Saturday, June 13, 2009

BSE Sensex Index Chart Pattern - Jun 12, '09

Last week's BSE Sensex index chart pattern discussion had started off with a line from an old Dylan song. This week's BSE Sensex chart pattern resembles the previous week's chart so much that you can't help but remember another 1960's corny pop song by the Herman's Hermits called "I'm Henry the Eighth I am" - where all the verses were the same. (Whoopy Goldberg did a great take of that song in the Patrick Swayze-Demi Moore movie 'Ghost'.)

Let us have a look at the two years weekly chart pattern of the BSE Sensex index:-


Every thing on the chart pattern looks pretty much the same as the previous week's. This also exemplifies that on longer term charts, so much of the tensions of day-to-day index gyrations get smoothened out. One more advantage of being a long-term investor!

The RSI and slow stochastic continue to remain snugly in overbought zones. The divergence between the MACD and its signal line has increased. The possibility of an 'island reversal' remains open because the big gap in the Sensex caused on May 18, '09 is still unfilled.

The new indicator added is the OBV, which I discussed in an earlier post this week. Look how it continues to move up because of the high volumes. Since an 'upwardly mobile' OBV indicates accumulation, the Sensex may continue its sideways drift with an upward bias for a while longer.

The improved positive industrial production figures for April '09, after 4 months of negatives should nudge the BSE Sensex chart a little further up, towards the 16000-16500 zone. Most industry watchers feel that the worst of the economic downturn is behind us.

But I remain cautious simply because of the continued 14 positive weeks of rally without any meaningful correction. That increases the possibility of a steep fall.

Bottomline? No need to get out all at once. Keep your stop-losses tighter on individual stocks, and keep taking some profits off the table.


Anonymous said...

Thank you subhankarji for a very well researched and timely article.I will also caution investors to be careful and not burn their fingers as SENSEX P/E is moving towards 22 which indicates the formation of a bubble.Investors should avoid overexuberance and book partial profits.
With regards,

Subhankar said...

Thanks, Sujoy.

Isn't it uncanny? Whenever the technicals and fundamentals seem to support a further up move, the index takes a dip!

That is why it is essential to learn the art of setting stop-losses.