Saturday, December 26, 2009

BSE Sensex Index Chart Pattern - Dec 25, '09

Just when all the technical indicators were turning weak signalling a possible stronger correction in the BSE Sensex index chart pattern, the FIIs decided to step in and make their presence felt in a holiday shortened week.

At a time when they usually pack their bags and head out on vacation, strong buying by the FIIs trapped the bears, who quickly resorted to covering their shorts and took the BSE Sensex on a merry 500+ point Santa Claus rally on Dec 23 '09.

The bears are far from being routed. The rise was on higher volumes, but the volumes were lower than that seen in Sep and Oct '09. Only 5 Sensex stocks contributed to nearly 50% of the 500 point rally. Most importantly, the Sensex failed to clear its previous high of 17493 made on Oct 17 '09.

Next week is another holiday shortened one and a settlement week. Will the index make a new high during the last three trading days of the year? Let's have a look at the 6 months bar chart pattern of the BSE Sensex index:-


After a brief dip below the 50 day EMA, the index regained its composure and made a new high for the month of Dec '09 at 17414 on Christmas eve. All three EMAs have started to move up again. The rounding-top pattern has been negated. The bulls have shrugged off yet another bear attack.

The technical indicators are beginning to favour a further up move. The slow stochastic has moved above the 50% level in a 'V' shaped rebound. The MACD is back in positive zone but hasn't managed to move above the signal line. The ROC has edged back into positive zone. The RSI has moved up nicely from near the oversold zone but stopped short of moving above the 50% level.

The bears are likely to take a different viewpoint. The up trend line connecting the bottoms of 15331 on Nov 3 '09 and 16210 made on Nov 27 '09 was broken on Dec 15 '09 when the BSE Sensex index fell below the 20 day EMA to 16836. The up move last week was merely a pull back to the up trend line - which is an opportunity to sell.

The bulls may counter that argument by taking a slightly longer term view, and drawing an up trend line through the lows of 14701 made on Aug 12 '09 and 15331 made on Nov 3 '09. This longer term up trend line has not been broken.

Bottomline? The BSE Sensex index chart pattern is still in a consolidation mood with an upward bias. Investors would do well to stay on the sidelines next week. Traders have the choice of using the 15000-17500 band to play around. The 17500-18000 band is likely to be a resistance zone for a further up move.


The Visitor said...

Today (Dec 29) too the Sensex (DH-17486) did not clear the 17493 high.

The Nifty made a new high (5214) and closed at a new high (5187.95). However the OBV as of closing did not make a new high today, and is way below the high of Oct 14. The OBV since December beginning seems to be in downward move. It seems to me that this upmove is not supported by volumes.

This may be a simplistic view of the markets, but would like to have your comment.

Subhankar said...

Those are very keen and appropriate observations about the market. But technical analysis is not a science, so several indicators need to be looked at before forming an opinion.

After a prolonged up move when the market seems to struggle near a previous high, it may be prudent to take some profits off the table.