Aug 17: The week ended on August 14, 1997 saw the Sensex shedding 75 points at 4320.97 points compared with the close of the previous week. This is the second consecutive week the Sensex has closed lower. The market has been in jitters as the government has finally agreed to do something on the oil price hike.

Unfortunately, this is going to be the first major decision of the government after the celebrations of the 50th year of independence. The final decision on the oil price hike is to be taken on August 21, 1997. Last week it was anticipated that the market would be stabilising at around 4300 level. The previous week saw the index hitting a low of 4290 points. The index has lost around 300 points in the last seven trading sessions. What is disturbing is not the magnitude of the downfall, but the manner in which the Sensex has lost ground.

In the weekly charts, last week's trading has formed a long black candle. Last week, it was pointed out in this column that the Sensex had formed a `doji' during the week ended August 8, 1997. The combined effect of the pattern formed in the last two weeks is the `evening doji star' -- a bearish pattern. In the daily charts, the Sensex is currently resting at its rising up trendline (the dotted line-2). The other rising trendline is the longer line (solid line-2) beginning from the low of December 1996.

The current level of the index is very crucial. Notice in the charts that the index is right at its rising trendline-2. The level of 4290 is also a very crucial support level. A break below this level could put the market in a bit of bother. If the Sensex slips below the next crucial level of 4100, the market could be in a serious trouble.

The indicators are offering some bearish connotations. The moving averages convergence divergence (MACD) has given a sell signal. But, the index has yet to break below its rising trendline. If we are witnessing a final reversal in price, then the reversal has come from the price itself. The market action over the next couple of weeks should help to decide about the future course of market.

Glaxo: Book profits

This stock was recommended as buy around Rs 282 on March 29, 1997. Last week's price action shows that the stock has lost heavily during the week. The 12-week rate of change (ROC) has started to turn down from its overbought zone. Notice in the chart that the volumes on the recent high in August is much less than the volumes on the top in July. This stock may see a rapid decline and it is advisable to book profits.

Oil Country: Good Potential

This one was recommended on February 22, 1997 at Rs 24 and meanwhile, the stock has touched a high of Rs 42. Those who have missed the bus earlier may have a chance to re-enter. In the daily charts (not shown here) it is seen that the stock has formed a inverse head and shoulder pattern. The neckline of this pattern is at Rs 35, but is yet to be broken. Investment could be made once the stock registers a breakout beyond Rs 35.

Tata Elxsi: On a major uptrend

Tata Elxsi has shown a breakout above its falling trendline accompanied by a massive increase in volumes. Before this, the stock was in a stage of consolidation for more than a year. The medium-term target for the stock is around Rs 45. This stock seems to be in a major uptrend and an investment from a longer-term perspective can be made.

Reliance: Go long

Reliance Industries seems to be at its rising trendline. The price of around Rs 365 is also a good support level. Short-term traders may enter long at around Rs 365. Keep a stop loss below Rs 360.

ITC: Sell short

The first trading day of the last week resulted in the formation of a `dark cloud cover' in this stock. Traders may sell short at current levels. Keep a stop loss level above Rs 583.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.