India, via the Bombay Stock Exchange, looks to be at an important juncture. The index is on the verge of breaking technical support at around 27,100 and forming a “Phase 3 Top” (see my book Sideways). Last week, it did break that support point, but managed to recover by Friday. This, by the way, is why I use a 3-bar rule before jumping to sell or buy upon a neckline break. Having said that, it does look like Bombay is holding a precarious line at this time. Let’s go over a few of the facts:
- February’s high of 30,000 has been taken out by a lower high. But the last trough low, established in March (which was a test of a prior support level and old resistance level) at 27,100 is holding.
- The 50 & (more importantly) the 200 day MA are broken—the weekly chart shows them as the 10 week and 40 week MA’s.
- The index is on the verge of experiencing a “death cross” (50 breaking down through the 200 MA). I don’t hang my hat on these events, but for what it’s worth, some people do, and it can lead to further selling pressure.
- Trendline (red line) is broken.
- RSI, Stochastics, MACD are heading down, no sign of hook to offer relief just yet.
- Comparative strength vs. the S&P500 (second pane from bottom) turned bearish in March. This despite the fact that the S&P500 itself has been flat (see my last blog on the triangular consolidation for the S&P500).
All in – I’ll be watching the Indian markets closely. There are enough negative signs to enforce one of our sell rules, should 27,100 break and stay below for a couple of weeks. We hold a small position in the BMO “ZID” ETF (half-weight in our equity model) and a full position in an individual Indian ADR. I will sell as, if, and when the market tells me to.
BTW: Our equity platform performance results for April were posted last week–click performance tab at the top of the page.