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Manish Shah
On Friday, the 30-share BSE Sensitive Index finished at 2,976 points, up 92 points from the previous week's close. The week started on a firm note as foreign investors flocked to the market. The fact that the foreign institutional investors (FIIs) have returned to the market is really reassuring.
Domestic institutions remained sellers at higher levels. There has been a marked change in the attitude of the investment community in the Indian stock markets. Earlier, the popular view was to sell every time share prices rallied, but now the stance is to buy on declines. This change in attitude is also reflected in the way the index moved during the week. Firstly, the level of volumes in major counters has gone up phenomenally, which is a sign of active interest among market participants. Secondly, during the week the index went into a range once it opened with a gap. Earlier, for example, on October 26 when the index opened with a gap following the buyback announcement, the index declined. But during the weekthe index has gone into a range following an upside gap.
This change in the behaviour of the index can be interpreted as now there are buyers who are willing to pay a higher price for a given stock, though they were reluctant to do so earlier. This change in attitude as seen in the index is clearly visible or rather interpreted by the manner in which the index moves.
Last week, we expected the market to reach the level of 3,066 points once the index showed a breakout beyond 2,910 points. The index did open with a gap that was well above the level of 2,910 points and rallied to make a weekly high of 3,027 points. Though the rally fell slightly off our targeted level of 3,066 points, we were bang on target in terms of the direction of the market. In hindsight, we were probably among the very few to say that the market was in the process of bottoming out when most people were on the bearish side of the market. During the week the index opened with a gap on the upside. Since this gap broke above the necklineof an inverse `head and shoulders', it can be termed as a `breakaway gap'. This is a reversal sign and can be said to be bullish. After a very strong session on Monday the index formed a bearish `hanging man' line. This was followed by a long black candle.
The combined pattern of Tuesday's and Wednesday's trading formed a `bearish engulfing' pattern. But the pattern failed to start a downtrend and instead the index went into a range. Friday's trading session was a perfect `doji'. This is usually a bearish pattern but under the circumstances as the prior movement of the index has been sideways, the utility of the pattern as a reversal signal is doubtful. The index has been moving in a range of 3,027 points on the upside to a low of 2,945 points on the downside. It is expected that the index will continue to be in a range at least till the time of breakout. Traders should watch out for a breakout beyond the level of 3,045 points if the upward trend is to resume.
If the index breaks below the level of 2,945points, it could decline to around 2,910 points. The supporting indicators are in a buy mode. The MACD (Moving Averages Convergence Divergence) is marginally above the equilibrium level and it is in a buy mode. The 14-day RSI (relative strength index) is also above its equilibrium level and is rising. Over all it is expected that the market should resume its upward journey once it breaks above the designated resistance levels. Traders may choose to be on the long side of the market.
Philips: Await breakoutSince its advance from around Rs 90 to Rs 175, this stock is now at a 50 per cent retracement. The level of 50 per cent retracement at times acts as a major reversal point. Currently, the stock is marginally below its resistance level of Rs 150. One may wait for the stock to break above the level of Rs 150 before buying into it for a targeted price of Rs 175. If the stock does manage to breakout beyond Rs 175, one may also add positions to this stock. Keep a stop loss below Rs 140.
Tata Tea: Wait andwatch
Since the last several months this stock has been facing consistent resistance at the level of Rs 310. During the week the stock showed a breakout beyond this level. The breakout was accompanied by a fair increase in volumes. The stock faces another barrier at around Rs 320 beyond which the stock could rise to around Rs 400. The weekly MACD is in a classic buy mode. One may invest in this stock once it breaks above Rs 320 with a stop loss below Rs 305.
Swaraj Mazda: Medium-term buy
This stock has shown a breakout beyond the resistance level of Rs 48. The stock does show a potential to rise to around Rs 70 in the medium term. One may buy. Keep a stop loss below Rs 43.
Bajaj Auto: Go long
This stock is very close to its support level of Rs 548 though the closing price on Friday was Rs 562.75. Traders may wait for the price to come down to the level of Rs 548 or as near it as possible before buying into the stock. One may buy on decline to Rs 548. Keep a stop loss below Rs542.
Gujarat Ambuja: Go long
This stock is very close to its support level of Rs 219. One may enter long at current levels. Keep a stop loss below Rs 219.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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