Friday, June 3, 2016

BSE Sensex and NSE Nifty index chart patterns – Jun 03, 2016

FIIs were net buyers of equity worth more than Rs 2600 Crores during the week. DIIs were net sellers of equity worth nearly Rs 1300 Crores, as per provisional figures.

Both Sensex and Nifty traded well above their respective down trend lines, which were breached last week, but gained only 0.7% on a weekly closing basis.

Excluding banks, NBFCs and oil & gas sector, the combined net revenues of around 2000 companies grew 5.4% YoY during Q4 (Mar '16), while combined net profits grew nearly 21%

BSE Sensex chart pattern

The daily bar chart pattern of Sensex traded above its three EMAs and the blue down trend line in bull territory during the week. The 50 day EMA has moved up to touch the 200 day EMA (marked by light blue circle).

The 'golden cross' of the 50 day EMA above the 200 day EMA that technically confirms a bull market, is imminent. But it needs to be a convincing cross.

The index has lost a bit of upward momentum as it consolidated after a sharp breakout above the down trend line last week.

All four daily technical indicators are looking overbought. That may lead to a correction or some more consolidation within the 'support-resistance zone' between 26300 and 27250.

Remember that the index can remain overbought for long periods during a bull phase. 

However, a correction towards the lower edge of the 'support-resistance zone' will improve the technical health of the chart and make it easier for the index to overcome resistance from the 27250 level. 

The likely onset of monsoon along the Kerala coast next week can be a trigger for the index to move higher.

NSE Nifty chart pattern

The following comment appeared in last week's post on the weekly bar chart pattern of Nifty: "The next resistance level is likely to be 8275, where several bottoms were touched last year."

The index touched an intra-week high of 8262 - close to the 8275 level - but slipped down to close 21 points above the psychological level of 8200.

Note that 8243 is the 61.8% Fibonacci retracement level of the entire index fall from the Mar '15 top (9119.20) to the Feb '16 low (6825.80). Fibonacci levels are often used by technical traders to make buy/sell decisions. 

A long-term support-resistance level, like 8275, has greater technical significance than a calculated Fibonacci retracement level, like 8243. However, the two levels are close enough to be treated technically as the same level.

Weekly technical indicators are in bullish zones, but three of them - ROC, RSI, Slow stochastic - are in their overbought zones. ROC is showing negative divergence by failing to touch a new high with the index.

A correction towards 7950 or some consolidation within the 'support-resistance zone' between 7950 and 8275 is a possibility.

With FIIs turning bullish again, technicals can get thrown out the door and Nifty can resume its up move with renewed vigour.

Bottomline? Bulls are gradually regaining control of Sensex and Nifty charts. The imminent onset of monsoon should provide further incentive to bulls to charge ahead. If you are waiting for a big correction to enter, you may have to wait a long time.

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