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Saturday, August 23, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Aug 22, 2014

Why has the stock market behaved the way it has during August? One need not look further than FII and DII trading activities to find the answer. In the first 7 trading sessions (till Aug 11), FIIs were net sellers and DIIs were net buyers of equity. During the next 8 trading sessions (till Aug 22), FIIs turned net buyers and DIIs were net sellers.

So far in Aug. ‘14, FIIs have been net equity buyers of Rs 2600 Crores; DIIs have also been net equity buyers of about Rs 1600 Crores. No wonder both Sensex and Nifty touched new lifetime highs. How long will the buying continue?

There were concerns that the US Fed may raise interest rates, leading to a flight of FII money from emerging markets. But Janet Yellen took a cautious approach about raising interest rates despite a pick-up in the US job market. So, there is no reason to think that there will be a big outflow of FII money that can cause a crash in our market.

BSE Sensex index chart

SENSEX_Aug2214

In last week’s analysis of the daily bar chart pattern of Sensex, bullish signals from technical indicators had raised expectations that the index will touch a new high. The index didn’t disappoint. It rose to touch new intra-day (26530) and closing (26420) highs on Tue. Aug 19.

For the rest of the week, the index hovered near its new high – like it did back in Jun ‘14. Daily technical indicators are looking bullish, but showing negative divergences by failing to touch new highs with the index. Expect some consolidation or correction before the up move continues.

Sensex is trading above all its three EMAs in a long-term bull market. Periodic corrections have allowed adding opportunities, and kept the chart technically ‘healthy’. Another up trend line – connecting the index lows in May, Jul and Aug – has merged with the 50 day EMA. Up trend line 2 is just above the 200 day EMA. All technical signs point to continued bull domination.

Negative divergences in all four technical indicators for the past 3 months have led to shallow corrections. If you are sitting on good profits in unknown small-cap stocks, you may want to switch to large-caps. If you are holding large-caps from lower levels, suppress the urge to book profits. Continue to hold with a trailing stop-loss.

As the RaRe bull said some time ago: This is going to be the mother of all bull markets.

NSE Nifty 50 index chart

Nifty_Aug2214

The weekly bar chart pattern of Nifty closed at a new lifetime high of 7913 for the week, though trading volumes have not picked up significantly. One of the reasons why Nifty has been on a gradual up trend after the elections instead of in a runaway rally is because volumes have been sliding.

There are reports of large inflows into domestic mutual funds during the past 3 months, which is a sign of retail investor interest. But there is no sign of euphoria in the market. Some small-cap and mid-cap stocks shot up like rockets, but many have undergone good corrections from their recent highs.

Weekly technical indicators are looking bullish and overbought. MACD is entangled with its signal line, and moving sideways inside overbought territory. RSI has slipped a bit from its overbought zone. Slow stochastic is moving sideways inside its overbought zone. ROC is oscillating in positive territory, but remains below its falling 10 week MA.

Another shallow correction or consolidation can be expected next week. Nifty is trading above both its rising weekly EMAs in a long-term bull market – cruising like a Dreamliner at 30000 feet. Enjoy the ride.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices touched new lifetime highs in long-term bull markets. Periodic corrections have prevented both indices from reaching euphoric levels. Hold on to your portfolios and watch your profits grow. If you are itching to do something, get rid of non-performers. Utilise the extra allocation to PPF allowed in the budget.

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