Technical Analysis

BSE PSU Index going downhill

D. Yoganand | Updated on August 27, 2011 Published on August 27, 2011

The BSE PSU Index (7,454.7) is a benchmark index comprising public sector units. This index comprises 61 stocks of which ONGC and Coal India have the top weight with 14.5 per cent and 13.9 per cent respectively. NTPC and SBI follows them with 8.4 per cent and 7.3 per cent weights.

Long-term view

Since bottoming out in 2000 at 717 levels, the PSU Index had a spectacular bull-run until it recorded an all-time high at 11,205 in January 2008. However, subsequently the index changed its trend and declined to approximately 61.8 per cent Fibonacci retracement level of its prior up move and found support at around 4,300 and 4,500 support range in the last quarter of 2008. Following a strong up move from this support level, the index almost reached its all-time high level. The PSU index reversed downwards in October 2010 from the resistance band between 10,500 and 10,700 triggered by negative divergence in weekly indicators. It has been on an intermediate-term downtrend forming lower peaks and lower trough since then.

In the third week of August, the Index tumbled almost 4 per cent, emphatically breaking through its key support level at 8,100. The index further declined 3.4 in the last week and registered a new 52-week low at 7,423 levels on August 26. Strong fall below the support at 7,100 will pull the index further down to subsequent support, which coincides with the 61.8 per cent Fibonacci retracement level of its prior up move at 6,500 level in the intermediate-term. Next key long-term support is pegged at 5,500. However, a reversal from 7,100 level can lead to a corrective up move in the index and it can rally to 8,000 and then to 8,200 in the same time frame. Strong up-move above 9,200 is required to reverse the current downtrend and lift the index higher to 10,000 levels.

Medium-term view

Medium-term trend has been down for the index since it encountered key resistance in the band between 9,100 and 9,200 in April this year. In late July, this downtrend accelerated and the Index declined steeply. It is hovering well below its 21-day and 50-day moving averages. Both daily as well as weekly indicators are featuring in the bearish zone. The Index can prolong its decline and test its next key support at around 7,100 in the short to medium-term. Nevertheless, reversal from 7,100 can encounter resistance at 7,850 initially and then at 8,000 and 8,200 levels. A decisive jump beyond 8,600 resistance level will mitigate the negative view and take the index higher to 9,100 levels.

Published on August 27, 2011

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