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Thursday, December 23, 2010

Stock Index Chart Patterns - BSE Sectoral Indices, Dec 23, '10

I had taken a look at the chart patterns of the BSE Sectoral Indices two months back, when the Sensex was heading towards its new high. Not surprisingly, many of the sectoral indices reached their new highs simultaneously. But some had already started to correct.

Time to take another look after the corrective move of the past two months to check where the strengths and weaknesses lie for investing in 2011.

BSE Auto Index

BSE Auto Index

The BSE Auto index continues its strong performance, consolidating sideways rather than correcting down too much. Note that the RSI failed to make a new high with the index in Nov ‘10, and has dropped below the 50% level. As long as the index stays above the support level of 9670 and the rising 100 day EMA, the bull market will be under no threat.

BSE Bankex

BSE BANKEX

The BSE Bankex has taken quite a knock on the chin – thanks to the bribe-for-loan scam, and is trying to cling on to the support level of 12640. The RSI is on the verge of dropping back into the oversold zone. The correction may continue for a while longer. Investors need to be very stock specific.

BSE Capital Goods Index

BSE Capital Goods Index

The BSE Capital Goods index corrected all the way down to the 200 day EMA, and is struggling to stay above its long-term moving average. The RSI has dropped below the 50% level and is hinting at another test of support from the 200 day EMA. Rising interest rates and tightening liquidity situation may be hurting profitability.

BSE Consumer Durables Index

BSE Consumer Durables Index

The BSE Consumer Durables index has corrected nearly 25% from its peak, underperforming the Sensex. High input costs have started affecting wafer thin margins in spite of good sales. The RSI is at the edge of the oversold zone, indicating that there may be another drop towards the 200 day EMA.

BSE FMCG Index

BSE FMCG Index

The FMCG index formed a bearish double-top pattern, but the correction has received good support from the rising 100 day EMA. But up moves are finding resistance from the sliding 20 day and 50 day EMAs. The RSI is below the 50% level. The index may consolidate sideways for some time. The index corrected 8% from its top and marginally outperformed the Sensex during the recent correction.

This is my favourite sector because of its strong cash flows, good dividends and low volatility.

BSE Healthcare Index

BSE Healthcare Index

The BSE Healthcare index also formed a bearish double-top pattern but found support at its rising 50 day EMA. It has barely corrected 5% from its peak and has outperformed the Sensex. No wonder the sector is called ‘defensive’.

BSE IT Index

BSE IT Index

The BSE IT index has been a spectacular outperformer, though the RSI is indicating an overbought situation. The gradual economic recovery in USA and Europe have boosted sentiments. Investors would do well to stick to frontline stocks. Employee attrition has become a problem that affects the small and mid-cap IT companies a lot more.

BSE Metal Index

BSE Metal Index

The BSE Metal index hasn’t made any progress in the past two months. The bullish pattern failed to play out, and the index continues to oscillate around its 100 day EMA. Unless it clears its Apr ‘10 top, investors may not reap much gains. However, Tata Steel and Hindalco looks good and may be bought on dips.

BSE Oil & Gas Index

BSE Oil & Gas Index

The BSE Oil & Gas index fell steeply below its 200 day EMA after reaching a new peak in Nov ‘10, but has recovered quickly above all four EMAs. Note that the RSI made a lower top in Nov ‘10, heralding the correction. This time around it has made a higher top while the index made a lower one – which is a bullish sign. Investors can look at Indraprastha Gas on dips.

BSE Power Index

BSE Power Index

The BSE Power index corrected steeply to its 52 week low within two months of hitting its 52 week high in Oct ‘10, and hasn’t been able to recover much at all. The sector has been overhyped and it is finally dawning on investors that most of the expansion projects are behind schedule, and profits are likely to be muted. The sector has dropped into a bear market. Avoid.

BSE Realty Index

BSE Realty Index

The less said about the BSE Realty index the better. This darling of the previous bull market is down where it belongs – in the dumps. Prices were artificially boosted through cartelisation and hoarding of commercial and residential inventory. The time for reckoning has arrived. Stay far away.

6 comments:

afzala.com said...

SIr
i have learned so much from your post regarding the analysis.some stocks after going below 200 ema forfew weeks going up again then aging going down . th en how we can rely on 200 ema for investing
afzal

Subhankar said...

Good question!

To be sure about the trend change, I look at the 50 day EMA crossover above or below the 200 day EMA. If the 50 day EMA crosses below the 200 day EMA and both start to fall, then a bear market is confirmed. If the 50 day EMA crosses above the 200 day EMA and both start to rise, it is a bull market.

If you note the BSE Metal index, the 50 day EMA didn't fall below the 200 day EMA but bounced off it - keeping the bull market intact. However, in the BSE Power and BSE Realty indices, the 50 day EMAs have fallen below the 200 day EMAs and both EMAs are falling - confirming bear markets.

Titu said...

Hello Sir,
I want to know your view about Agri sector or food related, more specificlly companies like Jain irrigation, Jubliant foodworks, KRBL.

Thanks in Advance...

-titu

Subhankar said...

I don't track the agri sector, Titu.

Jain Irrigation looks overpriced and has high debt with low margins. A combination one should avoid.

Jubilant Foodworks looks grossly overpriced and is yet to wipe out accumulated losses. I hate pizzas so I may be biased!

KRBL is more reasonably valued - but that is because no one wants to touch a debt-laden company with miniscule profit margin.

Titu said...

Hello Sir,

Wishing you a Merry Christmas and Happy and Prosperous 2011.

-Titu

Subhankar said...

Very pleased to reciprocate your greetings, Titu.