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Wednesday, April 13, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 13, 2016

The stock market caught a strong tailwind of macroeconomic news. The IIP number was positive for Feb '16 after 3 months of contraction. CPI inflation dropped below 5% to its lowest level in 6 months. Early monsoon forecasts indicated a rain surplus.

In a holiday-shortened trading week, FIIs were net buyers of equity worth Rs 1050 Crores - Rs 100 Crores more than their net sales during the first 6 trading days of the month. Even DIIs were net buyers of equity worth Rs 500 Crores.

Both Sensex and Nifty overcame resistances from their respective long-term moving averages, and closed at their highest levels in 2016. But all may not be well for bulls yet.

BSE Sensex chart pattern

The following remarks appeared in the previous post on the daily bar chart pattern of Sensex: "Some more correction or consolidation can't be ruled out, but bulls may fight back at any time."

On Mon. Apr 11, the index formed a 'reversal day' pattern (lower low, higher close) and emerged from the long-term 'support-resistance zone' between 23840 and 24830.

The index opened with an upward 'gap' today and closed in bull territory above its 200 day EMA for the first time in more than 5 months. But bulls will be wise to postpone their celebrations.

Why? All four daily technical indicators are in bullish zones and have good upward momentum, but are showing negative divergences by touching lower tops (marked by blue arrows) while the Sensex touched a new high for the year.

Expect some profit booking next week. In case FIIs keep buying and the index continues to rally, strong resistance is likely from the down trend line and the next 'support-resistance' level of 26300.

Q4 (Mar '16) results will be the next trigger for the market. Check them out and look for consistent performers.

NSE Nifty chart pattern

The weekly bar chart pattern of Nifty formed a large 'reversal week' bar (lower low, higher close) and crossed above its 50 week EMA for the first time since the week ending on Oct 23, '15.

The index is still 100 points below the down trend line and the next 'support-resistance' level of 7950. Those two hurdles will need to be convincingly crossed with good volume support for bulls to regain control of the chart.

Bears may put up a strong fight to prevent that from happening.

Weekly technical indicators are looking bullish and showing good upward momentum. However, MACD is still in negative zone. Slow stochastic is entering its overbought zone; the previous time it did that was in Aug '15 when it had faced strong resistance from the down trend line.

ROC has also reached the edge of its overbought zone from where it had corrected in Aug '15. So, excitement and euphoria at today's market move should be curtailed. Remain cautiously optimistic.

If initial Q4 (Mar '16) results disappoint the market, Nifty can face a sharp correction.

Bottomline? Chart patterns of Sensex and Nifty have just about managed to overcome resistances from long-term moving averages. Expect bears to strongly defend the blue down trend lines on both charts. Check forthcoming Q4 (Mar '16) results to plan your next moves.

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