Saturday, June 27, 2009

BSE Sensex Index Chart Pattern - Jun 26, '09

The previous week's BSE Sensex index chart pattern had pierced a couple of important supports - the up trend line of the rally from Mar '09 and the 20 day EMA. But the index had managed a close above the short-term average, which meant that the bulls hadn't given up the fight.

In last weeks trading, the bears vs. bulls contest remained inconclusive, as will be apparent from the 3 months bar chart pattern of the BSE Sensex index:-


On Monday and Tuesday, the Sensex closed below the 20 day EMA. On the next two days, it closed right on the short-term average. On Friday, FII money (and possibly the fact that it rained in Bombay!) made it jump and close above. In the process, the 20 day EMA has flattened, but it remains above the rising 50 and 200 day EMAs.

Friday's 420 points up move did not see any great improvement in volume. Both the RSI and MFI are now below the 50% level and moving down - indicating negative divergences. The MACD is still positive, but has remained below its signal line for two weeks.

The slow stochastic did go all the way down to the oversold zone but the %K bounced up to touch the %D line, without crossing it. Two of the indicators are bearish and two are mildly bullish. The bulls have tried to gain the upper hand but haven't quite succeeded, yet.

On the fundamental side, the story hasn't really got better. The WPI (Wholesale Price Index) was negative for the 2nd week in a row, but the CPI (Consumer Price Index) is still in double digits. Some of the stalwarts - like Tata Steel and Tata Motors - declared disappointing results. More and more companies are lining up to raise cash, which will suck out liquidity from flowing into the secondary market.

Worst of all is the lack of progress of the monsoon. India lacks proper irrigation facilities. A majority of the area under cultivation is dependent on monsoon rains. Unless some major rainfall happens over the next couple of months, the rural economy will take a huge hit. This will have a cascading effect on the overall economy.

Bottomline? The short-lived corrections in the BSE Sensex index chart pattern is hinting towards an attempt to hit the 16000 level. But I would use the opportunity to take some profits off the table.


Anonymous said...

monsoon will decide whether sensex touches 16,000 or 13.000.As Shri BHANSALI OF ENAM SECURITIES said in UTVI he will be worried if sensex tiuches 16,500.I am also waiting for it to touch 16,500 so that I can book more profits whenever this bubble is formed.

Subhankar said...

Yes, Sujoy - the monsoon and the budget will have some effect on Sensex levels.

This is the time to do your research and select stocks for your 'buy' list, so that you can take advantage of any large dip.