Saturday, April 3, 2010

BSE Sensex Index Chart Pattern - Apr 2, '10

The BSE Sensex index chart pattern started another holiday shortened week by testing the Jan 6 '10 high of 17790 and inched up slightly higher to 17793. The Jan '10 closing high of 17701 was also tested as the Sensex closed at 17711 on Monday.

The hesitancy at the previous top reappeared after a second test of the Jan '10 high was attempted on Tuesday but ended in failure. The index closed 48 points higher week-on-week - its 8th consecutive week of higher closes - but 100 points below the Jan '10 high.

Is the stage set for a bearish double-top pattern that could result in a substantial correction? The volume bars seem to signal that - as the volumes in Jan '10 were more than the volumes in end-Mar '10. But the relentless buying by the FIIs may not allow a big drop - at least till the Q4 results are out.

If the impending results season turns out less than expectations, a correction below the Feb '10 low of 15652 is a possibility. That would confirm the double-top. In which case the down side target for the Sensex will be a lot lower - 13500-13600 or thereabouts. Sounds a little improbable doesn't it? But strange things happen in the stock market when sentiments take a dive.

Now, a look at the 6 months bar chart pattern of the BSE Sensex index:-


All the three EMAs are moving up nicely again with the index above them - so bulls should have no immediate worries. Looks like only a matter of time before a new high is attained.

The technical indicators have turned a bit weaker than last week. The slow stochastic dipped below the overbought zone but is trying to go back in. The MACD is positive but beginning to slip and is just about hanging on to the signal line.

The RSI is showing negative divergence. It failed to even reach its previous high let alone make a new one, and has dropped out of the overbought zone. The MFI is above the 50% level but not really moving up.

Inflation is trying to rear its ugly head again. The RBI may not have any option but to raise interest rates at least by 25-50 basis points. That could put a spanner in the (growth) works.

Bottomline? The chart pattern of the BSE Sensex index is expectedly hesitating near its previous top of Jan '10. Maintain strict stop-losses and be extra selective in your buying.

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