The Sensex recorded a significant move on Thursday. It gained 15 points to close at 3224.36. In doing so, it has triggered the short term buy signal. While the week-end consideration at the BSE could have contributed to the recovery, important questions now arise as to the stance one should take on Monday.The market opened with the Sensex at 3204.10, lower by 5 points than its previous close of 3209.55. But the index moved up to post a high of 3230.65.
This high was of course way below the previous high of 3301.90. But one needs to discount the nearly 100 point spread between the previous high and low which was an unusual event, triggered by massive FII unloading on select counters. The day's low was at 3164.60, which was 36 points lower than the previous low of 3200.83. But the market recovered to close at 3224.36. Significantly, it closed higher than the day's opening.
Now the crucial question for the day is how much of the recovery do you attribute to the day's short covering of oversold positions.For that is the basis on which one should prepare for action on Monday.
While the fall of the market on Wednesday, the 28th was significant, the fall was more pronounced in select scrips. As I had written earlier in this column, the market was witnessing erosion but by small measures daily. So it was not a case of a sudden and excessive burst of selling at all counters on Wednesday. What happened to ITC, Telco and Mahindra & Mahindra did affect the market sentiment. In fact the bears took the cue from the FII selling and set a bear drive on motion not only on the FII counters but right across the board. But losses on other counters were small.
And these scrips have today recovered quite well. The recovery pattern suggests that there is something more than short covering here. Also, the fact remains that in a majority of the scrips, the short term indicator has signalled a buy. If this indicator proves to be a false alarm because of today's shortcovering, that would be rather an unusual incidence. On theother hand if the market weakness continues, the recovery could be extremely short lived.
The Sensex is still below the 7-day exponential moving average. But a short term recovery cannot be ruled out going by stochastics. I reckon the bold would take long position selectively on Monday and leave the quantum of gain to be decided later.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
