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Saturday, May 21, 2016

BSE Sensex and NSE Nifty index chart patterns – May 20, 2016

A hawkish stance by the US Fed raised the spectre of an interest hike in June '16. US Dollar rose to multi-week highs. Oil prices and Rupee plummeted. Brexit concerns (Britain's emexit from Eurozone) exacerbated a sell-off in global stock markets.

Indian stock market wasn't spared, as FIIs were net sellers of equity worth almost Rs 2100 Crores during the week, as per provisional figures. DIIs were net buyers of equity worth nearly Rs 2600 Crores - but could not prevent Sensex and Nifty from closing lower for the week.

Q4 (Mar '16) results for PSU banks have been a disaster. The worst may not be over for them. ITC results beat street estimates. Their Rs 25000 Crores planned investments in processed foods and a 1:2 Bonus announcement came too late on Friday (May 20) to pep up bulls.

BSE Sensex chart pattern


The daily bar chart pattern of Sensex made another futile attempt to cross above the blue down trend line that has been dominating the chart for the past 15 months.

Once again, the index faced strong resistance from the trend line and dropped below its 200 day and 20 day EMAs into bear territory. The rising 50 day EMA provided support - as it had done in the past two months.

For the past 6 weeks, the index has been consolidating sideways within a 'symmetrical triangle' pattern - with the down trend line acting as the upper boundary and the 50 day EMA acting as the lower boundary.

Triangles are unreliable patterns. One must wait for a breakout - which can occur upwards or downwards - before taking a decision to buy/sell.

Daily technical indicators are looking bearish. MACD is falling below its signal line in positive zone. ROC is about to cross below its 10 day MA and enter negative territory. RSI is facing resistance from its 50% level. Slow stochastic is about to slip below its 50% level.

Some more consolidation within the 'symmetrical triangle' is likely. ITC's unexpected bonus announcement may stoke bullish fervour. Bears are unlikely to give up control during F&O expiry week.

In case of a breakout above the trend line or a drop below the 50 day EMA, expect the index to remain within the 'support-resistance zone' between 24830 and 26300.

NSE Nifty chart pattern


The weekly bar chart pattern of Nifty crossed above the blue down trend line intra-week but failed to close above it for the 5th week in a row. The index closed below its 50 week EMA but above its 20 week EMA. 

For the 9th straight week, the index consolidated within the 'support-resistance zone' between 7530 and 7950. Nifty is showing clear signs of wanting to breakout upwards - but FII selling has prevented bulls from regaining control.

Weekly technical indicators are providing conflicting signals, which often happens during periods of consolidation. MACD is rising above its signal line and is poised to enter positive zone. ROC has crossed below its 10 week MA in positive zone. RSI has risen to the edge of its overbought zone. Slow stochastic is about to drop from its overbought zone.

Bottomline? Bears are strongly defending the blue down trend lines on the chart patterns of Sensex and Nifty. The imminent onset of monsoon may provide incentive for bulls to fight back. But that may only happen after a couple of weeks. Till then, remain invested, and look for opportunities among companies that have declared good Q4 (Mar '16) results.

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