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Manish Shah
On Friday, the BSE Sensex ended at 2,848 points, up 67 points from the previous week's close. Mid-week, the market was listless as most players preferred to remain on the sidelines in the absence of any positive developments. The atmosphere was indifferent as the index remained rangebound. It was only on Friday that a sudden movement in ITC shook the market out of its stupor. The stock was quoting at around Rs 682 before witnessing a sudden surge to Rs 725. Traders were at a loss to explain the sudden spurt at the counter, though this changed the sentiment in the market completely.
The winter session of the parliament started on Monday and, mercifully, none of the opposition parties decided to exercise a vote of no-confidence. But thanks to the squabbles among politicians, the insurance bill is yet to be passed. In addition to this, the Companies (Amendment) Ordinance allowing buyback and the amendment to the Securities Contracts and Regulation Act are also on the agenda. Most market watchers are waiting for these bills to be promulgated into ordinances as they will reiterate the commitment of the government to reforms. In all probability, it is likely that the insurance bill will be passed as a watered down version.
Last week, we expected the market to decline to around 2,744 points and a break below this level could have taken the index to 2,700 points. The market did decline to a low of 2,741 points on Monday before recovering from this point. This rally has a special significance.
On Monday, the market opened with a gap on the lower side before rising sharply. The rally thrust itself deep into the prior day's candle (last Friday's). This is a classic 'piercing pattern'. In the following days, the market was lost for direction as it moved in a very narrow band. On Friday, the index, in a late burst of energy, responded eagerly to sustained buying. On the weekly charts (not shown here) the index when seen in conjunction with previous week's candle has formed a bullish 'piercing pattern'. Thus, we have a case where on both the weekly and daily charts we have the appearance of bullish candlestick patterns. The appearance of this pattern at the support level of 2,744 points is a very important development, considering that the defeat of the BJP in Madhya Pradesh was a very bearish development.
But the market's refusal to remain at lower levels in the presence of such bearish news is a very positive development. Since the third week of November the index has formed an intermediate top of 3,027 points. We expect the market to rally to this point. But before this it faces a resistance at 2,922 points where the market could attract some selling pressure. If in the next couple of weeks the index does manage to cross 3,060 points, we are probably in for a rally.
The conviction in a rally is further strengthened by the fact that the index has, in the last three years, consistently rallied in December. Whether this happens for the fourth year in a row remains to be seen. The supporting indicators are also showing subtle signs. This time we have used a medium-term 24-day ROC (rate of change) to put forth a point. The last fall from 3,027 points has not been very strong as the indicator shows that it has hardly declined below the equilibrium level. This lack of power in the decline suggests that this could be a harbinger of better times. The MACD (moving averages convergence divergence -- not shown here) is showing signs of positive divergence since September and here too the indicator is showing a very weak fall as it is very close to its equiibrium level.
We expect the market to rally during the following weeks. Traders should consider remaining on the long side of the market. The first resistance level is at 2,922 points and thereafter the index could rally further to around 3,027 points. On the downside the level, 2,833 points now becomes a support level and below it the next support level is at 2,790 points.
Reckitt & Colman: Await breakout
This stock has been moving in a range since the last three months or so during which period the stock attracted considerable buying as can be seen from relative increase in volumes. The price is marginally below its resistance level of Rs 335. Once the stock manages to break above this price it can shoot up to around Rs 370 and beyond this the stock can rise to around Rs 415. One may buy at breakout. Keep a stop loss below Rs 314.
Glaxo: Good potential
This stock has shown a breakout from a pennant, a continuation pattern. This pattern is more clearly visible on the daily charts which are not shown here. Still, the breakout from the pattern suggests bullish connotations. The potential in the stock is tremendous and it is possible that it targets a level of around Rs 700. One may consider buying this stock on breakout from its recent high of Rs 582. Keep a stop loss below Rs 555.
Goodricke group: Buy after breakout
Since almost a year-and-a-half, the price of this stock has been moving between Rs 70 and Rs 122. During the week the stock price advanced considerably on increased volumes. For the stock to advance further it is imperative that it advances above Rs 122 and stays above it for some time. One may buy this stock only if it breaks above Rs 122. Once the breakout takes place the stock can sustain a very sharp rally. One may buy on breakout with a stop loss below Rs 110.
Traders choice: BHEL: Go long
Traders may consider buying this stock at current levels for a targeted price of around Rs 247 and beyond this level Rs 260. Keep a stop loss below Rs 237.
Gujarat Ambuja: Go long
Traders may consider buying this stock for a targeted price of around Rs 231. Keep a stop loss below Rs 219.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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