Reuters India Stock Market Technicals

 Sunday, May 11, 2008 14:32 IST

(This comment is written at the above time and uploaded to the site before 1000 IST whenever possible)

 

BSE    CSE   KSE    Gold   India WPI

A good downtrend since last Monday’s close with the market closing at pretty much the low for the week.

This downturn was confirmed early in the week with the Parabolic-SAR touching the price action and the MACD fast line turning down towards a cross. The 200-day Moving Average has been both support and resistance and will continue to be a significant level.

What we’ve seen this week looks very much like the beginnings of the reaction low I was talking about – see earlier comment below. 

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. One thing to watch for is a minor downward correction to the recent upturn to form a ‘reaction low.’ Have a close look at the 2006 downturn and you will see what I mean. From a technical point of view don’t be surprised to see the BSE correct back towards the long term trendline for a short time. (As referred to above this is likely happening now) 

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.  

Click here for a technical look at Pakistan stocks

Click here for a technical look at Sri Lanka stocks

Click here for a technical look at Gold

Reuters India Stock Market Technicals

By Phil Smith mailto:technicals@reutersindia.net

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