The trading temperament on the bourses underwent a sea change as market favourites like Pentafour Software, Satyam Computers and Zee Telefilms lost value while stocks like Reliance, State Bank and Telco gained ground. The shift in attitude is clearly visible. Telco and Reliance have shown exceptionally strong volumes in a long time. Each stock has its own cyclical fluctuations.

If not too long ago every one was raving about software stocks, the focus has now shifted to these old favourites. At current valuations, these stocks seem to have a good long-term potential.

The government has promulgated the ordinance on buyback of shares. The announcement on buyback was made two weeks ago and the ordinance islikely to be in place by next week. The issue of buyback of shares has been going on for a while but government's inaction kept it on the backburner. A prolonged downtrend can have its own advantages. It can really wake up the authorities to do something fruitful and do it fast.

Last week, we had hinted that the index is in the process of forming an `inverse head and shoulders' pattern which will be confirmed when the index shows a breakout beyond the level of 2,910 points. It was also mentioned that if the index breaks below the level of 2,785 points, it could decline to around 2,745 points.

During the week the index broke marginally below 2,785 points but rallied soon after. Interestingly, the index did not close below the gap that was formed on October 26 between 2,798 points and 2,878 points. Gaps can often provide good resistance levels to falling prices. The index has formed a series of `hammers' in the last couple of days, a sign that the selling pressure is abating.

Both the trading days ofOctober 29 and November 2 were hammers and on Tuesday the index formed a `doji'. The pattern was confirmed by the appearance of a long white candle suggesting a brief uptrend. Friday's trading was again a long white candle. On the weekly charts the index again formed a long white candle, a bullish sign.

Since the last couple of weeks we have been of the view that the market is in the process of bottoming out. The confirmation of a reversal in trend was not seen. But the current week's price action suggests that the confirmation could be forthcoming. Whether we are seeing a major reversal in trend is a difficult question to answer now but we believe that once the level of 2,910 points is broken it could signal at least an intermediate uptrend. Once the index breaks above the level of 2,910 points it could show a minor resistance at around 2,960 points and beyond 2,960 points the index could rally to around 3,066 points.

The supporting indicators have started showing a buy signal. The 14-day RSI (relativestrength index) has shown a breakout beyond its resistance level and has flashed a buy signal. The MACD (moving averages convergence divergence) has already given a buy signal. All the indicators have been showing positive divergence for quite some time and it is only now that a specific buy signal has been given. The market is showing signs of strength and traders may choose to be on the long side of the market.

Telco: Good potential

This stock has shown a breakout above its falling trendline accompanied by a phenomenal increase in volumes. The price has also managed to creep above the resistance level of Rs 125. On the daily charts the stock has managed to close above its 40-day EMA (exponential moving average - not shown here), thus giving a decisive buy signal.

The stock shows a potential to rise to around Rs 154 in the medium term and buying is recommended. Keep a stop loss below Rs 115.

MTNL: Buy at current levels

This week's trading in the stock resulted in appearance of a`hammer'. This pattern has appeared just above the support level of Rs 175. Since mid-June this stock is moving in the range of Rs 225 on the upside to around Rs 170 on the lower side. Thus, at current levels the stock offers an excellent risk-reward ratio. The price of the stock has closed above its resistance level of Rs 184 and it may now move up. One may consider buying this stock at current levels for a targeted price of Rs 225 in the medium term. Keep a stop loss below Rs 170.

Reliance: Good buy

This stock has also witnessed a phenomenal increase in volumes on Friday. The weekly MACD in this stock has given an excellent buy signal. The stock faces resistance at around Rs 128. Once the stock registers a breakout beyond this level it could rise to around Rs 145 in the medium term. Investors may await breakout beyond this level before buying into the stock. Keep a stop loss below Rs 118.

Sterlite Industries: Go long

Friday's trading in this stock has formed a doji just above thesupport level of Rs 153. Traders may enter long for a targeted price of Rs 160. Keep a stop loss below the level of Rs 151.

Zee Telefilms: Go short

This stock has broken below the support level of Rs 659. Traders may sell short for a targeted price of Rs 631. Keep a stop loss above the level of Rs 659.