Technically Speaking
South Asia Technical Analysis with Phil Smith
A sharp pullback for the SENSEX
Email 
Print
Well since I’ve been on holiday a lot seems to have happened. I only got back to India in the early hours of Monday morning.
The first thing that strikes me is the fact we are oversold after the sell-off of the past couple of sessions according to the RSI, the near-term technical signals are bearish but longer term we are at a big support level and a double bottom might be forming on the weekly chart.
On the attached chart you can see major support coming up at 14,677, the Q1 low, and we could be looking at a possible double bottom formation to get us back up to our longer-term trendline.
As you can see this has already provided support on Tuesday so we need to watch it closely.
What was looking like a simple reaction low has overextended to the downside. What we need to see is some of the short-term bear signals turning to coincide with a double bottom formation.
I notice from our latest Reuters Poll that the market has downgraded its consensus forecast to 17,000 by the year end from 19,000. I’ve marked this on the chart and as you can see this is below the longer-term trendline we have been watching.
Comments RSSPost Your Comment
-
Author Profile
-
The Wall
hi,dear phil..welcome back to my home-land,..yes you are right a more than expected down-fall,and a double -bottom formation looks tobe a real possibility,i urge you to have a look at wekkly roc,weekly kst,,i think their positive divergence seems to have started working,,a good panic bottom was needed ,,the one of today seems tobe exactly the same,,a ggod hammer in lot of scripts and indices..3 gapped down windows..on daily charts shows a possible bottom today..a strong follow up tomorrow will put us on an upmove..
Hi Phil,
Just wanted to point out that if you take the monthly chart of Sensex and connect the major bottoms starting 2003 onto 2008 then you will see that we have broken through that trendline and on the subsequent pullback towards the trendline we have been pushed down again.
Add to that the relentless heavy selling pressure by the FII’s makes me a little skeptical on the chart you are using to project long-term optimism. Care to comment?
A .618 retracement from the life low of about 2770 on the bse to the all time high of 21206 comes in at 14165, so that
could be a low to look for if this overshoot to the downside continues.
regards
rajveer
Hi Madhur, When I draw in a trendline from the 2003 start, after the gentle decline of 2000-2001-2002 finished, I only get three touches with the last being the Q2 2005 dip where I have been taking the real start of the latter day SENSEX rally. I’ve always used this point as a starting point as it was when the fund money really started to come into the market underpinning the existing professional flows. I remember Mumbai being full of Mutual Fund adverts at the time. From a purely technical point of view you can look at both lines but the acceleration from this early trend after Q2 2005 is clear. Deteriorating fundamentals, oil price, interest rates, overseas investment flows, inflation-oil price, forthcoming election are all the fundamental factors in the background. For the purposes of this blog and my website I tend to look at pure technicals to back up, or otherwise, these fundamental factors. The more people I talk to in the market the more the fundamental picture looks uncertain, the FII trends have shown that. It is certainly right to be cautious at a time like this. It’s a risk-reward and weighting argument at the moment for sure and there is a risk to the current technical picture. In common with what many banks are currently doing with their forecasts the view could well change and at the moment the short-term bear technical factors are still in place but with this double bottom support.
Hi Phil,
Thanks for the follow up on my comment. I agree the picture is indeed very interesting and should provide some great learning experiences in the run up to the Indian General Elections in May 2009.
will keep in touch from time to time. BTW Good job with the blog!
cheers…
madhur
hi ,phil changes in fundamentals very strong to a lttle chaky one as you mentioned is alright ,but take a glance at fundamental picture with pure technical eyes ,and dont you think that infact these shaky fundamental picture itself is being discounted already..1-1.5% lesser gdp = 5000 odd points of sensex..isnt the equation quite reasonable??