The defeat of the BJP in the state elections was a foregone conclusion as soon as results of the exit polls were announced. This means that the market had already discounted this development.

The fears that probably led to the sell-off was the possibility of mid-term polls. If fears of a mid-term poll do materialise then the chances of a quick recovery in the market could be delayed.

Elsewhere, most of the stock markets in the world have seen buoyancy. The markets in South-East Asian countries have seen a fantastic bull run as some of the markets have risen by morethan 50 per cent since August 1998.

Sadly the Indian market has not been anywhere near the type of recovery these markets had witnessed. Not too long ago when these markets were reeling, politicians patted themselves that the Indian stock market and the economy was much superior to its other neighbours.

But now when the same markets have witnessed unprecedented buoyancy, the statements acknowledging the inherent weakness of the Indian market have not surfaced. In spite of the sops extended to the Indian industry the market has largely been immune to the bullish developments. The chief culprit for the depressed conditions in the market has been the lack of a political stability which has stymied growth.

The sooner the power brokers in the country realise that political stability is the key to growth the better it is going to be for the entire economy. Last week we had stated that if the index breaks below the level of 2,920 points a further downslide is possible.

We were a bit ambivalent in ouropinion as to the future direction of the market at least in the short-term. Admittedly we expected the market to show a breakout on the upside and further rally provided certain key levels were significantly surpassed. This hardly happened once the level of 2,920 points was broken as there was hardly any support to the falling index.

The index has recorded seven consecutive days of low closes suggesting severe bearishness in the market. On the weekly charts, the index has formed a big black candle which is indeed a bearish sign. The monthly charts show that the index has formed a very small bodied candle resembling a `inverted hammer'. This means that the index could be bottoming out at the level of around 2700 points. But we still have one more trading day to go before the last trading day of the month.

Once the trading on Monday is over, a much clearer picture will be seen. On Friday's trading, the index declined and found a brief support at around 2,774 points. It is from this level that the index hasreversed twice. We expect the market to get a brief support at this level. Once this level is broken, the index could decline to the recent low of 2,744 points and if this level too is broken we could see it reaching for the level of 2,700 points.

The supporting indicators are on the bearish side. The MACD (Moving Averages Convergence Divergence) has slipped below its equilibrium level and it is now in a sell mode. The 14-day RSI (Relative Strength Index) is marginally above its oversold level. This index has formed a series of positive divergence, but the price action till date has failed to confirm a reversal signal.

On the whole the market appears to be vulnerable to selling pressure and it is likely that the index could reach lower levels. The level of 2,774 points is a level of great significance. If this level is broken down the index could end up testing its recent low of 2,745 points. Traders could consider selling short only if the index declines to below the level of 2,745 points.

SwarajEngines: Buy in two lots

This stock is marginally below its resistance level of Rs 470 and the price is trying to breakout above this level. The volumes have marginally picked up in this stock. If the price manages to break above Rs 470 the stock faces another significant resistance level at Rs 500. Once this level is also cleared the stock price could witness runaway price rise to around Rs 600. One may consider buying this stock in two lots, one each above the two identified resistance levels. One may buy on breakout above Rs 470. Keep a stop loss below Rs 450.

Pentafour Software: Book profits

The price of this stock has broken below the support level of Rs 525. This level is a very significant level and the stock price can decline to around Rs 400 in the medium-term. Holders of this stock can consider booking profits and may consider buying this stock at lower levels in future.

HDFC Ltd: buy signal

Since about the last two months the stock price has not been much effected by theoverall turmoil in the market. The price has been moving in a range of around Rs 2400-2200. The volumes are very much on the lower side. This type of price action suggests accumulation and suggests that in future the price may show a rise. The only problem is that one may have to wait for a long time before benefit of a price rise can be obtained. At current levels, the stock price offers an attractive reward/risk ratio and buying is recommended. The weekly MACD has given a buy signal. One may buy. Keep a stop loss below Rs 2,100.

Traders choice: Larsen & Toubro: enter long

This stock is below its recent low of Rs 142. On Friday the price action formed a `star' which may be a bullish pattern. Traders may buy the stock at current levels. Keep a stop loss below Rs 140.

Zee Telefilms: sell short

Once the price of this stock breaks below Rs 597 it could decline to Rs 578. Traders may sell short on break below Rs 597. Keep a stop loss above Rs 605.