Technically Speaking
South Asia Technical Analysis with Phil Smith
Double bottom bounce for the SENSEX
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We’ve had five sessions of small advances since the SENEX hit solid support at 14,677 which is the March 2008 low.
That level is clearly marked on the chart here (you can double click it for a larger view)
This forms a rather nice double bottom formation since the reaction low over extended to the downside. The question is can this key support hold and is this indeed a double bottom formation. A double bottom is a reversing pattern.
We have had a series of short-term bearish indicators but at least two of these are now looking like turning. The Parabolic-SAR has touched the price action so the dots should now switch to below the price action indicating a change to a long position under the rules of the study. The MACD fast line is showing signs of turning up as you can see although the Alpha-Beta signal line is still above the upper line so under the rules of that study it is still bearish.
Watch the MACD and A-B trend carefully in the coming days for further signs of the short-term bear indicators turning.
The second chart is a weekly of the SENSEX and shows the longer term trend. As you can see that March low is providing good support and the level also coincides with the high of Q1 2007 before we had a good (38.2 pct Fibonacci) correction back to our longer-term trendline. It is very significant support for this market and a break below it would change the technical picture. As you can see in broad terms the longer-term uptrend has been in place since May 2005.
I have a website updated daily at www.reutersindia.net
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The Wall
well this is 20th evening. what say now ? shall we go the china way?
Hi Dipak, yes the 11 pct inflation was a shocker and has taken us slightly below the critical support I was talking about above. Given the significance of this level, the lower chart above, it does change the technical picture if the market closes below it again early next week. We had one of the short-term bear indicators turning but now they have all turned bearish. So the technical picture near-term is bearish and the long-term outlook has taken a hit due to the break of this critical support. One thing to remember is the relative performance charts of India vs China you will be familiar with have had China markets outperforming India significantly for years. You have to bear that in mind if drawing parallels between the two in terms of their relative performance now.
Hi Smith!
I read regularly your update about India’s Sensex.
I agree with you on coming week may be painfull.But I think Sensex may not fall too. Becous index already in oversold positions and the all financial front negative news already discounted.11% of inflation & political front crisis are littlebit shoky,market may spend around 1000 points to obsarbe thins things.Sensex may get exact support at around 14000 (probably 13900)level. Also possible to bottom out from that level.
I want to know your comments on my View……
hi phil,
id suspect the long term retracement levels come into play here .386, .5 and .618 retracements from the all time high 21200 to the all time low 2770, i have these at 14100,11985, 9810. With sentiment indicators such as the vix not showing any sign of a panic yet we could be headed for a test of 14100 for sure and 11985 which is also close to the 200 weekly mov average somewhere down the line.
regards
rajveer
Hi Phil
Sensex closed on 20 June at 14,571.This is corresponding tp PE of 18.59.I believe that shrewd investors are waiting for PE of 17 to commence fresh buying.Is it possible to predict corresponding level of Sensex?
Regards,
A.Kapoor
hello Smith,
The charts have been very nicely placed but i believe technical charts will be dominated by fundamental news and conditions which we are seeing in Indian markets. So i dont know till what extent we have to believe in technical charts and indicators. We talk about support and resistnace but when FII guys start selling then no support comes into picture but infact everything goes down drastically.
What say Phil?
Hi Rajveer, yes the very long term Fibonacci does indeed cut in, the 38.2 pct, at the level we are at as I’m writing this. As you say the 50 pct is at around 11,900. The actual levels I have from MetaStock are 14,097, 11,901 and 9,705. With so much bad news in the market I find it hard to rationalise away a drop back to 2006 levels. Are we really doing to do a Vietnam or a China? According to my colleague in China, Chinese investment newspapers are full of comparisons to both India and Vietnam these days — to try to calm investors down, Chinese officials are even resorting to making public statements about why China’s situation is different from India and Vietnam.
Kapoor, I’ll have to look into your question. It’s probably possible to predict levels from target PEs but I will have to check.
SAM, yes you have to look at both technicals and fundamentals at the same time for sure. Forecasting must use both but they often back each other up. It’s not a case of believing, or not, technicals. It’s a tool and must be used with other tools and not in isolation.
hi phil,
good idea to bottom fish at about 14000 for a good bounce i think.
Hi Phil : Sensex closed on 24 June at 14,106.I am in agreement with your observations that downside is limited from this level but a major dampner came with RBI news of hike in lending rates and CRR.This could make markets shaky on Wednesday.
Regards
A.Kapoor
Yes some nerves over the rates and the inflation outlook for sure but a huge amount of bad news is discounted at these levels. I’ll update the charts on another thread shortly.
is lcc usairways a double bottom forming. or is there a site i can look at thanks in advance