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Saturday, June 5, 2010

BSE Sensex Index Chart Pattern - Jun 04, '10

One of my concluding comments in last week's analysis of the BSE Sensex index chart pattern was:

'The index may just consolidate in the broader band between 16000 and 17400 for a while.'

A spirited rally by the bulls, aided by FII buying, took the Sensex past the 17000 level. Friday's close at 17118 was more than 250 points (1.5%) higher on a weekly basis.

Q4 results are causing gyrations in individual stocks. Already weak stocks are getting hammered down more. Stronger stocks are heading towards new highs. The smiles are back on the faces of the business channel anchors.

This is just the time to become cautious. Why? Take a look at the 6 months bar chart pattern of the BSE Sensex index:


The Sensex rise stalled exactly at the down trend line of the descending triangle. Just above is the falling 50 day MA, and above that, the long-term support-resistance level of 17400. The zone marked with the blue oval is where the bears should put up a fight.

The technical indicators are looking stronger. The 20 day MA has taken support from the 200 day MA. The slow stochastic has entered the overbought zone. The RSI has moved above the 50% level. The MACD is in negative territory, but above the signal line and rising.

Shouldn't this be an opportune time to buy? Not till the Sensex clears the previous top of 18048. Also, the global fundamentals are not encouraging at all. When all eyes were turned towards Spain, Hungary emerged as the next nation likely to face a sovereign default. They are not in the euro-zone, but the European indices got affected any way.

The US unemployment data came in much below expectations and the Dow closed below the psychological 10000 mark. It won't be surprising at all if the Asian indices open weak on Monday.

The Shanghai Composite, the FTSE 100 and the Dow are all trading below their 200 day MAs. If those indices continue to tank, the FIIs will be pulling money out of India also.

Bottomline? The chart pattern of the BSE Sensex index has moved above the critical, trend-deciding 200 day MA. But the bulls are likely to face strong global headwinds. Not much is to be done as long as the Sensex remains within the 16000-17400 band. Remember that 16000 is a strong support level. A break below will be quite bearish.

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