BSE Sensex Index Chart Pattern - Oct 9, '09

A full week of trading without much progress in either direction for the BSE Sensex. The chart pattern is tantalisingly poised and may move either way. Let us first take a look at the 6 months bar chart pattern of the BSE Sensex index:-

The Sensex broke above the trend line connecting the tops of the rising wedge pattern almost a month back but has continued to move sideways, and has failed to cross the previous high of 17200. Last week the index alternated between lower and higher closes, and is now resting on the trend line. As we will see in the 3 months bar chart pattern of the BSE Sensex, the index is also resting on the 20 day EMA, which has provided good support to recent corrections.

While there is a possibility of the Sensex moving up again - particularly if the FIIs start pouring in money, the chances of a break downwards is increasing. As the three EMAs are still merrily moving up, the distance between the 50 day EMA and 200 day EMA has increased more than 2000 points. This indicates a likely correction in the near future.

The technical indicators are all looking bearish. The RSI, MFI, Aroon, MACD and slow stochastic are all in the positive zone but are moving down steadily. Most importantly in the shorter term, market sentiments seem to be turning bearish, as good news (like the Reliance Industries 1:1 bonus after 12 years, and the Q209 results of Infosys that turned out better than consensus estimates) failed to produce any buying interest.

Watch out for a downward break below the lower trend line joining the bottoms of the rising wedge pattern. That may start an 'end run' that could lead to a sharp correction. The rising wedge pattern is quite bearish and is usually followed by a sharp downward break.

Bull markets climb a wall or worry, and a large inflow of liquidity can nullify all technical analysis - as has happened a few times during this bull rally. So avoid shorting the market.

Bottomline? The chart pattern of the BSE Sensex index is poised at a crucial support level. Stay on the sidelines and watch the unfolding battle between the bulls and bears. Keep tight stop-losses and book partial profits at every opportunity.