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Sunday, February 20, 2011

Stock Index Chart Patterns - BSE Sectoral Indices, Feb 18, '11

My previous analysis of the chart patterns of the BSE Sectoral indices was back in Dec ‘10. Many of the indices were correcting along with the Sensex. Some had started their down moves even earlier. The IT index had touched a new peak.

Warren Buffet had said that only when the tide goes out do we find out who has been swimming naked. Nothing like a good correction to find out which indices still have their clothes on. The Sensex has been in a down trend for more than 3 months – and the losers are clearly getting separated from the winners.

BSE Auto Index

BSE Auto Index

The BSE Auto index succumbed to the selling pressure, and dropped below the 200 day EMA to 8154 on Feb 9 ‘11 – wiping out all the gains made since Jun ‘10. The recent upward bounce found strong resistance from the 200 day EMA. The 50 day EMA is sliding, but remains above the long-term moving average – giving the bulls some hope. The RSI is pointing to a resumption of the down move. The sector is a ‘hold’.

BSE Bankex

BSE BANKEX

The BSE Bankex also dropped below the 200 day EMA to a low of 11353, erasing the gains made since Jul ‘10. A spirited upward bounce has taken the index above its 200 day EMA. The RSI is above the 50% level and the slow stochastic is in the overbought zone. The 20 day EMA has started rising, and may support the index if the correction resumes. The sector is a ‘buy on dips’.

BSE Capital Goods Index

BSE Capital Goods Index

The BSE Capital Goods index has suffered a serious setback. It briefly fell below the year-long support level of 12990, and is struggling to stay above it. The ‘death cross’ (50 day EMA falling below the 200 day EMA), marked by the blue oval, confirmed a bear market 3 weeks back. The RSI is suggesting lower levels. The sector is a clear ‘avoid’. 

BSE Consumer Durables Index

BSE Consumer Durables Index

The BSE Consumer Durables index is behaving much like the Bankex – falling below the 200 day EMA, but bouncing up above it. But the technical indicators are weaker. The slow stochastic is above the 50% level, and touched a slightly higher top while the index made a lower top. But the RSI has turned down before reaching its 50% level. Hold.

BSE FMCG Index

BSE FMCG Index

The BSE FMCG index made a bearish triple top pattern. The sector is under margin pressure because of higher commodity prices. The good news is that the minimum down side target of the triple top has been met when the index fell below the 200 day EMA. The upward bounce from the long-term support level of 3160 has found resistance from the 200 day EMA. Both the RSI and slow stochastic have emerged from their oversold zones. But both reached lower bottoms than the ones touched in Jul ‘10 when the support level of 3160 was tested earlier. Hold.

BSE Healthcare Index

BSE Healthcare Index

The BSE Healthcare index touched a new high in Jan ‘11. The subsequent correction was swift. The index dropped below the 200 day EMA to the support level of 5800. The upward bounce is desperately trying to move above the 200 day EMA. The technical indicators are looking weak. Both the RSI and slow stochastic are below their 50% levels.

BSE IT Index

BSE IT Index

The BSE IT index also touched a peak in Jan ‘11. However, the subsequent correction stopped well short of the rising 200 day EMA – keeping the bull market intact. The RSI and slow stochastic are both below their 50% levels – hinting at a test of support from the 6050 level or even the 200 day EMA. With the US and European economies showing signs of recovery, the IT sector should continue to perform well. Buy the dips.

BSE Metal Index

BSE Metal Index

The BSE Metal index is trading sideways but has weakened considerably in the last 2 months. The index is trading below the 200 day EMA and the ‘death cross’ seems imminent. The slow stochastic is above the 50% level but the RSI has reversed directions after touching its 50% level. Hold.

BSE Oil & Gas Index

BSE Oil & Gas Index

The BSE Oil & Gas index is showing the effects of the prolonged price interventions by the government in an effort at inflation control. The ‘death cross’ and the fall to the long-term support level of 9000 is an indication that the worst isn’t over. The slow stochastic is above but the RSI is below their 50% levels. Both have started to move down. Avoid the sector.

BSE Power Index

BSE Power Index

The BSE Power index is in a clear bear market with no sign of recovery. The recent upward bounce after a steep fall has been resisted by the falling 20 day EMA. Sell.

BSE Realty Index

BSE Realty Index

The BSE Realty index is the clear winner of the ‘wooden spoon’ (a consolation prize given to the last place finisher in sporting events – particularly golf). This is not a contrarian play. Sell.

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