Saturday, February 28, 2009

Sensex Chart Pattern - Week ending Feb 27

Let us go straight to the current Sensex chart pattern.

Friday's closing level near 8900 is of some significance because it was a one year low on a monthly closing basis. On a daily closing basis, the 52 week low so far has been 8451 on Nov 20, '08; on a weekly closing basis the low has been 8674 on Jan 23, '09; on an intra-day basis, the 52 week low was at 7700 on Oct 27, '08.

What is the significance? Take another look at the pattern of lows: the intra-day low was in Oct '08; the (higher) daily closing low in Nov '08; the (higher) weekly closing low in Jan '09 and the (even higher) monthly closing low in Feb '09 - around a month separating each of those lows.

As time is passing - the Sensex has now spent 4 months in the sideways rectangular chart pattern - new (higher) 52 week lows are being made on longer time frames. This could be a coincidence, but the volume overlay on the Sensex chart pattern says otherwise.

Except for a couple of days in early Jan '09, when the news of the Satyam scam caused a spike, transaction volumes have been gradually petering off. The declining stocks have been outnumbering the advancing stocks. All this points to a gradual waning of investor interest.

Have we seen all the lows in the Sensex, or will there be more new lows? That's a million dollar question. The MACD and RSI indicators are flat and in an 'undecided' zone. The ROC is heading down. The stochastics had threatened to enter oversold region last week but stopped short. May be a couple more days of down move before we see a pull back.

As long as we remain in the sideways consolidation, there isn't much to do except to learn how to be patient! For active investors, small amounts can be invested in Nifty BeES, index funds or balanced funds.

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