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Saturday, February 21, 2009

Sensex Chart Pattern - Week ending Feb 20

Call it the 'Post Budget Blues', or the collective realisation that the market isn't going anywhere anytime soon - not till the forthcoming General Elections are completed without a hung Parliament.

Have a look at the Sensex 6 months chart here. Last week's higher band of 9300 - 9800 could not be maintained (the volumes were insufficient) and the Sensex moved down lower to close almost at the 2006 low of 8800 and 200 points above the most recent low of 8600.

The slow stochastics is about to enter an oversold region, so there is a possibility of a bounce back next week. However, the short term 20 day EMA isn't looking encouraging. After attempting to cross over the medium term 50 day EMA from below, it is once again heading down. The Sensex is now below the 20 day EMA, confirming the weakness on the chart.

The Sensex continues to consolidate in the wider band of 7700 - 10950, and till either level is violated it will continue to give bullish and bearish signals alternatively while moving sideways.

Fundamentally also, there are alternating signals. The WPI is down, but the Consumer Price Index is not relenting. An esteemed member of a popular investment group drew attention to the fact that many manufacturing units are in an 'Inventory Draw Down' mode. That means they are reducing existing inventory but not trying to replace it immediately.

Sooner than later, when existing inventory of finished goods and raw materials drops too low, orders will need to be placed. But only for the immediate requirements. This could lead to a short term pull back which should be used as a selling opportunity.

For the benefit of mutual fund investors, Sunday's post will discuss about a couple of funds with strong track records that are available at reasonable prices.

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