Saturday, May 9, 2009

BSE Sensex Index Chart Pattern - Week ending May 8, '09

In last week's discussion about the BSE Sensex Index chart pattern, I had shown a penetration of the long-term down trend line. This indicated a possible change of trend from bear to bull.

We will take a close look at the 3 months bar chart pattern of the BSE Sensex to ascertain whether the trend change has indeed occurred or not:-


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

There are several interesting things that happened last week. The Sensex made a sharp upward move with a huge gap on Monday and closed five straight days well above its 200 day EMA.

In the process, 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.

The 50 day EMA is also moving up rapidly and a break above the 200 day EMA will be the final confirmation of the trend change.

The slow stochastic is firmly in overbought territory. The MACD is positive and has risen above the signal line. Both these indicators are supporting the bullishness in the index.

But don't bet the barn yet. Look at the volume. Friday's higher volume accompanied a 'reversal day' - i.e. a higher high but a lower close. This is bearish and indicating an impending correction. The ROC and RSI have also started to move downwards, which are negatives.

Should the correction in the Sensex happen next week, prior to declaration of the general election results, two possibilities exist.

One, the Sensex can move down to close the 'gap' created on Monday; take support around the 11500 level and start moving up again. In which case it can move up to 12500 and then 14500. The election results should be perceived by stock market participants as positive or neutral for that to happen.

Two, the Sensex can move down below 11000 and its 200 day EMA after closing Monday's gap, negating the bear-to-bull trend change for the time being. The election results should be seen as negative for the market for this possibility.

Bottomline? As the election results are just a week away, investors should refrain from placing bets either on the short or long side. (I haven't discussed the other possibility of Sensex flying upwards on a fresh flood of FII money because of the lower probability of that event.)


Bramesh said...


Please consider the other probability as i truly believe market if crossed 3720 can see 3800 Levels.Looking at the way Dow closed on Friday i belive we will see a good gap up and see the 3680-3700 Levels and need to see if 3720 is crossed or not.Do note that most of the retailers are short in market.

Subhankar said...

You may be right, Bramesh.

I'm expecting the Sensex to close Monday's gap before making the next move up. It may keep going up next week without a correction, in which case the drop - when it comes - would be harder and deeper.

Either way, the next Sensex targets are 12500 and 14500. I don't track the Nifty so can't comment on Nifty levels.

Titu said...

Hello Sir,
I am no expert in technicals or fundamental but i feel that bear market will not end so easily, we started this on jan2008 and now within 17 month everything is ok, I don't think so on other hand i think may be whole 2009 will go in consolidation around 8000 to 12000, but some extremities are possible like 14000 or 7500 may be this is only my feelings

Subhankar said...

Yes, Titu.

Bears don't suddenly wake up and turn into bulls. But that is logic. The stock market moves more on sentiments. Right now, the sentiments are favouring a rise. So we need to look at the possibilities of how far up the rally may go.

The Sensex actually came down to close the gap created on May 4, '09 - but took support at the gap and moved up. It may try to close the gap again later.