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Sunday, May 15, 2016

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

FIIs and DIIs were both net buyers of equity last week. Their net buying was worth Rs 1700 Crores and Rs 2100 Crores respectively, as per provisional figures. Sensex and Nifty closed more than 1% higher for the week after two weeks of correction - but failed to close above their down trend lines.

There was a 'double whammy' on the macroeconomic front. The IIP number was a paltry 0.1% in Mar '16 against 1.98% in Feb '16. For FY 2015-16, IIP was 2.4% against 2.8% in FY 2014-15. CPI inflation rose to 5.39% in Apr '16 against 4.83% in Mar '16. A further cut in interest rates may be kept in abeyance by RBI.

However, India's trade deficit narrowed for the 4th straight month to US$ 4.84 Billion in Apr '16 - the lowest level since Mar '11 - against $ 5.07 Billion in Mar '16. Lower oil prices and subdued gold demand due to the jewellers' strike helped reduce the trade gap.

BSE Sensex chart pattern

The daily bar chart pattern of Sensex oscillated about its 200 day EMA during the week - consolidating sideways within a narrow range and receiving good support from its 20 day EMA.

Technically, the index is trading in a bear market, as it failed to close above its 200 day EMA by the end of the week. The down trend from the Mar '15 top - marked by blue down trend line - has entered its 15th month.

The down trend will remain in force till it gets reversed convincingly. That means, the index needs to cross above the down trend line with strong volume support, and then continue to close above it for several days in a row.

So far, five attempts by Sensex to cross above the down trend line since Jul '15 have been strongly repelled by bears. Remember that unlike support/resistance levels, which get weakened by each test, a trend line gets strengthened the more it gets tested.

Daily technical indicators are turning bearish - hinting at a continuation of the current consolidation/correction. MACD is moving sideways in positive zone, but remains below its falling signal line. ROC managed to cross above its falling 10 day MA - only to re-enter negative territory. RSI is facing resistance from its 50% level. Slow stochastic looks ready to drop below its 50% level.

There is a good chance that the index will correct towards the lower edge of the 'support-resistance' zone between 24830 and 26300, before it can gather enough strength to cross above the down trend line.

On longer term weekly chart (not shown), Sensex failed to close above its 50 week EMA, but is trading almost 1800 points above its rising 200 week EMA in a long-term bull market. The consolidation is providing an adding opportunity.

NSE Nifty chart pattern

For the fourth 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. Bears are putting up a stiff fight to defend the down trend line that has been ruling the chart from Mar '15 onwards.

The index managed to close almost exactly at the level of its 50 week EMA, but the failure to close above the down trend line on a weekly basis may lead to a correction down to the lower edge of the 'support-resistance' zone between 7530 and 7950.

Weekly technical indicators are giving mixed signals. MACD is rising above its signal line, but is yet to enter positive territory. ROC has dropped sharply from its overbought zone and is seeking support from its rising 10 week MA. RSI has bounced up from its 50% level. Slow stochastic is about to drop from its overbought zone.

The breadth indicator NSE TRIN (not shown) is in neutral zone. That may lead to some more consolidation around current levels. Prediction by Skymet of an early onset of monsoon may provide some impetus to bulls.

Bottomline? The down trends visible on the chart patterns of Sensex and Nifty have entered their 15th month. The macroeconomic condition appears to be taking two steps forward and one step back. Earnings growth of Indian companies are mainly due to lower costs of commodities. Be stock-specific and enter slowly with appropriate stop-losses.

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