Saturday, May 16, 2009

BSE Sensex Index Chart Pattern - May 15, '09

Last week's BSE Sensex index chart pattern led me to observe:

'The 20 day EMA moved up to touch the flattening 200 day EMA and should pierce through next week to provide the second confirmation of a trend change from bear to bull.'

A look at the 3 months bar chart pattern of the BSE Sensex index will show that the 20 day EMA has comfortably moved above the 200 day EMA, though the index oscillated at the 12000 level:-


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

The opening 'gap' created on Monday, May 4, '09 remained unfilled. The BSE Sensex moved down and took support at the gap to move back up again. But it didn't manage to go very far.

There were two closes below and three closes above the 12000 level. The bulls and bears seemed to be undecided about forcing the issue either way. Like the battling armies of the olden days, both sides decided to sleep over it till the declaration of results of the recently concluded general elections.

The results announced so far have been quite a surprise from many angles. The decimation of the left parties will be a major relief for market participants and this could lead the bulls to jump start a sharp up move next week.

The situation is also nicely set-up for the bears to initiate a 'sell-on-news' campaign. Should that happen and the gap in the Sensex get closed, the subsequent upward rally may be stronger.

The technical indicators are confirming the indecision in the markets. The slow stochastic has moved in and out of the overbought zone. The MACD played hide-and-seek with its signal line. Both the ROC and RSI are in the positive zones - the former has an upward bias and the latter is inching down.

The huge spike in volume on Wednesday, May 13, '09 was probably caused due to the stake sale to Foreign Institutional Investors (FIIs) by DLF.

The world markets have been boosted considerably by the flow of FII money, and indices have moved up by ignoring the continued weakness in the underlying economies. Since every one was expecting a major correction, Mr Market confounded all the experts and moved up.

Bottomline? The BSE Sensex index chart pattern shows that the upward thrust can continue some more - but this isn't the correct time to enter. Investors should stay calm and use a rapid up move on election results to book some profits. Should the bears take charge instead, wait a couple of days and then enter fundamentally strong large cap stocks or diversified large cap equity funds.

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