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FE NEWS SERVICE
On Friday July 16, 1999, the BSE Sensex closed at 4639.94 points. The week ended with a net gain of more than 300 points over the close of the previous week. The week saw history being created on the Dalal Street.
The Sensex recorded its highest ever value. The high for the week was at 4810 points the highest ever value recorded by Sensex in its history. It was euphoria all around as the buyers scrambled as if there was no tomorrow. The market has gone up by more than 2000 points since its low on November 30, 1998 of 2741 points.
The rally has come in spite of worst possible circumstances and the index has withstood all the pressures there were to endure. Irrespective of harsh budgets, toppling of the governments, economic slowdowns and war the index has managed to keep its destiny with the bull run. The most notable thing of the rally is that the market has been very selective in picking who is to be the King. Not all the stocks have gone up.
This time around it has been quality. Only thosestocks, which have shown prospects of growth, have shown a very good rally. The rest have been consigned to dumps. The perhaps indicates the maturing of the Indian market which has been very selective in allocating higher values to a selected number of stocks.
Last week we had mentioned that the index could rally once it broke above the resistance level of 4385 points the index could rally to around 4600 odd levels. But the power of the bulls was so strong that the index much higher than the expected levels.
The Kargil episode came to an abrupt end as finally, good sense prevailed. The end to hostilities added to the euphoria among the market participants. The euphoria resulted in the index opening with a huge gap of 100 points over the close of the previous week.
This is an extremely bullish sign. A breakout from a six-year-old consolidation is a very bullish formation and portends higher levels for the market. But before we get too bullish on the market let us see how the movement of the indexfits in and around the surrounding price action.
The index after seeing some runaway price action encountered some selling. Thursday's price action resulted in some heavy selling. This day formed the bearish candlestick pattern the "Dark cloud cover". This was followed by lower closing on Friday's trading. Also Friday resulted was a 'gapping doji'. This could be a slightly bearish formation. Also notice that the weekly closing of the index is just marginally below the all time high index reading of 4643 points.
The fact remains that the level of 4643 points is a strong resistance level and it is possible that the index could succumb to selling pressure. By selling pressure we mean to say that the index could see a correction in the short term. The indicators are all in the overbought zone. The MACD (Moving Averages Convergence Divergence) has not given a sell signal. The 14day RSI (Relative Strength Index) is in the overbought zone.
The market can see a small correction from this level but tradersmay have to well be careful. The suggested strategy for the week would be that in index breaks below the level of 4557 points, then one may expect a decline to around 4387 points to 4463 points (The gap formed on current week's trading. Alternatively if the index breaks above the level of 4678 points the index could rally to 4810 points. The undertone remains firm.
Traders may consider accumulating selected stocks on declines. ITC AgroTech: The price of the stock has broken out of the falling trendline. This is a very bullish development. Since about last eight to ten weeks the price of the stock has been moving in a narrow range. Such type of price activity suggests accumulation.
This type of price action, at times, acts as a very powerful reversal pattern. The price does show a potential to rally to around Rs 257 in the medium term. One may buy with a stop loss below Rs 170.
MTNL: The price of this stok has broken above the crucial level of Rs 210. The price movement prior to the breakoutresembles a symmetrical triangle. A powerful reversal pattern. The price of the stock does s potential to rally to around Rs 300 in the medium term. One may buy the stock with a stop loss level Rs 220.
Exide Industries: The price of the stock has shown a breakout from the level of Rs 228 a fairly strong support level. Once the price breaks above the level of Rs 228 it can rally to higher levels. There are no potential resistance levels at the top simply because the price is entering a new price territory. The price of the stock can rally to higher levels. One may buy this stock at current levels. Keep a stop loss below Rs 213. The targeted price for the stock is around Rs 300.
Traders Choice: ITC:Sell short Surprisingly the price of the stock has not participated in the rally. This could suggest overall weakness on the counter. The price has broken below the important support level of Rs 1035. The price may see a short term decline to around Rs 995. One may sell short the stock. Keep astop loss below Rs 1035. Dr Reddy's Laboratories: The price of the stock is just below the level of Rs 900.One may consider buying the stock at on breakout above Rs 900. The price could rally to around Rs 991.One may buy on breakout with a stop loss below Rs 880.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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