The panic that set in was triggered by all-round selling by foreign institutional investors (FIIs) who were unnerved by reports on US-64. At the fag end of the week the market declined but the volumes were low as traders attempted to square up their positions.

The news on Unit Trust's flagship scheme US-64 having a negative balance caught traders unawares. UTI had declared a 20 per cent dividend in June under the toughest of market conditions. This baffled many in the investment circles as they tried to grapple with how UTI would manage to pay such a hefty dividend given the depressed market conditions.

Now the cat is out of the bag. The dividend outflow of Rs 3,000-odd crore was paid out of fresh sales of units. This is nothing but borrowing from Peter to pay Paul. UTI's viewthat the exact impact of the debacle in the market in May-June was not known on June 30 does not hold water. The Trust manages tens of thousands of crores of rupees of public money and it is imperative that it gets its information systems right.

UTI does provide weekly information of the net asset value (NAV) for several of its schemes and it is impossible to conceive that it did not know the state of affairs of US-64 on June 30. Dividends are an appropriation of profits, and how is it possible for any company to declare dividends till the time the profit figure is fully known. What UTI has done is that it has paid dividends out of capital and this, in accounting terms, is strictly prohibited. The market fell on fears that if there is a run on US-64, the Trust would have no option but to sell in the open market. It is this scare that brought the Sensex down.

Regular readers of this column would know that the recommendations made here over the last six weeks or so have given excellent returns. Stocks likeBHEL, Supreme Industries, Thomas Cook, Rhone Poulenc, Essel Packaging, Digital Equipments among others have appreciated considerably. We hope to continue to do so in future.

Last week, we anticipated that the market could decline to around 3,180 points before a rally to around 3,350 points begins. The market did decline, but the decline was more than our expected levels. The market has not behaved as per our expectations as the Sensex has dipped below 3,180 points. This means that we have to reconsider our analysis.

Last Friday, the index formed a small bodied candle which can be classified as a `doji'. This was followed by a long black candle which heralded bearishness. The highs of both the days were almost equal, thus forming a bearish `Tweezers Top'. What followed in the next two days was a consistent decline.

The manner in which the index is now moving, virtually anything is possible. Currently, the index is just marginally above the support level of 3,066 points. If this level is breached, theindex could decline to around 2,950 points. If the index finds support at 3,066 points, it could rally to around 3,180 points before it encounters resistance at this level. If the index shows a breakout beyond the level of 3,180 points, it could still rally to higher levels.

The best option for the traders is to wait and watch what happens at the level of 3,066 points. The MACD (Moving Averages Convergence Divergence) is marginally below its trigger and a sell signal is not yet given. The 14-day RSI (Relative Strength Index) indicator has shown an advance below its support level. In the final analysis the index movements are a bit complicated at the moment. Traders are advised to watch out for a break below the level of 3,066 points and to watch closely the movements of the index at this level.

Cheminor Drugs: Buy at current levels

This stock has shown a breakout from its symmetrical triangle. The week's trading saw the stock open with a `breakaway gap'. This is a bullish sign. The weekly MACDhas given a buy signal. The stock does have the potential to rise to around Rs 187 in the medium term. If the stock shows a breakout beyond the level of Rs 187 it could still rise to higher levels. One may buy at current levels. Place a stop loss below Rs 147.

Unichem Labs: Buy long

This stock has shown a breakout beyond the level of Rs 210. The breakout is with a heavy increase in volumes. This stock does show a potential to rise to around Rs 330 in the medium term. One may buy long at current levels. Keep a stop loss below Rs 210.

Nocil: Attractive at current levels

This stock was looking good the moment it broke above Rs 31 two weeks ago. The restructuring exercise performed by the company will be of beneficial interest to it in the long run. At current levels the stock seems to be attractive. The MACD has given a buy signal and the breakout beyond the level of Rs 31 has been with higher volumes. The immediate target for the stock in the short term is Rs 40 and a breakout beyond thislevel could take the stock to Rs 55. One may buy. Keep a stop loss below Rs 31.