Technically Speaking
South Asia Technical Analysis with Phil Smith
The SENSEX – the low
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Since the somewhat manic reaction to the government’s confidence vote victory, the SENSEX has retraced fully under the weight of falling overseas markets and the Reserve Bank of India’s latest monetary tightening.
From a technical point of view on the daily chart we have settled around support at 14,206 on Wednesday.
Nevertheless the short-term indicators are still bullish with the Parabolic-SAR and MACD pointing to the upside.
The black right pointing arrows on the chart mark where we got good technical signals for medium term trend movements. The upward pointing arrow is the possible signal we are getting now about the current possible turning point.
The Alpha-Beta study has turned neutral but has yet to confirm an uptrend. This is the green line (signal line) on the chart which is current between the upper and lower lines. Confirmation of a new trend will come when the A-B turns bullish and that will be when the signal line cuts down through the lower line.
On this chart you can see the major technical support at the long-term trendline in Q1-Q2 and when that broke around the 38.2 pct Fibonacci retracement level in Q2. You can see both these supports clearly on the chart.
Since the 38.2 pct support broke the next big level on the downside is 11,900 which is a 50 pct retracement of the entire low to high BSE upmove. As you can see we have bounced off good support around 12,500 which was the high reached before the 2006 sell-off and the 2007 low.
There is very good long-term technical support for this market between 11,900 and 12,500.
The bounce we had from 12,500 was clearly too steep as you can see and the market is currently settling into a more sustainable trend. We need to be looking for more technical confirmation that this was indeed the bottom of this year’s decline. All things considered, as long as the oil price continues to moderate, inflation doesn’t roar away and the political backdrop remains more positive we could have seen the trough everyone has been looking for.
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hello sir,i wrote on 2nd july ..we are very much near a SIGNIFICANT BOTTOM…ON 16th i wrote we have hit a bottom,,am saying today we have hit a higher bottom,to touch 4530 first and 4730 next..i love some of your observations,some very intelligent comments, but being a very very firm believer in pure technicals,,i think we should be bold and outright enough to catch bottoms,you are absolutely right in saying that we have seen too steep a rise from 12500 levels but,in my experience a market making significant bottom must give a very steep first rise,neglecting first major hurdle,sensex did the same by simply overlooking 14600 around levels which was prior bottom,and i think by making a higher bottom today,market simply knows few things in advance..oil will be subdued,,no political disturbance for some months atleast,and control on inflation,,,,i think yesterdays tightning was done at a right time as rbi governor thinks that first q performance is good enough so that tightning can be done without hurting growth much..and if the sensex really makes a higher top ..we must agree that market knows in advance that inflation controlling measures will work keeping india story intact..and my logic of 2% fall in gdp = 8500 odd points of crash in sensex..believe me we are truly experiencing the golden rule…market discounts the future..
Politically we are getting into a tricky situation. The Speaker of the Parliament has been expelled by his Communist Party because he refused to put in his papers. There is a possibility that he may resign in the near future. That could entail another trust vote which the present government may not win.With the Foreign Institutional Investors still continuing their selling spree, inflation still in double digits and interest rates still high – there may be some more pain left in the Sensex. Technically also, last Wednesday and Thursdays price action seems to have formed an ‘island reversal’.Q1 results of Indian corporates published so far have been below expectations. The oil price moderation is the only silver lining. But the Indian government has kept gas, petrol and diesel prices artificially low through subsidies, so the real rate of inflation is much higher than the published figures.We have a stock market where market forces are not allowed to play freely – an overhang from the earlier socialist leanings.
Yes Bhavesh I think we may well have found the trough but I still think we need a note of caution. As Subhankar points out there is some uncertainty over the political situation and ‘real’ inflation is probably much higher than the official figures indicate.That said, purely from a technical point you are quite right that things do look much more healthy.The island reversal that Subhankar is looking at is interesting. Generally, island reversals come at the end of major trend up or down and typified by an exhaustion gap. This little one formed after what was more of a breakaway gap after the vote. Nevertheless, the gaps that opened up around the island have lent some good support and resistance levels already.
Hi.Good analysis.Having said that, please visit sagetrader.blogspot.com , the author had given “Clear” and “unambiguous” buy call on 4th July. And also mentioned about “Island” as discussed here earlier.Very interesting blog, but the only thing is that, the Sensex reviews are posted here with delay of atleast 1 week. Rest of the analysis- global markets- is live.The views expressed here and there are almost identical.
Yes Mamutti I tend to post this blog around once a week. For a daily ‘live’ comment I use my website http://www.reutersindia.net which covers other South Asian markets as well, and gold.
its been raining for the whole night, for the first time in this season,giving a big relief to the farmer of my area atleast….and a relief to my concerns over the chances of crop failure and a big damage to economy,,,and as i have been mentioning over here abbout the golden rule working quite dramatically…MARKET DISCOUNTS THE FUTURE…now fed says, inflation will ease as oil tumbles..dow jumps..asia will follow,,,,but..to me india looks much stronger ,clearly, sensex is moving ahead..a big hurdle near 15700…will decide weather this is a bear market rally..or a fresh up move