Saturday, April 4, 2009

Sensex Chart Pattern - Week ending Apr 3, 2009

The Sensex chart pattern is beginning to look more bullish this week in tandem with most of the the global index chart patterns. After a sharp pullback on Monday, Mar 30, '09 the Sensex resumed its upward journey with renewed vigour.

The 6 months closing chart pattern of the Sensex is still lagging the chart pattern of the Taiwan index discussed yesterday:-


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

The 20 day EMA has now crossed above the 50 day EMA from below. and the Sensex is above both these EMAs and is rising. Volumes are supporting this rise, as are the number of advancing shares each day.

The ROC and RSI have moved down from over bought regions but are trying to go back up again. The MACD is in the positive zone. The slow stochastics is in the overbought zone and looks like it is quite comfortable in its surroundings.

So, with all technical indicators showing bullishness, is it all systems go for a further rise? May be, or may be not. There are three contra indications that need to be watched closely.

Firstly, the Sensex is still below its 200 day EMA and also below the upper level of 10950 of the rectangular consolidation chart pattern of the past 5 months. Technically, we are still in a long term bear market.

The more interesting thing to note are the ROC and RSI behaviours. While the Sensex had made a higher high at the end of the week, both the ROC and RSI have made lower highs. This is a 'divergence' in technical parlance, and indicates a possible correction in the offing.

Last, but not the least, the high made by the Sensex last week is almost the same as the high made in early Jan '09, when the Satyam scam hit the market. This could be a good enough reason for some profit booking in the coming week.

Though the fundamentals of the Indian economy have not improved much, the euphoria caused by the G20 announcement of creating a trillion dollar fund for the IMF to bestow on weak economies has had a sea change in sentiments.

When people feel that things are getting better, they start to spend and things do get better. So it is kind of self-fulfilling. Sentiment has a big role in the stock markets in the short run. No wonder global markets are charging up.

Eventually, the reality is going to bite. Regardless of how much money different governments print to charge up their economies, changes at the ground level will take time. A lot of cash swishing around will then boost inflation, which markets do not like.

Bottomline? My last week's concerns are still valid. But buying momentum can take the Sensex past the two resistance levels of 10950 and 11300. If you haven't bought during the sideways consolidation phase, do not buy now. You won't miss the bus. More buying opportunities will come.

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