During last week's analysis of the BSE Sensex index chart pattern,
I had made a couple of observations that require repeating. One was
about the 61.8% Fibonacci retracement level of the entire bear market
fall. This was indicated at 16524 (including the 3% 'whipsaw' lee way)
and was the last resistance that the bulls needed to cross.

The
other was about a 'rising wedge' bearish pattern that the Sensex had
formed, and a downward break from the pattern below 15700 would have
sent the index into the long-expected correction. Both points need more
elaboration.

Let us first look at the 3 months bar chart pattern of the BSE Sensex index:-

A
deluge of FII investments took the Sensex past the final hurdle of the
61.8% Fibonacci retracement level. Technically, there remains no
further doubt that we are now in a bull market, and this rally can't be
termed a bear market rally any more. Any corrections should now be used for buying.

Note
the volume bars. Tue, Sep 15 '09 was an up day on lower volume. But
volumes picked up noticeably on Wed and Thu (Sep 16 & 17 '09) as
the index cleared the 16524 mark. The higher close of 16741 on Fri, Sep
18 '09 was a level not seen since May '08. But the new 52 week closing
high was on reduced volume - indicating that this leg of the rally may
be drawing to a close (finally!).

Also note that the distance
between the 50 day and 200 day EMA is approaching 2000 points, and the
index has moved about 1300 points above the 50 day EMA. There are
negative divergences in the RSI, MFI and MACD. All these indications
are bearish.

What about the bearish 'rising wedge' pattern? The
2 years weekly bar chart pattern may have some answers, and possible
index targets:-

Last
week's price action took the index above the 'rising wedge'. Does that
mean a pattern failure? Not yet. The possibility of an 'end run'
remains. That means, the upward break from the pattern can get reversed
and the index can move down. The comparatively lower volume on the
break out suggests this possibility.

Note how the previous top
of 15600 in Aug '08 provided resistance to the Sensex up move for quite
some time. The next resistance on the up side could come at 17600, the
previous top in May '08. The 17600 level conforms with the 17800 level
suggested earlier from the analysis of the gap in May '09. So, watch out for the 17600-17800 zone to provide good resistance to the first leg of this bull rally.

The
maximum downside target on correction - when it eventually happens -
would be the May '09 gap area. The 200 day EMA is at 13500, and the
long-term average should provide support to a falling index. The Sensex
may not go down that far. But it gives us an idea about the sell and
buy levels.

Bottomline? The BSE Sensex index chart pattern is
playing out the final stages of the bull market's first leg. This is
not the time to enter - unless one finds compelling value in an
individual stock. Book partial profits and conserve cash. Better buying
opportunities may become available in the near future.