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Saturday, June 12, 2010

BSE Sensex Index Chart Pattern - Jun 11, '10

Ever since hitting an intra-day low of 15960 on May 25 '10, the BSE Sensex index chart pattern has made a series of higher tops and higher bottoms, indicating a short-term up trend - with another weekly close above the 200 day MA.

However, the index made a lower top and a lower close on a weekly basis, in spite of the FIIs turning net buyers during the last two days of the week. Global indices are also in short-term up trends, and the Sensex seems to be dancing to the global tune of late.

The index continues to consolidate within the broader band of 16000 and 17400, and till it moves out of this range it will remain a trader's market. Let us look at the one year bar chart pattern of the BSE Sensex index to check if there has been much change in the technicals:

SENSEX_Jun1110

In last week's analysis, I had drawn a blue oval on the chart to indicate possible resistance to any up move from the down trend line, the 50 day MA and the 17400 level. On Friday, the index moved above the down trend line, only to face resistance from the falling 50 day MA. The index closed exactly on the down trend line.

Note that the recent pullback has created a bigger triangle pattern of consolidation. There are three possibilities: an upward break out from the triangle to test the resistance at 17400; a downward break out to test support at 16000; the index may continue to consolidate and move sideways through the apex of the triangle. At times like these, technical analysis can be quite a challenge!

The technical indicators have improved slightly in favour of the bulls. The MACD is above the signal line and moving up in negative territory. The RSI is above the 50% level. The slow stochastic has re-entered the overbought zone.

The monsoon arrival has been more or less on time - but that was already discounted in the Sensex levels. The IIP numbers came in a little better than expected. The re-entry of Reliance in the telecom sector (in a typical back-door strategy) caused some cheer to the market.

If the FIIs continue to buy, the index may move above the 17400 level to test the previous high of 18048. Note that the Sensex has traded within an even broader range between 15300 and 18000 for almost 10 months. It may continue to do so and test the patience and resolve of investors.

Bottomline? The chart pattern of the BSE Sensex index has been in a sideways consolidation pattern for a prolonged period. But many index front-runners are well below their recent highs. This isn't a time for unbridled optimism, though the underlying economy is improving by the day. Remain stock specific and top up your existing portfolio and get rid of non-performers.

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