Shorts were badly trapped in F&O expiry week. FIIs turned buyers during the last three days of the week, joining DIIs in propelling Sensex and Nifty well past their respective down trend lines.
BSE Sensex chart pattern
After facing strong resistance from the blue downtrend line during Apr & May '16, the daily bar chart pattern of Sensex soared past the trend line, its three EMAs and the resistance level of 26300 into bull territory.
Looks like the down trend from the Mar '15 top of 30025 has finally been reversed.
The 20 day EMA has crossed above the 200 day EMA. The 'golden cross' of the 50 day EMA above the 200 day EMA will technically confirm a return to a bull market.
The next resistance level for the index is likely to be 27250 - where multiple previous bottoms occurred during Mar-Aug '15. But the index may pullback towards the downtrend line before testing resistance from the 27250 level.
Why? Because technical indicators are suggesting that the time may be ripe for some profit booking.
All four indicators are in bullish zones. ROC and RSI are at the edges of their overbought zones. Slow stochastic is well inside its overbought zone. MACD, ROC and RSI are showing negative divergences by failing to touch new highs with the index.
Any pullback towards the trend line will provide a good adding opportunity to those (including yours truly) who were caught off guard by last week's sudden upward breakout.
NSE Nifty chart pattern
The weekly bar chart pattern of Nifty had failed to close above the down trend line despite breaching the trend line intra-week 5 weeks in a row. The inevitable unexpectedly happened during F&O week, as shorts ran for cover amidst combined buying by FIIs and DIIs.
The index broke out with decent (but not significantly higher) volume support, and closed well above its two weekly EMAs, the blue downtrend line and the resistance level of 7950 - reversing the down trend from the Mar '15 top of 9119.
The next resistance level is likely to be 8275, where several bottoms were touched last year.
Weekly technical indicators are in bullish zones. MACD has entered positive zone above its rising signal line. ROC, RSI and Slow stochastic are in their respective overbought zones.
Note that ROC and Slow stochastic are showing negative divergences by failing to touch new highs with the index. That may trigger a pullback towards the down trend line.
The breadth indicator NSE TRIN (not shown) has dropped inside its overbought zone, hinting at a correction. The likely dip will be an adding opportunity.
Bottomline? Bulls finally overcame strong resistances from the blue down trend lines on the chart patterns of Sensex and Nifty. The imminent onset of monsoon and decent Q4 (Mar '16) results provided incentive for bulls to fight back. Look for opportunities among companies that have declared good Q4 and annual results.