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Saturday, April 23, 2016

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 22, 2016

FIIs were in buying mode in another holiday-shortened trading week. Their net buying in equities was worth almost Rs 1900 Crores. DIIs turned net sellers of equity worth more than Rs 700 Crores.

Both Sensex and Nifty crossed above their long-term moving averages into bull territory after more than 5 months, but faced strong resistances from their respective blue downtrend lines.

Q4 (Mar '16) results from IT companies, Reliance and private banks declared so far have been quite satisfactory. Some large companies will be declaring their results next week, which is also F&O expiry week. 

Expect some consolidation or correction before bulls make another attempt to overcome resistances from the downtrend lines.   

BSE Sensex chart pattern



The daily bar chart pattern of Sensex spent the entire trading week above its three EMAs in bull territory, but failed to overcome resistance from the blue downtrend line.

The 20 day EMA has crossed above the 50 day EMA, and both EMAs are rising. The 200 day EMA has stopped falling and has flattened out. These are bullish signs in the near term.

All four daily technical indicators are in bullish zones, but their upward momentum is weakening. 

MACD has crossed above its signal line in positive zone. ROC has crossed above its 10 day MA and reached the edge of its overbought zone. RSI has turned down after facing resistance from the edge of its overbought zone. Slow stochastic is reversing direction inside its overbought zone.

Sensex had formed an upward 'gap' between 25180 and 25358 on Wed. Apr 13. The current level of the rising 20 day EMA is within the 'gap' zone, and is likely to provide support if the index corrects some more. Even if the 'gap' gets filled - partly or fully - the up move should resume thereafter.

NSE Nifty chart pattern



The following comments appeared in the previous post on the weekly bar chart pattern of Nifty

"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." 

Note that the index touched an intra-week high of 7978 after crossing above the downtrend line and the 7950 level with good volume support. But bears fought back to ensure that the index closed below 7950 and the downtrend line.

In the process, the index has formed a weekly 'doji' candlestick pattern, which indicates indecision among bulls and bears that is often a harbinger of a short-term trend change. 

Is there any particular significance of Nifty's rally stalling after touching 7978? It so happens that the 50% Fibonacci retracement level of the entire fall from 9119.20 (lifetime high touched on the week ending on Mar 6 '15) to 6825.80 (intermediate bottom touched on the week ending on Mar 4 '16) is 7972.50.

So what? Well, the 50% Fibonacci retracement level is kind of a 'Lakshman rekha' acknowledged by bulls and bears. A convincing cross above (or below) it is a technical confirmation of a change of trend. 

The market breadth indicator, NSE TRIN (not shown) has dropped sharply to enter its overbought zone. Weekly ROC is looking extremely overbought. Slow stochastic has also entered its overbought zone. MACD and RSI are not in overbought zones yet, but a correction or consolidation next week seems likely.

Bottomline? Chart patterns of Sensex and Nifty failed to overcome strong resistances from their respective blue down trend lines. Some correction or consolidation can be expected before the indices resume their up moves. Check Q4 (Mar '16) results before jumping in to add on the likely dips.

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