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Manish Shah
On Friday May 7, 1999, the BSE Sensex closed at 3708 points. The index was up by massive 382 points compared to the close of the previous week. The speed at which the index has rallied is astounding. The index has gained by more than 600 points or 20 per cent in the last seven trading sessions.
Clearly, the political uncertainty has not been a damper for some class of investors. Most pivotals have recorded more than 50 per cent increase in value in the week's trading. Most market participants were somewhat surprised by the developments. No one expected the rally to occur at such a speed, but it did occur and that is what matters. As a result, most persons were caught by surprise. The international prices of crude have seen a big increase in recent times. The government will resort to increasing petro-products prices, which will have a cascading impact on inflation.
But since the country is in the hands of a caretaker government, the decision on the hike in petroleum prices will not be taken inimmediately. Last week, we expected that the index could face a bit of resistance at around 3400 points. But quite contrary to our expectations, the index did not show any major corrections and the values went through the roof.
This weeks' trading was a long candle, in fact it was a huge candle. Such a type of candle signifies bullishness over the long term. There may be some correction in the market, but over a longish period, the index looks poised for a major rally. But this is a long term picture, let us see what does the market offers in a much shorter term. This week, the index opened with a gap and continued to rally further.
The first trading day of the week was a 'doji', but it failed to give a reversal signal. In the next couple of days the index continued to rally. Notice in the charts that a down-sloping trendline can be drawn joining the highs registered in the month of March.
On the last trading day of the week, the index again a formed a small-bodied candle, which is in fact a 'doji'.A doji after such a huge move can act as a reversal pattern. Also the last trading day of the week opened with a gap and the index made an intra-day rally to around 3775 points, before a decline started.
An another noticeable point is that the index has closed just below the resistance level of 3709 points. This is the point when rumour went around that BJP may be able to prove its majority. This is a major psychological level and it is likely that the index could see major selling at this level. The way the market has gone up, it is likely that if the index cracks, it could sink like a stone. The MACD (Moving Averages Convergence Divergence) indicator is in a buy mode. The 14- day RSI (Relative Strength Index) is below it oversold level. The strategy that can be adapted during the week is as follows: If the index breaks above 3775 points, expect the rally to continue above 3800 points. But if the index opens weak on Monday and sinks below 3709 points, one may expect the market to decline to around 3650.Below 3650 points, the index may again decline to around 3550 points. The market will behave erratically, and volatility will be high. Traders must tread with caution.
Reliance Petroleum
The price of the stock has broken out of the resistance level of Rs 21.50. The price can rally to around Rs 27 in the shorter term. Once the price registers a break above Rs 27, it can rally to around Rs 35. One may buy the stock at current levels. Keep a stop loss below Rs 20.
Mirc Electronics
This stock has formed a bullish 'Morning Star' on the weekly charts. The price of the stock could rally to touch its recent high of Rs 256. One may consider buying this stock at current levels. Keep a stop loss below Rs 162.
Titan Industries
Last two weeks of trading in this stock has formed a bullish Harami pattern. This pattern has occurred near its support level of Rs 60. One may consider buying this stock at current levels for a targeted price of Rs 85. Keep a stop loss level below Rs 60.
Tatatea: Sell short
Appearance of a bearish hanging man just below the resistance level of Rs 418 suggests a reversal. Traders may sell short with a stop loss above Rs 425.
Hindalco: Enter long
The price of this stock has shown a break out its flag pattern. One may consider buying this stock at current levels for a target of Rs 725. Keep a stop loss below Rs 425. u
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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