BSE Sensex Index Chart Pattern - Feb 12, '10

A holiday shortened week emboldened the bulls to arrange a small rally that took the BSE Sensex index chart above the crucial 16000 level. But the diminishing volumes during a rally is not very encouraging.

A look at the three months bar chart pattern of the BSE Sensex index will show some interesting technical behaviour:-

In last week's analysis, I made the following observation:

'For a valid penetration of a long-term support or resistance, we need to maintain a 3% 'whipsaw' lee way. That gives a level of 15500. A fall below will confirm the break. Till then, the bulls have some hope.'

On Monday, Feb 8 '10, the Sensex dropped to a lower low of 15652, which was just a 100 points above the 15500 mark. The break of the 16000 level was not confirmed. The bulls managed to push the index to a higher close of 15936, forming a 'reversal day' - confirmed by the highest volumes seen in a month. The next three days saw the Sensex make higher tops and higher bottoms, further encouraging the bulls.

The technical indicators continue to reflect the dominance of the bears. The 20 day EMA is below the 50 day EMA and both are falling. The 200 day EMA is still rising but the upward momentum is slowing.

The slow stochastic is languishing in the oversold zone. The MACD is negative and below the signal line. The RSI is barely above the oversold zone. The MFI is below the 50% level.

The FIIs have been selling, while the DIIs have been buying. Global markets have entered intermediate down trends, and the Sensex is no exception. Till the index remains above the 200 day EMA, bulls will not give up hope.

Have a look at the 6 months closing chart pattern of the BSE Sensex compared with the Dow Jones (DJIA) chart:

From Nov '09 onwards, the two indices have been tracking each other rather closely. The Sensex chart has been trying to hang on to the 16000 level. The Dow chart is doing likewise with the 10000 level.

Bottomline? The BSE Sensex index chart pattern shows the fierce struggle between the bulls and bears. Intraday volatility has increased. Investors may want to keep an eye on global markets in general and the Dow in particular for the near term trend. A good time to stay on the sidelines.