher bottoms (marked by blue arrows) while the index dropped to a new low. The combined positive divergences was a technical trigger for the rally.

Is the year-long correction finally over? It may be a bit early to call. The index is still trading below its falling 200 day EMA and the blue downtrend line, and technically remains in a bear market. Things can change quickly if FIIs continue to buy.

What is Sensex likely to do next? Shorts have been covered and there are no immediate positive triggers for the market. RBI has hinted at a possible interest rate cut in April '16.

Till then, expect some consolidation in the zone between 23840 and 24830. A possible move can be a test of support from the 23840 level before the index tries to overcome resistance from the 24830 level. In that case, an 'inverse head and shoulders' reversal pattern will form.

Sensex can also breach the support at 23840 and re-test its Feb 29 low - but that seems a low probability event as of now. A third possibility is a continuation of the current rally past 24830, in which case the next resistance level will be 26300.

On longer term weekly chart (not shown) the index has closed 1100 points above its 200 week EMA, keeping the long-term bull market alive. If you missed buying on the rally, use any dips to add. Otherwise, stick to your asset allocation plan.

NSE Nifty 50 chart pattern

The weekly bar chart pattern of Nifty has formed a large 'reversal bar' on strong volumes, hinting that the year-long correction from the Mar '15 top is coming to an end.

The index needs to overcome overhead resistances from the support/resistance level of 7540, its falling 20 week and 50 week EMAs and the blue downtrend line before bulls can regain control of the chart.

Weekly technical indicators have recovered from oversold conditions and are showing good upward momentum, but remain in bearish zones.

On weekly closing chart (not shown), Nifty has formed a 'double bottom' reversal pattern and bounced up to close nearly 400 points above its 200 week EMA.

Bottomline? Chart patterns of Sensex and Nifty have bounced up to close well above their respective 200 week EMAs. The threat to long-term bull markets has been averted. With FIIs turning buyers, bullish sentiment is back in the market. Don't get caught up in the euphoria. Be patient, and stick to your investment plans.

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