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Saturday, May 7, 2016

BSE Sensex and NSE Nifty index chart patterns – May 06, 2016

FIIs were net buyers of equity during Mar & Apr '16, but turned net sellers during the first trading week of May '16. Their net selling was worth Rs 750 Crores, as per provisional figures. DIIs turned net buyers worth Rs 730 Crores during the week, after being net sellers during the past two months.

Both Sensex and Nifty lost about 1.5%, closing lower for the second week in a row. Negative global sentiment, profit booking after a sharp rally from the Feb '16 lows and strong resistances from the blue down trend lines dominating the two index charts kept bulls away.

JP Morgan's Global All-Industry Output Index - which combines survey data from USA, UK, France, Germany, Japan, China, Russia - nudged up to 51.6 in Apr '16 from 51.5 in Mar '16. A PMI covering services rose to 51.9 in Apr from 51.5 in Mar. (A number above 50 indicates growth.)

BSE Sensex chart pattern


The daily bar chart pattern of Sensex closed below its 200 day EMA in bear territory on all 5 trading days of the week. However, the 50 day EMA has provided good downside support.

Note that the upward 'gap' between 25180 and 25358, formed on Apr 13 '16, has been completely filled. There is a possibility that the index may resume its up move soon.

Daily technical indicators are looking bearish. MACD has crossed below its signal line in positive zone after forming a 'double top' pattern. ROC has dropped below its 10 day MA and seeking support from the edge of its oversold zone. RSI has fallen below its 50% level. Slow stochastic has entered its oversold zone.

Some more correction or consolidation around current levels is likely before bulls gather enough strength to fight back. The advent of monsoon - still about 3 weeks away - may provide the necessary upward trigger.

On longer term weekly chart (not shown), Sensex is trading more than 1500 points above its rising 200 week EMA in a long-term bull market. That means corrections can be used as adding opportunities.

NSE Nifty chart pattern


For the third week in a row, the weekly bar chart pattern of Nifty crossed above its blue down trend line intra-week, but failed to close above it. That means the down trend from the Mar '15 top of 9119 remains in force.

The index received support from its rising 20 week EMA, keeping bullish hopes alive. However, weekly technical indicators are showing signs of bearishness that can lead to some more correction.

MACD is rising above its signal line, but hasn't entered its positive zone yet. ROC is trying to re-enter its overbought zone. RSI has formed a 'rounding top' pattern, and is seeking support from its 50% level. Slow stochastic has started to move down from its overbought zone.

The market breadth indicator NSE TRIN (not shown) has not reached its oversold zone yet. That means the ongoing correction may continue next week.

Bottomline? Chart patterns of Sensex and Nifty are correcting after failing to reverse 14 months long down trends. The current macroeconomic situation is better than what it was when the down trend started in Mar '15. It may take at least another quarter for earnings growth of Indian companies to catch up with stock valuations. Add/enter gradually.

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