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Sunday, September 14, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Sep 12, 2014

There was good news and bad news on the economic front last week. First, the good. Consumer Price inflation during August eased slightly to 7.8% – but still remains high enough to preclude any interest rate cut by RBI.

Now, the bad. The IIP number during July was a paltry 0.5% – much lower than the previous month’s 3.9% – thanks mainly to a 21% contraction in consumer durables output. FIIs invested a net Rs 2250 Crores in equities, which was counteracted by DIIs net selling of Rs 2510 Crores.

The net effect was a small mid-week correction in both Sensex and Nifty. However, retail buying ensured that both indices closed marginally higher for the week – the fifth straight week of gains.

BSE Sensex index chart

SENSEX_Sep1214

In a post 4 months back, the 156 points ‘gap’ formed on the daily bar chart pattern of Sensex on May 13 ‘14 was identified as a ‘measuring gap’ with an upward target of 27339. By touching an intra-day high of 27355 on Sep 8 ‘14, the Sensex has almost met the target.

Why almost? Because targets are met only on a closing basis. Sensex has not managed to close above 27355 yet. But that should happen in the very near future. What is likely to be the next move for the index?

Daily technical indicators have corrected overbought conditions, and their downward momentum appears to be slowing down. That could lead to a bit of consolidation before the up move resumes.

How much higher can the index go? Remember that Sensex is in ‘blue sky’ territory with no known resistances. Trying to predict index levels is a futile exercise. Periodic corrections have ensured that Sensex valuations are still reasonable, but no longer cheap. Q2 results will indicate if earnings are beginning to catch up with sentiments.

Stay invested, and stick to your financial plan. Your asset allocation plan should tell you whether you need to book profits. Still don’t have a financial plan? That is like boarding a train without knowing where it is going and how long the journey will take! (May be a fun thing to do if you are young and carefree – but disastrous if you have family and financial responsibilities.)

NSE Nifty 50 index chart

Nifty_Sep1214

The weekly bar chart pattern of Nifty touched new intra-week and closing highs. It was the fifth straight week of higher closes. Trading volumes are on the rise, which is good for sustainability of the current up trend (marked by new up trend line UL3).

In a mid-week technical update, some bearish signs had pointed to a likely correction. The correction last just 3 days. Some profit booking that failed to have any significant effect on market sentiments.

Weekly technical indicators are in bullish zones. MACD and Slow stochastic are inside their respective overbought zones. ROC and RSI are showing some downward momentum and negative divergences by failing to touch new highs with the index. Some consolidation or a bit of correction can be expected.

Nifty is trading above its two weekly EMAs and two up trend lines in a long-term bull market. Whatever you do, don’t think about shorting the index. If you are not the patient type, spend your energies on researching BSE 500 stocks. Some of them are still available at reasonable valuations.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices touched new lifetime highs once more. FIIs and DIIs continue to play bulls and bears respectively. The long-term trend is up. That means corrections are opportunities to add to existing positions.

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