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Saturday, December 19, 2009

BSE Sensex Index Chart Pattern - Dec 18, '09

In last week's analysis of the BSE Sensex index chart pattern, I had mentioned that the battle between the bulls and bears had remained inconclusive, but the index was showing signs of topping out.

The bulls continued their fight to keep the index propped up, using the strong support from the 50 day EMA. But the bears are gradually getting the upper hand. The rising food prices that may lead to some sort of monetary tightening by the RBI has aided the bear cause.

Let us have a look at the 6 months bar chart pattern of the BSE Sensex index:-


The 200 day EMA is rising smartly and the index is well above it, so the long-term bull market is under no threat. But all the other technical signals are gradually turning weaker. I have been mentioning about the diminishing volumes, which do not augur well for the continuation of the bull rally.

The 20 day EMA has turned down and the 50 day EMA has flattened. The RSI has crossed above the 50% level, giving the bulls some hope of recovery. The MFI is moving sideways below the 50 % level. The slow stochastic has dropped from the overbought level and is headed down to the 50% level. The MACD is barely positive and below the signal line.

The most bearish sign of all is the 'rounding top' pattern that the BSE Sensex chart has formed since the recent low of 15331 made on Nov 3 '09. That is the level to watch out for. A break below may lead to a deeper correction.

Bottomline? The correction in the BSE Sensex index, much-awaited by those who missed out on the strong rally from Mar '09 onwards, seems to have started. Global indices are also showing signs of weakness. Book profits and wait for lower levels to re-enter.

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