Weekly Technical Analysis (week ending 17th Feb, 2006)

One more week of volatility and we ended the speculation in the “red”. This was expected, because 10K is always a huge number and bigger round number than any other. If you see the performance of DOW Jones(USA), that too hovered around the 10K mark for a little while before actually breaking it off and moving ahead. That doesn’t necessarily imply that BSE will behave the same way. But a big road block is a road block for sure. With macd histogram Budget session just around the corner, it is fair to assume that this kind of volatility will continue for some time.

Technically, BSE dangerously close to forming lots of negatives. MACD negative divergence leads to either minor or major corrections. Similarly, MACD crossover. Most importantly, as you can see from the chart below, We are so close to the lower support channel/trendline that we can hardly afford to go down. Even if we do, we should recover pretty soon. Otherwise, it would be a nasty one. If you look closely at the two trendlines, upper one being the resistance and the lower one being support, both of them are narrowing down as time is passing by. This is extremely bearish for medium-to-long term. Why? Because, the scope of the index going down is very very limited and if it does break the support line, then we could see a “blood bath” and indices may just roll south.

US Market

Dow finally made new highs. This time Nasdaq did not really help much and it hardly gained any pace last week. There were a few good and few bad news. One of the bad news being US Budget deficit [http://www.msnbc.msn.com/id/6249895] climbed to the highest levels ever and it does not seem to be taking any breaks. The average savings rate has been the lowest(in negative) ever in the country, because everyone is just about spending and nobody really saving. This is definitely not good for the longer term.

Technically, We have a clear breakout on our hands. But as you can see, the trendlines are pretty narrow and unless we break the upper one, it may serve as a resistance. As we mentioned in our analysis a couple of weeks back, the lower trendline did in fact give good support and DOW has been climbing up ever since. MACD seems to be supporting this cause and has clearly moved above zero line. Next week will be crucial one as we did NOT have 2 weeks above 11K in the recent past

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