Technical Analysis

BSE Capital Goods index goes downhill

Yoganand D. | Updated on March 12, 2018 Published on May 05, 2012

In this week's dissector column we take a close look at BSE Capital Goods, the top underperformer among the BSE sectoral indices, by tumbling 346 points or 3.7 per cent on Friday to finish at 9254.8 levels. Constituting 17 scrips, it is the yardstick for tracking capital goods stocks.

Larsen & Toubro (L&T) has the majority weight in the index with a 53.9 per cent share. Bharat Heavy Electricals Ltd (BHEL) and Siemens trail with a 15.6 per cent and 5.4 per cent allocation in the index respectively.

Since peaking out in November 2010 at 16,860 levels, the BSE Capital Goods Index started declining and has been on an intermediate-term downtrend. In February this year, the index encountered resistance around 11,500 and resumed its intermediate-term downtrend.

As long as the index trades below the 12,300 and 12,400 band, its intermediate-term downtrend remains in place. The index can decline and test its immediate long-term support at 8,733 level (floor of the gap formed in May 2009). A strong decline below this support will pave the way for a fall to 7,800 and 8,000 base zone in the forthcoming months. An emphatic downward breakthrough of this base zone can pull the index lower to 7,300 and to 7,000 in the long-term.

The index has significant long-term resistances at 11,500 and 12,400. Only a strong jump above 12,400 will alter the downtrend and take the index higher to 13,100 and then to 14,000 levels.

Medium-term view

The index has been on a medium-term downtrend from this February peak of 11,615. Short-term trend is also down. Significant support at around 9,800 was providing a cushion for the index until late April 2012. Subsequently, the index broke through this support and continued to trend downwards. Last week, the index slumped 5.2 per cent, reinforcing the downtrend. The daily relative strength index is featuring in the bearish zone and weekly RSI has entered this zone implying downward momentum.

Moreover, the index is hovering will below its 50 and 200-day moving averages. It can decline and reach its immediate support at 8,733 in the short to medium-term. A strong dive below this level will pull the index down to 8,000. Important resistances are positioned at 9,800 and 10,400. A decisive rally above 10,560 will reverse the medium-term downtrend and lift the index higher to 11,300.

>yoganand@thehindu.co.in

Published on May 05, 2012
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