Sensex likely to remain range-bound for some more time
Manish Shah
Last week, the BSE Sensex closed at 3382.32 points, losing 148 points compared with the previous week's close. The Sensex suffered a major bout of a shake in confidence as the Indian markets also lost in value in sympathy with the other Asian markets. The crisis of confidence in the Indian markets is reflected in the fact that several blue-chips are quoting below their all-time lows.On Friday, the RBI out of the blue came up with a package that took the entire corporate sector by surprise. In a reversal of sorts, the RBI proposed a hike in CRR and a 200-basis point increase in the bank rate. This is a clear indication that the long-term and the medium-term interest rates will rise. Although this is not a good news for the corporate sector, on the forex side, the fall in the value of the rupee will be arrested. This is good news for FIIs. The slide in the Indian stock market has not been as severe as what we have seen in the other Asian markets and the valuations in some sectors in the Indian markets
appear very attractive. Looking at the market from a long-term point of view, it appears that the current sideways movement between a range of 3800-3250 points will continue for a protracted period. In the analysis that we presented on December 29, 1996, it was mentioned that the weakness in the market was apparent and it was likely that the index could reverse at a level of around 3750 points. The index made a high of 3792 points on January 5, 1998, before it set off violently on the downside. Last week, the first session was a strong black candle which was followed by some sideways action in the next two sessions. The trading on Thursday was a candle with long shadows and a small real body. This was followed by a another candle with a small real body on Friday. This was an extremely small candle, probably small enough to be classified as a "doji". The market action of the last two sessions has formed a reversal pattern known as the "Harami cross".The location of this pattern is also just
above the support level of 3250 points. The movement of the index since mid-November 1996 is mostly sideways and, therefore, the indicators are prone to give false signals. Nevertheless, the short-term indicators are in the oversold position and possibly there could be some recovery. On Monday, we could see the index opening at slightly weaker levels, after which the market could show some recovery. The level of 3250 assumes crucial importance. If this level holds, the market should recover to around 3650 points. State Bank: Good potential The currently announced RBI guidelines has something good for the banking sector as a whole. The price chart of this stock has also shown some signs of reversal. The level of 200 has acted as a good support level in the past and the recent rally in this stock has also commenced from this level. The weekly MACD (Moving Averages Convergence Divergence) has also given a buy signal. The stock faces strong resistance at around Rs 253 and, therefore, one may await for
the stock to rise beyond this level before buying. Keep a stop loss level below Rs 240. Dr Reddy's Lab: May rise The stock is in a long-term uptrend and has just shown a breakout beyond the level of Rs 330. Volumes have also show an appreciable increase. The stock can show a violent rise in the next few weeks and investment is recommended. Keep a stop loss below Rs 330. Reliance Petroleum: Await breakout The stock is in a rising mode. Since the last couple of weeks, the stock has been attracting good volumes suggesting buying interest. The stock faces strong resistance at Rs 26.50. The chance to make a profit in this stock would only materialise if the stock manages to rise beyond this level. Therefore, one may await for the breakout to take place before entering into this stock. MTNL: Buy long The stock is currently poised just above the support level of Rs 212. The fall that this stock saw in last couple of weeks has been arrested at this level. If the stock manages to rise
in consonance with the general market behaviour, the stock could reach a level of around Rs 240. Short-term traders may consider buying this stock at current levels. One may keep a stop loss level just below Rs 210. Gujarat Ambuja: May rise On Friday, the stock formed a classic "doji" pattern just above its support level of Rs 240. This pattern at times gives a very good reversal signal. Traders may buy this stock at this level in anticipation that it could rise to around Rs 260. Keep a stop loss level just below Rs 235.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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