Saturday, March 13, 2010

BSE Sensex Index Chart Pattern - Mar 12, '10

The BSE Sensex chart pattern closed the week at 17167, its highest weekly close since the week ending Jan 15 '10. Time to celebrate and pop open the bubbly? The bulls would certainly like to do that. Almost a 1000 point rally post-budget is no mean feat.

The FIIs continued their buying spree - in the cash market as well as in the F&O market. The DIIs played counterpoint with their selling. What may give bears some hope is the way the market seemed to ignore the excellent IIP numbers. The expected upward bounce in the Sensex was noticeably lacking.

The 6 months bar chart pattern of the BSE Sensex index does not give too many clues about a halt in the bull party:-


The 20 day EMA has just given a bullish cross above the 50 day EMA, and both are rising along with the 200 day EMA. The slow stochastic is in the overbought zone. The MACD is rising in positive territory. The RSI is hesitating at the edge of the overbought zone. Only the MFI is showing negative divergence and has dropped towards the 50% level. A test of the previous high of 17790 seems imminent.

The view from 30,000 feet looks less bullish. The BSE Sensex 12 years monthly bar chart pattern shows some interesting formations:-


The period from 2000 to 2004 shows a cup-and-handle pattern that was followed by the biggest bull run in India's stock market history. Elliott Wave fans (and I can't really count myself as one) may see a clear 5-wave pattern from the low of May 2003 to the high of Jan 2008.

What happened subsequently was one of the worst bear market corrections ending with the low of March 2009. The current up move seems to be forming a bearish rounding-top pattern, with volumes declining.

A further correction can be quite severe - if it does happen. One can never be sure with technical analysis, specially when liquidity seems to be sloshing around in the financial system all over the globe. But die-hard bulls may have something to ponder about.

Bottomline? The chart pattern of the BSE Sensex index is looking bullish in the short-term, which means there can be some more gains. But the longer term chart hints at the possibility of a strong correction. Investors should stick to their asset allocation plans. This is not a time for aggressive buying or selling.

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