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Saturday, May 1, 2010

BSE Sensex Index Chart Pattern - Apr 30, '10

BSE Sensex index chart pattern spent another volatile week heading nowhere in particular. The week began strongly enough, but there was a 300 points slump mid-week on the highest volumes during the week. A sign of distribution?

Two days of recovery on the back of FII buying ensured a higher close on a month-on-month basis, but could not prevent a lower weekly close for the Sensex.

The 50 day EMA provided good support to the mid-week fall, and the medium-term moving average is now becoming the battle line for the bulls and bears.

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


Note that the Sensex has made a lower top and a marginally higher bottom during the past two weeks of trading, indicating the formation of a triangular consolidation pattern. As long as the 200 day EMA keeps rising and support from the 50 day EMA holds, the bulls need not worry too much.

The technical indicators are not too encouraging. The slow stochastic remains below the 50% level. The MACD is still in positive zone, but below the signal line. The RSI is also below the 50% level. The MFI is trying hard not to fall below its half-way mark.

The bears have thrown a few good punches but the bulls are very much on their feet and ready to fight. Right?

For a slightly different perspective, let us also take a look at the 3 months closing chart pattern of the BSE Sensex index:-


Observant readers may note an interesting difference in the closing chart pattern. The Sensex has actually made a marginally lower bottom as well as a lower top. How do we resolve this apparent contradiction in the two chart patterns?

Simply - by treating the two recent bottoms as the same, since their levels are quite close to each other. That poses quite a problem for the bulls. Why? A lower top and a flat bottom forms a bearish descending triangle. The usual break out from a descending triangle is down wards. If it happens, the support from the 50 day EMA will be breached - opening up downside levels of 16500 and 15700.

The criterion for a break out from a triangle pattern is that there should be at least four reversal points - two at the top and two at the bottom. This criterion has already been met (by the two lower tops and two flat bottoms in April '10).

The global news flow hasn't been very encouraging either. The Shanghai Composite index has tanked big time and gone well below the 200 day EMA. Remember that the slide in the Chinese index had precipitated the fall in the global indices back in 2007.

The FTSE 100 index has dropped below the 50 day EMA as the UK market is feeling the tremors from the European upheaval. The Dow has so far managed to stay afloat by not falling below its 20 day EMA. But the question is: for how long?

Bottomline? The chart pattern of the BSE Sensex index continues its sideways consolidation in a broad trading range. The global bull rally is about to complete 14 months, and a proper correction is overdue. Keep your cool. Stay on the sidelines and watch. Leave the traders to do their daily buying and selling.


Lydia said...

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sreyO... said...

I think this is a typical case of Bearish Engulfing Pattern. On April 08 NIFTY closed at 5374.65 (1st top) on April 19 NIFTY closed at 5303.65 (1st bottom); again on April 26 NIFTY tried to catch the 1st top but failed to do so (made high of 5342.35) and closed at 5322.45 (2nd top but significantly lower than previous one). On April 28 NIFTY closed at 5215.45 (2nd bottom) which is nearly same closing of 1st bottom. Sensex has also shown the similar pattern. So, I think a big fall of market is due and it can be seen somewhere in next week.

Subhankar said...

@Lydia: Thanks for your comments, and kind words.

I'll check out the link. Anything for a fan of Ella!

@sreyoskar: You may be right. Can't make an informed comment because I don't track the Nifty (the authorities do not recognise gaps in the chart for reasons best known to them - makes the index unsuitable for technical analysis.)

Pinals said...

Hi Dada,
Nice way of interpriting charts in common man's language really helping for bigginers of TA to learn a lot with simple tools..

A request ..would you mind to give your views on RCOM..??

Subhankar said...

Thanks for your comments, and kind words.

The best days of the telecom services sector are behind us. With big international players joining the fray, competition will be fierce and margins are getting affected.

If you like the sector, Bharti is a better bet - better in customer service and in treatment of employees.

Don't care much for the Reliance group - too many investors have been taken for a ride. (Read 'Why rely on Reliance?' - posted on Jan 4, 2009.)