The pharmaceutical stocks saw a major bout of selling and are now looking increasingly vulnerable to a decline. Though stocks in this sector have not shown a major reversal, there is a chance that they will decline. Holders of these stocks may choose to sell part of their holdings just to be on the safer side.

The stocks in the software sector have not shown any signs of a reversal. There seems to be a bit of steam left in these stocks. The popular opinion is that over a period of next eight years this sector is expected to grow by 50 per cent on a year-to-year basis. The earnings of individual companies are expected to grow by almost 70 per cent on a year-to-year basis. This is the fundamental reason behind the rally behind the stocks.If this proposition holds, this sector does have a long way to go.

This week saw the Trai (Telecom Regulatory Authority of India) unveil its plan to hike the fees for telephone rentals and call charges. The plan also seeks a cut in the STD and ISD rates. There is a preposterous provision that limits the time of one call to only three minutes. The logic behind this move is irrational. The world over we have telephone companies resorting to a cut in telephone rates. India has one of the lowest densities of telephone in the world and one of the worst communication networks. Considering that there is a vast market for telephones, there should have been a cut in telephone rates to encourage people to make more calls.

Instead a hike in telephone rates will affect the long-term growth rate in telephone usage. More importantly, the proposed hike in telephone charges will virtually kill the fledgling Internet market in the country. Internet will be the sole domain of a select few and the mass following will beabsent. Internet is the future. If efforts are not made to promote this, India will be relegated to oblivion in one of the most fascinating revolutions the world has ever seen.

Last week, we expected the rally to continue once the index broke above 3,691 points. After the budget was announced we expected the rally to continue till around 3,823 points. During the week the index made a high of 3,804 points before a selloff was seen. We believe that there is a bit of steam left in the rally and the index could a bit higher before a correction is seen.

During the week the index formed a bearish `engulfing pattern' on trading days of Tuesday and Wednesday. The black candle on Thursday confirmed the pattern. This is the first sign of vulnerability that is seen in the market. The last trading day of the week was doji, suggesting that the selling seen in the last two days has been absorbed. The index is likely to continue its rally over a next couple of days.

But the market has seen such a strong move it islikely that the index will not see an immediate reversal. The market could rally further and then reverse. Now on the weekly charts (not shown here) there is a trendline that can be drawn using two highs of 4,605 points and 4,322 points. The point at which the current uptrend can meet this trendline is at 3,950 points. Also, there is a gap between 3,823 and 3,870 points. The 61.8 per cent retracement of the entire down move from 4,605 to 2,740 points works out to around 3,910 points. Thus, the potential points for reversal are 3,823, 3,870, 3,910 and 3,950 points. Out of these the most likely is either 3,910 points or 3,950 points. These two points are the most likely to act as reversal points. The indicators are showing signs of a negative divergence. The 14-day RSI (relative strength index) is showing sins of a negative divergence. The MACD (moving averages convergence divergence) is in the overbought zone. In the final analysis the market is expected to rise in spurts and jerks to around 3,950 points.Holders may refrain from buying in the market at higher levels.

HCL Infosys

In the last eight weeks of trading this stock has formed an up sloping wedge type of formation. The price can decline once it shows a break below Rs 547. On the weekly charts the stock has formed a bearish engulfing pattern. The price of this stock can decline to around Rs 409. Holders of the stocks may consider booking profits in this stock at higher levels.

Flat Products

The price of this stock has shown a break above Rs 53 a very important resistance level. The breakout has been with a heavy increase in volumes. The price does show a potential to rally to Rs 85 in the medium term. One may buy with a stop loss below Rs 42.

Paper Products

This is another stock that seems to have a good long-term potential. The price is currently just below its resistance level of Rs 85 and once this level is surpassed this stock can rally to around Rs 109 in the medium term. One may buy the stock once itshows a breakout above Rs 85. Keep a stop loss below Rs 78.

Trader's Choice

ACC

The stock has closed just above Rs 1,281, a strong resistance level. Traders may buy this stock for a target of Rs 1,325 and once the price breaks above this level it can rally to around Rs 1,385. One may buy. Keep a stop loss below Rs 1,250.

State Bank of India

The price of this stock can rally to around Rs 250. One may buy this stock with a stop loss below Rs 211.