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Saturday, November 1, 2014

BSE Sensex and NSE Nifty 50 index chart patterns – Oct 31, 2014

The following remarks appeared in last week’s analysis: “Bulls are about to regain control and take both indices to new highs. The Sep 8 ‘14 lifetime high remains a psychological hurdle. There is usually some profit booking near a previous top, but that shouldn’t prevent bulls from charging ahead.”

There was just a day’s pause near the Sep 8 ‘14 tops before Sensex and Nifty soared away to touch lifetime highs. FIIs turned net buyers of equity during the week. But they were net sellers of Rs 1700 Crores during Oct ‘14. DII’s were net sellers of equity during the week, but net buyers of Rs 4100 Crores during Oct ‘14.

Retail investors have started entering the market in large numbers. But news on the ground is not encouraging yet. PSU banks are showing increasing NPAs. Credit growth remains poor. A deficient monsoon has affected rural sales. Core sector growth has slipped.

However, the possibility of an interest rate hike in USA has receded for now. Japan’s announcement of a large dose of economic stimulus triggered renewed buying in global equities and a sell off in gold.

BSE Sensex index chart

Sensex_Oct3114

The daily bar chart pattern of Sensex soared to new intra-day and closing highs on Fri. Oct 31 ‘14 - in a rousing finale to the first full week of trading during the month. A number of festivals and state election in Maharashtra meant several holidays that kept trading at a low ebb.

Bulls are firmly in control, with Sensex reaching blue-sky territory with no known resistances. Daily technical indicators are looking overbought. MACD has formed a bullish ‘rounding bottom’ pattern, and crossed above its signal line into positive territory. ROC has moved sharply above its 10 day MA (which has also formed a ‘rounding bottom’ pattern) and entered its overbought zone. RSI and Slow stochastic have also entered their respective overbought zones.

Note that MACD and RSI are showing negative divergences by failing to touch new highs with the index. A sharp rise to touch a new high is often followed by some consolidation or correction. The likely dip can be used to add/enter.

NSE Nifty 50 index chart

Nifty_Oct3114

The following comments were made in last week’s analysis of the weekly bar chart pattern of Nifty: “The drop below UL3 was within the 3% ‘whipsaw’ range – keeping the up trend intact technically. Nifty should cross above UL3 soon, and move up to touch new highs.”

Nifty comfortably crossed above UL3 to touch new intra-week and closing highs. The sharp rise in the index outpaced the technical indicators – all four of which are showing negative divergences by failing to touch new highs.

Since the index is firmly in control of bulls, a consolidation is more likely than a correction. Global markets are climbing and FIIs are back in buy mode. Any correction or consolidation is going to be short-lived.

Suppress the feeling of excitement as you see newly acquired stocks hurtling towards outer space. Maintain investment discipline of following an asset allocation plan and booking part profits in small-cap or mid-cap stocks.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices have shaken off bears and climbed to lifetime highs. Q2 results declared so far show top line growth but some pressure on bottom lines. Keep a cool and clear head. Avoid jumping around from one stock to another. If you have built a good portfolio, just sit back and enjoy the bull ride.

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