BSE Sensex Index Chart Pattern - Nov 6, '09

Last week, I had mentioned several possibilities about how the BSE Sensex chart pattern might develop during another holiday shortened week. A bounce up from the 15500-15600 was expected, based on oversold technical indicators and an about-turn made in Jul '09 when the index had previously dropped below the 50 day EMA.

The Sensex dropped a little further to 15331 on Nov 2 '09, and then bounced up sharply to 16284 on Nov 6 '09 - where it faced resistance from the flattened 50 day EMA. The index closed at 16158 - about 260 points (1.6%) higher for the week.

The BSE Sensex index is poised at an important resistance zone between the 50 day EMA and the 50% Fibonacci retracement level (of 16412) of the decent 12% correction from the high of 17493 made on Oct 17 '09.  The 16412 level needs to be crossed for the Sensex to attempt a test of the previous high.

The lower levels mentioned in last week's post should be kept in mind if the index fails to move up with conviction. Let us have a look at the 6 months bar chart pattern of the BSE Sensex index:-

The 200 day EMA is still moving up, the index remains well above it, and the pattern of higher tops and bottoms hasn't changed yet - so there is no threat to the bull market as of now.

The slow stochastic has moved up sharply above the 50% level from the oversold zone. A bullish sign. The RSI had a 'V' shaped jump from the oversold zone, but couldn't cross the 50% level. Mildly bullish. The MACD is looking more bearish, as it is in the negative zone and below the signal line. On balance, the bulls seem to have a slight edge that could move the index higher.

The overall economy and corporate India seem to be improving their performance gradually. The profits of most companies have increased more than their top line in percentage terms. That means sales growth is yet to pick up. The export-import businesses remain under-performers.

Bottomline? The BSE Sensex index chart pattern is poised at an interesting cross-road. Will it head north or south? Riches can be made if you guess correctly. As usual, FII buying will hold the key. Wait and watch, but stay nimble.