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Saturday, January 9, 2010

BSE Sensex Index Chart Pattern - Jan 8, '10

The BSE Sensex index chart made a new high of 17790 on Jan 6 '10 during the first full trading week of the new year. The new high wasn't accompanied by an increase in volumes, indicating lack of follow-up buying. The Sensex chart drifted down and closed marginally higher over the previous week.

There are a couple of interesting points to note about last week's trading. Both the FIIs and DIIs were net buyers on Friday, Jan 8 '10 - yet the Sensex dropped. That means Sensex stocks were sold and stocks outside the index were bought.

The new high of 17790 almost touched the target of 17800 that I had mentioned in this post on gap analysis four months back. The target has been met. That doesn't mean that the Sensex can't move higher. But this is a time for caution, not elation.

Why? The low volumes indicate that this rally is being sustained less by investor participation and more due to the excess liquidity in the global financial system. With PSU disinvestments in the pipeline, the Sensex bull rally is likely to continue a while longer. Note that the Sensex has barely gained 300 points since its high of 17493 made on Oct 17 '09. That is less than a 2% gain in 3 months.

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

Sensex_Jan0810

All three EMAs are moving up and the Sensex is above them. The bulls have things under control, though the low volumes is a concern.

The RSI is moving up nicely. The MFI is above the 50% level. The slow stochastic is in the overbought zone, though the %K line has dipped a bit to touch the %D. The MACD is moving up in the positive zone and remains above the signal line. The technical indicators are looking more bullish this week.

Bottomline? The BSE Sensex index chart shows that the bears have slowed down the momentum of the bull rally, but are nowhere near getting the upper hand. Maintain trailing stop-losses and stay invested.

4 comments:

Titu said...

Hello Sir,
After a long time i came online and read your blog, you said "Maintain trailing stop-losses and stay invested." I am out of equity from last two - three months, I hold only gold ETF now, and cash.
What you suggest look for value and get invested or just wait.

WISH YOU A VERY HAPPY BELATED NEW YEAR

drzingaro said...

hi

many oscillators showing divergence.
better to have tight stop loss.

regards

dr zingaro

nkjain said...

SIR,
SH PRABHAKAR SUGGESTED SHORT POSITIONS IN ABAN AND JSW STEEL AND BOTH FAILED MISERABLY.
-NKJ

Subhankar said...

@Titu: Welcome back, and thanks for the New Year greetings which I am pleased to reciprocate.

You can put the cash in a liquid fund and withdraw a fixed amount every month and invest in a good index fund. Waiting for a correction can be quite frustrating!

@drzingaro: Bull rallies climb a wall of worry and ignore negative divergences in oscillators. But after a 10 month long rally, maintaining trailing stop-losses is a good idea - and that's exactly what I've recommended in the post.

@nkjain: I haven't read what Mr Prabhakar had suggested, so can't comment on it. As a thumb rule, one should buy in a bull phase and short in a bear phase.

Technical analysis is not a science and doesn't work all the time. The longer the time-frame, the better it seems to work.