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Saturday, April 11, 2009

Sensex Chart Pattern - Week ending Apr 10, 2009

Before discussing the Sensex chart pattern for this week, I seek the indulgence of this blog's readers in a little trumpet-blowing. A leading Indian pink-sheet quoted some of the comments I made in last week's Sensex chart pattern discussion in a recent article. Interested readers may want to click on the link below:-

I emailed my friends, assuring them that now that I'm 'famous', I promise never to forget them. While most of them sent congratulatory messages, one had a question: "You may have fame, but do you have fortune?"

Not realising that this was an outswinger pitched outside the off-stump and should be left well alone, I poked at it and asked him what he meant. Pat came a pithy comment: "There are two kinds of people in this world - those who think fortune follows fame, and those who know fame can be bought with fortune."

Ouch!! I was out - caught first ball. Guess my two minutes of 'fame' wasn't even worth the paper it was printed on! Since fortune is supposed to favour the brave, I will bravely move on to discuss the 6 months bar chart pattern of the Sensex.


(Please right-click on the image above and open it in a new tab or window for a better view.)

In a truncated week with only 3 days of trading, the Sensex continued its relentless upward rally that began a month ago, and hit 10929 in intraday trade on Apr 9, '09. A whopping 36% rise from the Mar 6, '09 intraday low of 8047.

The slow stochastics is firmly in the overbought zone. MACD and ROC are both positive. The RSI is also positive and just about entering the overbought zone. The Jan '09 high was crossed in style. As per a few US market analysts, a 20% plus rise from a recent bottom is supposed to indicate a bull market.

Some how, in spite of all the positives, I'm still not convinced that this rally is the first leg of a new bull market. I may be in a minority of one, but a few technical and fundamental hurdles remain on the way.

1. The volumes are nothing worth writing home about. Barely higher in Mar '09 over Feb '09, and marginally higher in April '09 so far. A new bull market should have significantly higher volumes.

2. The 20 day EMA is above the 50 day EMA and both have started to rise. This is a bullish sign. The Sensex is above both these EMAs. Also bullish. But so far, all three have remained below the 200 day EMA, so technically we remain in a long term bear market.

3. The past one month's rally has not seen any significant correction, except the big fall on Monday, Mar 30, '09. This is an anomaly. An index can't go on rising without proper correction from time to time - unless some one is manipulating it. Who? The insurance companies, more particularly, LIC. Why? Probably under the dictats of the wily Finance Minister, to give voters a feel good factor before the impending general elections.

4. The corporate results for the financial year Apr '08 to Mar '09 will start hitting the markets from next week. They are not expected to be good. Anecdotal evidence suggests that the results for the next two quarters aren't going to be great either. Weak fundamentals can't prop up the market for long.

Now we come to an interesting fork on the road. (As the New York Yankees baseball coach Yogi Berra had famously said: "When you come to a fork on the road, take it!") This is what makes technical analysis so much fun.

The intraday high of 10929 is nearly the same as the intraday high of 10945 made on Nov 5, '08. After touching it, the Sensex dropped down more than 125 points on Apr 9, '09.

Please remember that the level of 10945 has defined the upper limit of the sideways rectangular Sensex chart pattern formed over more than 5 months. Since the Sensex is also tantalisingly below the 200 day EMA, bears may try to take control. That means the Sensex will remain within the rectangular chart pattern and the long term bear market will continue.

However, if the buying momentum continues for a few more days, and the possible resistances at 10945 and the 200 day EMA at 11200 are overcome, the Sensex may go all the way up to the 12000-12500 long term resistance zone. That may be a tough resistance to cross.

Bottomline? Keep your eyes glued to the Sensex chart over the next couple of weeks. If the bears take control and there is a sharp sell-off, one can start buying in small quantities again. If the Sensex goes up above 11500, start getting rid of some of the second and third rung stocks remaining in your portfolio.


Rishi said...

Congrats. Your experience and knowledge definitely deserves such accolades and fame :)
Keen on learning more.

Subhankar said...

Fame is too fleeting, Rishi. Fortune lasts longer!

Part 2 of the Stock Picking article is getting ready. Hopefully it'll be posted by Thursday, Apr 16, '09. Thanks for the subtle reminder!

Rajeev Desai said...

Hi Subhankar,
Writing here for the first time.
I am a nontechnical guy and I do not believe in it either.
I even sometimes use to make mockery of techincals at my blog.
Last week we saw that an analyst on Elliot wave said on CNBC that Sensex can touch 1,00,000 in 15 years. Now why no one is trying to discuss what Mark is saying and instead trying to discuss ST technicals.
Moreover I have often seen that Ramesh Damani says that he is not seeing sensex breaching 21k in next 5 years.What surprises me is ,if for next 5 yrs sensex is not going to touch 21k then is it possible for sensex to touch 1,00,000 in next 10 yrs?With bearish waves and bullish waves can sensex touch 1,00,000 in 10 yrs that too from 16000-18000 ?
I am seeing not a single analyst discussing the wave pattern Mark has discussed.He has very clearly written that Indian chart pattern is totally different.
The point here is we the investor wants to know whether Mark's saying of sensex tocuhing 1,00,000 can happen or not?What sunstance his Elliot Wave reading has got?
Why any of the Indian Counter parts were not able to see this Elliot Wave technicals and come out before Mark came out?Or is it so that Elliot wave is not worth following and only other theory is worth tracking.....
Rajeev Desai

Subhankar said...

Hi Rajeev

Appreciate your comment and hope to see many more opinions from you on this blog.

Your question is a really tough one for me, for two reasons. Firstly, I had heard about it, but haven't read the complete article you are referring to. So it is difficult for me to comment whether the 100,000 Sensex target was arrived at logically or mathematically. (One can always take an average percentage growth and project it for any number of years to predict any target.) Secondly, I don't follow Elliott Wave theory because it ignores transaction volumes. I've also noted that the wave theory works well in up or down trending markets. But in sideways consolidation phases, like the one the Sensex is going through for more than 5 months now, Elliott's waves become confusing with too many alternative wave counts.

By the way, I've been a fan of Vivek Patil's Elliott Wave analysis of the Sensex at the ICICI Direct site for a few years now. He had correctly predicted the Sensex 20,000 level several months before it actually happened. He has also written several times about the possibility of a Sensex level of 50,000.

The 100,000 figure in 10 years? It may be possible - but I feel the probability is low. Ramesh Damani's opinion should count a lot more than Mark's. Americans are master marketers - they are skillful at writing something outlandish and controversial to draw attention to their products or services.

(There is an old Chinese proverb: Those who do not know - predict; those who know - do not predict!)