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Saturday, January 30, 2010

BSE Sensex Index Chart Pattern - Jan 29, '10

During last week's analysis of the BSE Sensex index chart pattern, I had mentioned that the index was facing a bear attack and may fall further. I had also made the following comment:

'There are previous tops at the 16000 level made in early and late Aug '09. Previous tops usually act as supports. In other words, the 16000-16600 zone should help the bulls to stage a comeback.'

It was almost as if the Sensex wanted to humour me and did exactly what I had surmised! Some times technical analysis works quite well, and this time it did, but it fails just as often.

Let us look at the 3 months bar chart pattern of the BSE Sensex index to see how the holiday-shortened F&O expiry week fared:-


Heavy FII selling continued to take its toll on the world indices, and the Sensex was no exception - despite efforts by the DIIs to stem the rot. A fall on rising volumes doesn't augur well.

With PSU divestments around the corner, the Government can't 'allow' the index to fall too much. End of week and end of month considerations led to some short covering that aided the Sensex to recover somewhat.

The bearish lower tops and lower bottoms pattern during the current correction remains in place. A further fall to test the Nov '09 low of 15331 (at the extreme left of the Sensex chart) can be expected.

The CRR tightening by 75 basis points by the RBI to stem inflation seemed to be taken in its stride by the market. A 50-100 basis point hike was discounted. The system is flush with liquidity. Interest rates may not rise in the near term.

Both exports and imports are down and corporate borrowing from the Indian banking system hasn't picked up much. The economy is still recovering.

The technical indicators are looking pretty weak and hint at a further fall. The RSI and slow stochastic have both entered the oversold zone. The MFI just managed to stay above its oversold zone. The MACD is falling in negative territory and is below the signal line.

Bulls may try a pullback - taking heart from the fact that they managed to defend the 16000 level. The falling 20 day EMA is resting on the 50 day EMA. The 200 day EMA is still moving up and may support a further Sensex fall.

The importance of the 16000 level needs to be emphasised. It is the 61.8% Fibonacci retracement level of the entire bear market fall from 21200 to 7700. Once the bull rally breached that resistance level, it has become a support level.

Bottomline? The BSE Sensex index chart pattern is showing the effects of a bear carnage. Longs don't need to panic as long as 15331 and the 200 day EMA remains unbreached. Investors can start to accumulate fundamentally strong stocks on any break of the two supports.


Mitran said...

correct me if i am wrong. RSI shows some pull back to bull trend. so till budget we can say bear has to sleep. But Primary markey may pull liquidity and poor volumes in seconday may drag down the rally. So very tight condition and if budget fails, then we can say 10-15% correction till annual results. Fundamental stocks
1. Deccan Chronicale
2. HUL
3. ITC
4. Infosys
5. Bajaj Auto
6. Ipca
7. Weyth

Sir, guide me to complete the list and edit the list. (i ahve small qty in each share mentioned)

Subhankar said...

Just a bounce from an old support-resistance zone. No sign yet of a reversal of the intermediate down trend.

Not sure about Deccan Chronicle. The others are fundamentally strong stocks.