BSE Sensex and NSE Nifty 50 index chart patterns – Jan 20 ‘12

BSE Sensex and NSE Nifty 50 index chart patterns closed smartly higher on a weekly basis. Both indices crossed above their 50 day and 20 week EMAs. The FIIs continued their buying, and DIIs continued their selling to keep the up moves in check. No prizes for guessing that the FIIs prevailed in last week's bull vs. bear contest.


Q3 results declared so far show that India Inc. is facing downward pressure on their bottom lines, even as there have been instances of top line increase. Reliance announced a buyback during the early part of last week, which boosted its stock price and both indices. By the end of the week, the company announced disappointing results, which may trigger a correction.

Both Sensex and Nifty indices are trading within downward sloping channels and below their respective 200 day and 50 week EMAs. That is a sign that the bears are still on top, and the rallies from the Dec '11 lows should be treated as bear market rallies; i.e. opportunities to sell. Breaking above the downward sloping channels and sustaining above them for a few days can finally change the trend. Will the indices be able to do that?

BSE Sensex index chart

The Sensex has moved up smartly above its 20 day and 50 day EMAs, and the 20 day EMA is about to cross above the 50 day EMA. Overhead resistance to a further up move can be expected from the falling 200 day EMA and the upper edge of the downward-sloping channel. The index had failed to cross above the downward channel on three previous occasions. Will it be fourth-time-lucky?

The technical indicators seem to suggest so. Both the MACD and the ROC have entered positive territory and are still rising. But the RSI and the slow stochastic are in their overbought zones from where they appear to be turning back.

Next week has an early settlement because of Republic Day holiday on Thursday. Coupled with the less-than-stellar RIL results, the stage may be set for some profit booking.

NSE Nifty 50 index chart

The weekly chart of the Nifty shows a clear breach of the 20 week EMA on strong volumes, which is a bullish sign. Three of the technical indicators are also showing signs of bullishness. The MACD has crossed above its signal line and the ROC has risen above its 10 week MA, but both are still negative. The slow stochastic has emerged from its oversold zone, but is yet to climb up to its 50% level. The RSI is showing a contra-indication by slipping down after touching its 50% level.

Both indices are indicating short-term bullishness but long-term bearishness. Let us take a look at two breadth indicators to gauge the sustainability of the current rally. 

First, the Nifty A-D line:

Note that the A-D line is moving sideways, and failed to climb higher with the Nifty. This is a negative divergence that may trigger a correction.

Now, the Nifty TRIN:

A week ago, the TRIN was at an overbought level of 0.6. Last week, it dropped further to 0.5. Note that in the past 12 months, the TRIN has bounced up from the zone between 0.6 and 0.8 a few times (0.75 is the demarcation level, below which the market is overbought). While the market can remain overbought or oversold for long periods, the upside risk has increased considerably.

Bottomline? The BSE Sensex and the Nifty 50 index chart patterns had splendid bear market rallies from their Dec '11 lows, and look ripe for profit booking. RIL's disappointing results may trigger the selling. The fundamental situation hasn't shown any great improvement to sustain a rally. But a flood of FII buying can throw all analysis out of the window. It may be prudent to wait for a break out of the downward sloping channels before deciding on entering.

BSE Sensex and NSE Nifty 50 index chart patterns – Jan 13 ‘12

BSE Sensex and NSE Nifty 50 index chart patterns closed higher on a weekly basis but both indices are yet to convincingly cross above their 50 day EMAs and down trend lines (marked DTL). The FIIs have stepped up their buying, but DII selling kept the up moves in check.

Q3 results have started to trickle in. Infosys did well, but their Q4 guidance disappointed the market and the stock took a beating. IndusInd Bank declared encouraging results. HDFC results were also good. The market is factoring in some positive policy announcement by the RBI later this month.

Both the indices are trading within their down trend channels and are in bear markets. Till they break out above their downward channels, the bears will remain on top.

BSE Sensex index chart

The Sensex is facing resistance from the blue down trend line (DTL) within the downward-sloping channel. In case the FIIs continue their buying, the up move will need to cross above three important hurdles – the falling 20 week and 50 week EMAs and the upper end of the channel.

The weekly technical indicators are still bearish, but showing signs of turning around. The MACD is negative, but has moved up to touch its signal line. The ROC is negative and below its 10 week MA, but starting to rise. The RSI is just below its 50% level. The slow stochastic has emerged from its oversold zone.

Note that the last four weeks’ trading has formed a bearish ‘flag’ pattern, from which the likely break is downwards. However, volumes have risen during the formation of the flag, which is a contrary indication. Has the rally run its course?

NSE Nifty 50 index chart

The Nifty index has moved above its 50 day EMA and the DTL, but not very convincingly yet. Volumes have picked up in the last week, thanks to FII buying. The technical indicators are bullish, but showing signs of weakness. The RSI is above its 50% level, but touching lower tops while the index moved higher. The slow stochastic is turning back after entering its overbought zone. The MACD is rising above its signal line, and about to enter the positive zone. The ROC is positive and above its 10 day MA, but its upward momentum has slowed down.

There has been bullish opinions expressed among some technical analysts that the DTL and the lower end of the downward channel has formed a bullish falling wedge pattern. But two reasons put a question mark over such a prognosis. Falling wedges usually occur as continuation patterns within an up trend. Any pattern formation within a prolonged downward channel is unlikely to have any long-term implication.

A look at the Nifty TRIN should send most bulls scrambling for cover:-

The current rally in the Nifty started after touching a low of 4531 on Dec 20 ‘11 when the TRIN (in red) touched an extremely oversold level of 1.5 (any level of 1.2 and above is considered oversold). The TRIN has now dropped to an overbought level of 0.6 (levels of 0.75 and lower are considered overbought). Is this a warning prior to a break below the downward channel?

Bottomline? The BSE Sensex and the Nifty 50 index chart patterns are in bear markets and falling within downward sloping channels. Several counter-trend rallies have provided bears with opportunities to sell. A sharp fall below the down trend channels can occur at any time. Smart investors may use such a fall to accumulate fundamentally strong stocks for the long-term.

Related Post

Two market breadth indicators

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 16 ‘11

In last week’s analysis of the BSE Sensex and NSE Nifty index chart patterns, I had mentioned the likelihood of both indices falling below their support levels (marked by blue dotted lines). So, the break and close below the support levels on Fri. Dec 16 ‘11 should not have come as a surprise to this blog’s followers. The good news is that neither index fell below its downward channel. We will expect both indices to continue trading within their downward channels – unless something drastic happens in the global or local economies.

BSE Sensex index chart

The sharp fall last Friday dropped the weekly bar of the Sensex to a closing level below 15500 – its lowest weekly close in more than 2 years. While that may sound ominous, it isn’t the end of the world – yet. Note that the Sensex fall stopped just short of the lower edge of the downward-sloping channel.

Will the Sensex bounce up – like it did on the past few occasions when it dropped to the lower edge of the channel? Three of the technical indicators are suggesting: ‘No’. The MACD has slipped below its signal line in negative territory. The RSI is falling below its 50% level. The slow stochastic is moving sideways below its 50% level, but has started sliding.

Only the ROC is showing positive divergence by touching a higher bottom while the index dropped lower. However, the ROC is negative and below its 10 week MA. So, any bounce up may be a weak one and induce more selling. There is a possibility of some FII buying in the next week – due to year-end considerations.

NSE Nifty 50 index chart

The NSE Nifty 50 daily chart pattern is clearly showing positive divergences from all four technical indicators, which made higher bottoms while the index fell lower. That should lead to an upward bounce. Perhaps a weak bounce because the indicators are looking bearish. The MACD is negative and below its signal line. The ROC is also negative – but has dropped too far below its 10 day MA. The RSI failed to cross above its 50% level. The slow stochastic has just entered its oversold zone.

A look at the NSE TRIN indicator gives a slightly different picture:

Note that the TRIN has spiked up sharply to 1.4, which indicates oversold conditions and a very likely upward bounce. A TRIN level of 1.2 and higher indicates oversold conditions, which is usually followed by an up move. (Please don’t go crazy about chasing the bounce!)

The pause in interest rate hike by the RBI should have encouraged the market – but didn’t. Ignoring ‘good news’ is the sign of a bear market. Inflation still remains high, even though food inflation has come down. The de-growth in IIP is a huge concern.

Many corporate honchos are fed-up with policy inaction and flip-flops by the UPA government and want to shift their businesses overseas. Some have started spending a lot of time overseas to manage their global businesses. The BJP-led opposition along with the Leftists are trying to corner the government on the issue of corruption, but stalling the passage of the Lokpal Bill which is meant to curtail corruption!

In short, the economic and political climate is just not conducive enough for the stock market to stop its steady slide.

Bottomline? The BSE Sensex and the Nifty 50 index chart patterns continue their slide within downward-sloping channels. Bravehearts can trade the range. Sensible investors may be better off parking their money in bank fixed deposits or gilt funds. Those who are accumulating good stocks trading at reasonable values should keep a two-three years time frame in mind.

Two market breadth indicators (an update)

Six weeks have elapsed since my previous post on two Nifty breadth indicators - the A-D line and the TRIN. During this period, the Nifty consolidated in a rectangular range between 4700 and 5200, just below the large descending triangle pattern it had formed since the top of Nov '10. Here is a quick update on the two market breadth indicators.

Nifty A-D Line


The A-D line has tracked the Nifty's fall since the Nov '10 peak with some notable exceptions. During Feb '11 to Apr '11, the Nifty made a series of three higher bottoms, while the A-D line reached three lower bottoms. In the rally that followed, the Nifty reached a higher top in Apr '11 than the top in Feb '11. But the A-D line's Apr '11 top was at the same level as its Feb '11 top. These negative divergences were a warning that the next down leg in the Nifty was imminent.

Again, the Jun '11 bottom on the Nifty was at the same level as the second bottom in Feb '11. But the A-D line touched a much lower bottom in Jun '11 - a negative divergence that suggested that the subsequent rally may be short-lived. What the A-D line does not indicate is exactly when the negative (or positive) divergences will affect Nifty's movements.

Last week, the Nifty made a higher bottom within the trading range, but the A-D line touched a slightly lower bottom. The negative divergence is a likely precursor to more selling in the coming week.

Nifty TRIN


 There are a couple of interesting points to note on the Nifty TRIN chart. In end-Aug '11, when the Nifty fell to its 52 week low after breaking down below the descending triangle pattern, the TRIN spiked to 1.25. A value of 1.2 or higher means the market is oversold and due for a rally.

The rally followed almost immediately, but the Nifty quickly reached an overbought condition - as indicated by the sharp drop of the TRIN below 0.75. A correction in the Nifty followed, but the TRIN is not indicating an oversold condition as yet. We can, therefore, conclude that the correction in the Nifty isn't over yet.

Both the A-D line and the TRIN are pointing to a further correction in the Nifty. Any upward bounces are likely to attract selling. As with all technical indicators, these two are not fool-proof and should be used in conjunction with other indicators like EMA crossovers, slow stochastic, ROC, RSI.

(Charts from: www.icharts.in)