A technical reaction chopped off 79 points of Sensex yesterday and the index finally closed at 3322.17. While the downtrend in the Sensex was triggered by several index scrips giving away all the gains they made on Friday, this trend did not affect many other scrips which moved up further. The downturn gave an opportunity to buy select scrips.A notable feauture of Monday's market was that several scrips gained with an upside breakaway gap and the gains were retained, more or less, even at the end of the day. The following figures should give a good scan of the nature of the day's decline. On BSE, the advance-decline-unchanged ratio was 539:493:146 compared with Friday's figure of 700:499:172. So there is a decline of 20 per cent in the number of scrips that have not advanced. But the number of declines has remained the same. On the other hand, the number of scrips that have remained without change has gone up. What this means in other words is that the decline in the Sensex does not necessarily reflect awidespread decline.
But again, look at the volume figures for advance-decline-unchanged. For Monday, the figure was 7279:99098:244 against Friday's figure of 83898:9062:162. So volume-wise, there has been a big change. Profit-booking has been done in big volumes. In the language of Japanese chartists, the Sensex has formed what is called an "engulfing pattern". In other words, today's range of Sensex completely engulfs the previous day's range.
The Sensex opened at 3427, some 25 points over the previous close. It posted a high of 3461, which was a gain of 52 points over the previous top of 3410. And now look at the low for the day. It was at 3320, some 22 points lower than the previous low of 3344. At close the Sensex was at 3322. So both the highs and lows were above the previous day's range. But the index opened higher and closed lower.
This pattern indicates that the correction downside could continue. The 7-day exponential moving average for the Sensex is at 3280 compared with the index's close of3322. On the weekly charts, no damage has been done. Therefore, one should view the current decline as an opportunity to pick up scrips which have proved to be buoyant. And quite likely today's reaction is pre-emptied what otherwise would have been profit-taking on the NSE week-end on Tuesday. Use the opportunity of decline to pick up scrips like Reliance, SBI, LML, HLL, BSES, SAIL, Orient Bank, IDBI, HPCL, ITC, Glaxo, Castrol, Bhel, Andhra Valley and many others.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
