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Saturday, April 19, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Apr 18, 2014

In a holiday-truncated week, Sensex and Nifty were not expected to go anywhere – and they didn’t. Both indices closed flat for the week. However, intra-week gyrations kept small investors on tenterhooks.

When stock indices are trading at life-time highs, some caution is warranted. However, both indices are in long-term bull markets – which means the indices are likely to move higher, and dips provide opportunities to add.

Results season is upon us. First off the block were the large IT services companies, which revealed a good set of numbers. Even Reliance came up with decent profits, though top line growth was negative. Glaxo Pharma’s Q1 numbers disappointed.

BSE Sensex index chart

SENSEX_Apr1714

Sensex faced profit booking from FIIs and DIIs during the first 2 days of a short 3-days trading week, but found good support from its rising 20 day EMA and bounced up to close absolutely flat for the week. All three EMAs are rising and Sensex is trading above them, which is the sign of a bull market.

Daily technical indicators have corrected from overbought conditions, but remain in bullish zones. MACD has crossed below its signal line, and about to drop from its overbought zone. ROC has bounced back into positive territory, but is below its 10 day MA. RSI dropped from its overbought zone after almost 6 weeks, but has turned up again. Slow stochastic has fallen from its overbought zone, and is just above its 50% level.

LIC reportedly sold heavily during Jan-Mar ‘14, but FIIs have clearly absorbed all the selling. Now that a new financial year has started, LIC can be expected to re-enter the market with its huge cash pile. No points for guessing which way Sensex will move when they do.

NSE Nifty 50 index chart

Nifty_Apr1714

The weekly bar chart pattern of Nifty consolidated sideways in a holiday-shortened, low-volume week. For the second week in a row, the index crossed the psychological 6800 barrier intra-week, but failed to close above it. However, the weekly close of 6779 was a life-time high.

Why is 6800 a ‘psychological’ (as opposed to a ‘technical’) barrier? Because Nifty is in ‘blue-sky’ territory with no known resistances. Under such circumstances, index levels with easily recognisable round numbers tend to provide resistance. Once 6800 is crossed – which can happen at any time – expect some resistance at 7000.

Weekly technical indicators are well inside their respective overbought zones. Markets can remain overbought or oversold for long periods. But some correction or consolidation may start at any time. Nifty is in a long-term bull market, so any dips can be used to add.

Selling at every rise is a good strategy in a bear market. In a bull market, it could mean that you may either miss a major rally or, may be forced to re-enter at higher levels.

What if the market suddenly turns bearish without any rhyme or reason? Such things do happen. For instance, NDA may fail to get a majority and NaMo may not become the PM of a coalition government. Just keep a stop-loss at 6350 (previous resistance) or 6150 (current level of the 50 week EMA) and stay invested.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are in long-term bull markets. This is not the time to sell off fearing a market crash. Stay invested with appropriate stop-losses. Continue with your SIPs in funds. Use dips as opportunities to add selectively.

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