Technically Speaking

There are signs of our short-term bearish signals turning and this could be the end of what has been a short reaction low. The Parabolic-SAR will touch the price action today if we get another upmove which under the rules of the study will signal a switch to a long position. The P-SAR has worked very well in the market of late as you can see.

The MACD will cross shortly on another upturn but frankly with the lines so close together it is not giving very good signals at the moment.

Another thing to bear in mind is the Relative Performance which as the upper chart below shows the BSE underperforming the rest of Asia quite sharply if you take the zero line from the start of this year. A lot of this has to do with the very high levels we ended last year at but it is nevertheless low. Watch the 200-day moving average which could well provide some overhead resistance.

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The recovery from the Q1 low has so far been very similar to what we saw after the sell-off in 2006 with a slight overshoot to the downside below the longer trend. We are now back above our long term trendline and current end-year forecasts of around 19,000 look reasonable as you can see from the lower chart. We may well have had the ‘reaction low’ I’ve been talking about and it has been relatively shallow. Have a close look at the 2006 downturn for the reaction low then.

All that has really happened is that the BSE has corrected from the extremely overbought levels seen late last year. Since last November the chart had been pointing to a correction such as the one we have seen, as regular readers of this item will know.

(Please note the 200-day on this weekly chart is calculated week-to-day so the absolute level of the line does not exactly coincide with the value on the daily chart – for our purposes it is close enough)

(Parabolic SAR (Stop and Reverse) study gives signals for going long or short. While the study, the dots, is below the price action it indicates a long position but as the trend slackens the study touches the price action and indicates a switch to a short. It is supposed to be a constant position trading system.)

Below is a picture of the BSE valuation vis-à-vis the main Asian markets since the start of the year and since the longer-term upmove started in May 2005. As you can see the BSE is underperforming its Asian counterparts so far this year but measured since May 2005 it is still outperforming.

The chart immediately above shows the Relative Performance (RP) of the BSE vs the benchmark MSCI Asia Pacific Stocks Index ex-Japan. I’ve set the RP zero to the start at May 1, 2005 when the India markets rally got underway. As you can see the BSE has been outperforming Asia-Pacific stocks consistently for the past 3 years.

The MSCI AC (All Country) Far East ex Japan Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Far East, excluding Japan. As of June 2006 the MSCI AC Far East ex Japan Index consisted of the following 9 developed and emerging market country indices: China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore Free, Taiwan and Thailand.