Market Strategy

Dissector: FMCG Index trades below key resistance

Yoganand D | Updated on April 16, 2011

The FMCG index is set to test its key resistance in the near term.

The long-term trend has been up for BSE FMCG Index since its 2003 low of 705. In July 2009, the index broke through a significant resistance at 2,500 and continued it's uptrend until it encountered key resistance at 3,800 in October 2010.

In our review of this index in June 2010 when it was hovering around 3,118 , we mentioned that the index is approaching its long-term target around 3,200 and a break above this level will give the next long-term target at 4,257.

After some pause around 3,200, the index resumed its uptrend penetrating this resistance last August and rallied in line with our expectations.

However, the resistance at 3,800 proved to be a strong hurdle as the stock repeatedly failed to surpass this hurdle in November 2010 and also in January 2011. The decline from this level found support at the intermediate-term base around 3,200 in February.

It faces resistance at 3,800. A break above this level will take the index higher to our long-term target of 4,257 in the ensuing months. Key long-term supports for the index are at 3,200, 2,900 and 2,500 levels. Strong close below 2,400 will mar the index's long-term uptrend and drag it down to 1,800 or 1,600 levels eventually.

Medium-term

Inability to move above 3,800 will incarcerate the index in the broad range between 3,200 and 3,800 in the medium-term.

Important supports for the BSE FMCG index are at 3,500, 3,400 and 3,200 levels. On the other hand, a fall below 3,200 can pull the index down to 2,900 levels.

Since February, the index has been on a short-term uptrend. It took support around 3,400 and moved higher breaching its moving average compression (21-, 50-, 200-day moving averages) around 3,450 in late March and is trading well above them.

The daily relative strength index is featuring in the bullish zone and weekly RSI is on the brink of entering this zone. Both daily and weekly moving average convergence divergence indicators are featuring in the positive territory indicating upward momentum.

Short-term

We expect the index to climb and test its key resistance at 3,800 in the near term. Immediate support is pegged at 3,650. Nevertheless, a tumble below 3,400 will mitigate the short-term uptrend and can drag the index down to 3,200 levels.

Published on April 16, 2011

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