Bloomberg News

Sensex ‘Breakout’ Signals Indian Stock Gains: Technical Analysis

February 14, 2012

Feb. 14 (Bloomberg) -- The BSE India Sensitive Index may continue a six-week rally after rising above a downward trend channel, with market momentum reaching the strongest level since November 2010, according to StockCharts.com Inc.

The benchmark measure for Indian equities, also known as Sensex, has jumped 17 percent from its 2011 low in December amid expectation the central bank will reduce borrowing costs to spur economic growth and as European officials stepped up efforts to avoid a Greek default. The advance lifted the Sensex out of a descending channel that’d been in place since November 2010 and pushed its 20-week Commodity Channel Index, which measures the gauge’s variation from its mean, above 100.

“This CCI breakout signals an upthrust in bullish momentum,” Arthur Hill, a technical analyst at Redmond, Washington-based StockCharts.com, wrote in a note yesterday. “Combined with the channel breakout, it looks like the 15-month downtrend in the Sensex is reversing.”

The Sensex surged 157 percent from March 2009 through November 2010 as the global economy rebounded from the financial crisis fueled by U.S. subprime mortgage defaults. The index has since fallen as much as 28 percent as concern grew Europe’s sovereign debt crisis may trigger a global recession.

The advance since December has brought the index close to its October intraday peak of 17,908.13, a key resistance point for the market to overcome, according to Hill. The Sensex added 0.1 percent to 17,772.84 yesterday.

“Follow-through above this high would complete the trend reversal,” he wrote.

The Reserve Bank of India last month unexpectedly cut the amount of deposits lenders need to set aside as reserves for the first time since 2009. The central bank will cut interest rates once it’s confident inflation will keep slowing, Deputy Governor Subir Gokarn said on Feb. 2.

--Editors: Joanna Ossinger, Jeff Sutherland

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.


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