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Saturday, January 2, 2010

BSE Sensex Index Chart Pattern - Dec 31, '09

There were only 3 days of trading in the last week of 2009, but the BSE Sensex index chart made a last desperate lunge on Dec 31 '09 and reached a new intra-day high of 17531.

The new closing high of 17465 was a spectacular 81% higher than the close of 9647 on Dec 31 '08. The best year-on-year gain for the BSE Sensex index in two decades. The Sensex has managed to retrace 72% of the entire bear market fall.

Let us take a look at the 6 months bar chart pattern of the BSE Sensex index and try to deduce what 2010 may have in store for bulls and bears:-

Sensex_Dec3109

For the bulls, 2009 has been a year worth remembering for the way they managed to out-smart and out-maneuver the bears. Bearish technical signals were washed away in a flood of FII inflows. But was the bullishness a bit overdone?

The bulls will not agree, because bull markets are supposed to climb a wall of worries. The three EMAs are moving up relentlessly and the index remains above them. The euphoria near bull market tops seem to be missing. Lots of investors are cautious and are booking profits at higher levels. That means the bull rally may have some steam left in it.

The bears would definitely like to think otherwise. The new year-end high was accompanied by low volumes. The technical indicators all failed to reach new highs. A correction may come sooner than later.

The RSI actually dropped down towards the 50% level. The MFI remains below the 50% level. The slow stochastic is a little more bullish as it entered the overbought zone. The MACD is positive and above the signal line.

A large number of IPOs and PSU share divestments are in the pipeline. These will absorb a large amount of the extra liquidity from the FIIs. Q3 results are around the corner. Any negative surprises from market leaders may be just the trigger for a bear attack. An interest rate hike is on the cards. The Union Budget in Feb 2010 is expected to remove some of the tax benefits for investors.

Bottomline? The BSE Sensex chart pattern seems to be mirroring some of the concerns mentioned. The easy money has already been made. 2010 could be a year of consolidation with an upward bias, as the economy gradually swings back to a sustained growth path. Stock picking ability will be the key. Remain steadfast about maintaining trailing stop-losses, asset allocation and investment plans.

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