Market Strategy

Dissector: BSE Oil & Gas Index at key support

Yoganand D. | Updated on June 25, 2011 Published on June 25, 2011

BSE Oil & Gas Index (ended at 9,043.3) constitutes nine companies, namely Reliance Industries, ONGC, GAIL, Cairn, BPCL, HPCL, IOC, Oil India and Petronet LNG. Of these, Reliance Industries has the highest weight of 58.6 per cent and ONGC shares 16.9 per cent.

Long-term

After bottoming out at 690 in 2001, which is also its all-time low, BSE Oil and Gas Index was on a spectacular bull run until it encountered resistance around 14,200 in January 2008. However, the index reversed direction from its life-time high of 14,268 levels triggered by the sub-prime crisis and global recessions.

Its downtrend continued till it found support in the band between 4,500 and 4,700 in October 2008. After forming a strong base in this band, the index started to trend higher.

A sharp rally to 10,500 then followed in the period between March and June 2009.

Since then BSE Oil & Gas Index has been consolidating sideways in a broad range between 9,000 and 11,000.

Currently, the index is testing the lower boundary of this sideways consolidation range. The index dipped below 9,000 on Monday; however it managed to rally in the subsequent sessions and closed the week above this level.

An emphatic breakthrough of the lower boundary of the sideways consolidation can pull the index down to 8,000 and then to 7,250. Next support below this level is at 6,500 levels.

On the other hand, if the index manages to hold above 9,000, it can reverse higher to 10,000 or 10,500 levels.

Strong move above 11,000 will indicate that the index has resumed its long-term uptrend. A rally to 11,800 and then to 13,000 would then become possible.

Medium-term

The BSE Oil & Gas Index has been on a medium-term downtrend since its 52-week high of 11,270, registered on November 5 last year.

Moreover its short-term trend is also down since this April peak. It is hovering well below its 50 and 200-day moving averages. Last week, the index bounced up taking support at around 8,700 and it will face key medium-term resistance at 9,300. Strong penetration of this resistance will take the index upwards to 9,700 and then to 10,000.

Decisive up move beyond 9,700 will signal that the short-term downtrend has ended. However, conclusive rally above 10,300 is required to mitigate the index's medium-term downtrend and lift the index higher to 10,700 or to 11,000 in the medium-term.

Failure to surpass 9,300 can confine the index between 8,700 and 9,300 in the medium-term. Support below 8,700 is at 8,000.

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