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Old 06-03-2008, 04:14 PM   #1 (permalink)
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A 360 Degree Look at India's Primary Stock Index, the SENSEX

First off I would like to congratulate InformedTrades member Silviston, who one the fundamentals of forex quiz contest, by answering most of the questions correctly and then being the closest of the finalists to guess where the value of the EUR/USD would be one week from the end of the contest.

As Silviston lives in India, he asked if instead of the book that I was offering as a prize, if I would do an analysis of the Indian Stock Market. I am of course happy to do this, especially since I think this is a topic that the entire community may be interested in discussing.

Before looking at the charts to see where some potential trading opportunities may be, I like to first have an understanding of what the fundamental situation is in the country. For this I will turn to two posts from which give a nice overview of the challenges the country is facing and the advantages and opportunities it has going for it.

Now that I have a basic understanding of the fundamentals of the economy I will look at a longer term chart with a 50 and 200 day Simple Moving Average so I can get a feel for the overall trend in the market.

The first thing that jumps out at me which I already knew is that this chart has been in a huge bull market up to the start of 08, when the market had a very dramatic pullback. While one could definately still make the argument that the longer term trend is still up, the fact that the 50 day moving average has traded below the 200 and the fact that the market is trading below the 200 is not a good sign for the longer term trend.

The second thing that jumps out at me about this chart is how well it has tracked the 200 day moving average, which acted as support multiple times on the run up and is now acting as resistance as the market tries to bounce. (I have highlighted this with black circles in the chart below)

The third thing that jumps out at me here is how far away from the 200 day moving average the 50 day moving average got during the last part of the run up. If you look at the rest of the chart you will see that the gap between the 50 and the 200 day moving average is no where near as wide as it was just before the selloff a good sign that the market was overbought.

So without knowing a whole lot more at this stage I would say that my bias is down while the market is below the 200 and I would not trade it to the long side on the long term until it got back above the 200.

Scrolling down to more recent daily data you the thing that jumps out at me is on the retracement of the down move earlier in the year the market put in a double top in may and has been selling off into june as you can see in the chart below. If you add the MACD, Fast Stochastic and RSI to the chart I don't see anything there that would indicate divergence which would further solidify my bias to the downside.

Unfortunately the charts that I have access to here do not allow me to go below the daily time frame in the SENSEX so all I can say at this point is that my bias would be down but not strong enough to initiate a position until I had a chance to review the hourly charts to see if there were any opportunities there.

Hope that helps. If there are any other opinions on this one or if anyone would like to add anything please feel free to post below.

Best Regards,

David Waring is offline   Reply With Quote

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