On May 30, 1997, the Sensex closed at 3755 points showing a net gain of 49 points over the previous week. Last week it was anticipated that the market may rebound from the level of 3652 points. This is the level at which the Sensex touched its low on May 14, 1997. During the week, the Sensex hit a weekly low of 3659 points before a rally started. The level of around 3650 points is gathering importance as it has acted as a reversal point on several occasions.The UF government has again developed cold feet over the impending oil hike. The Prime Minister has reiterated on a number of occasions that the oil hike is inevitable. He has acknowledged that it is difficult for the UF steering committee to arrive at a consensus. However, until a firm decision is taken by the government, the market will continue to trade narrowly.During the week, first three trading sessions were small bodied candles which occurred as the index was close to its support level.

In the following two sessions, the index staged a rally after making a weekly low of 3657 points. Beginning from May 19, the index closed at a lower level in its seven continuous sessions. The last two sessions of the current week were particularly strong sessions as two white candles were formed. The Thursday's trading session was a white candle having no upper shadow and the Friday's trading resulted in a session which had a small upper shadow. This makes both the candles very strong. In the next week it is expected that the Sensex may sustain the current rally. The level of around 3800 points is very important resistance level. The rally may get stymied around this level. The market will remain slightly nervous as the oil hike is due any time. The individual stocks are exhibiting diverse tendencies.

Traders may adopt a selective approach.E Merck: Play the range

In early December, 1996 the stock reversed sharply from its important support level of Rs 140 before staging a smart rally. Since mid-January 1997 this stock has hovered in the range of Rs 165-200. In this range, volumes have been rising on rallies and falling on declines. This pattern suggests that the stock may breakout on the upside. Medium-term traders may well pick up this stock when it declines to around Rs 165 and hold on till it reaches the upper end of the range. If the stock manages to show a breakout it could be an icing on the cake.

Thirumalai Chemicals: Bottoming out Thirumalai Chemicals is showing signs of bottoming out. The volumes on the second trough are markedly lesser than on the first trough. The 14-week RSI (Relative Strength Index) of the stock is showing a very strong positive divergence. A low risk buy, investment is recommended in the stock.

Hindustan Const.: Good potential

It seems Hindustan Construction has bottomed out. The stock found strong support at Rs 25 and has started moving up. The 14-week RSI of the stock is showing very strong positive divergence. The volumes are showing small increases on rallies. This stock is recommended as a low risk buy.L&T: Go long

The Wednesday and Thursday's trading session has formed a bullish candle stick pattern called `piercing pattern' in L&T. This pattern has occurred at its support level of Rs 204 and the volumes have shown an increase in the last couple of trading sessions. Traders may go long in this stock. Keep a stop-loss level below Rs 204.

Telco: Wait before selling short

Telco has been forming a series of bearish patterns since last two weeks. The market has not responded to the good results announced by the company. Level of Rs 410 is a very strong resistance level. As the market should rise in the next couple of sessions, it may be prudent for trades to wait for the stock to rise a bit, before selling short. Keep a stop loss above Rs 412.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.