On Friday, the BSE Sensitive index closed at 4,981 points registering a net gain of 300 points over the previous week's close. The market was on steroids as soon as it became clear that the National Democratic Alliance was forming the government. This factor alone was a major boost for the market sentiment. The recovery in the market was all round as all the sectors registered a major recovery.This time around the buying was seen in petroleum sector, cables, steel, cement, FMCG among others. Also the overall breadth of the market was also excellent. The advances outnumbered the decline almost by a ratio of 3:1. This is one of the most important indicators of market strength.
The people of the country have welcomed the BJP government with open arms. The BJP and its allies have garnered around 300 points. This was the greatest tribute the country could have paid to the party. Another factor that the market took notice was of the upgrade of country's rating by the Moody's the international rating agency. This should provide a major boost to the banking sector. Against this backdrop, the 40 per cent hike in price hike of diesel got dwarfed and the market continued to rally further.
We were of the opinion that the market was likely to rally after some sideways movement between 4,810 points and 4,688 points. The index was indeed sideways between this range. The index made a low of 4,627 points and that was the final bottom. Once again our view was on the right side of the market. All along we were of the opinion that the market is likely to witness a rally. We were in the minority for having a bullish view on the market, but yet subsequent market action has confirmed our view.
On the weekly charts the index has formed a very strong white candle. This pattern it self suggests that the market is likely to gather strength in coming weeks. Now, notice in the charts that the index sideways movement in the index since the month of July 1999 appears to form a right angled triangle. Once the index registers a breakout from this pattern the target for the index would be around 5,600 points.
This move is likely within next couple of weeks. Also, note that the breakout is yet to take place. But we have sufficient evidence, which suggests that the index is likely to show a breakout on the upside. Firstly, there has been a massive increase in volumes in recent times, which suggests that that there is active interest in the market. Also appearance of a long white candle on the weekly charts suggests that the market has a potential on the upside. The indicators are in a buy mode.
The MACD (Moving Averages Convergence Divergence) has flashed a buy signal. The 14- period RSI (Relative Strength Index) is also in a buy mode. On Friday's trading the index could formed a small-bodied pattern. This suggests that the market could go move in the range of 5100 to 4942 points for some time. The index may rally to higher levels once there is a break above 5100 points. The market is likely to remain in a bullish phase for some time. Traders may choose to be on the long side of the market.
ITI Ltd: Medium buy
The price of the stock has broken above Rs 35. This breakout has been with a very strong increase in volumes. The price has moved above this level after a very long gap of almost four years. This is a very bullish development. The price of the stock may rally to around Rs 60-Rs 65 in the medium term. One may consider buying this stock with a stop loss below Rs 35.
Ceat Tyres: wait for buy signal
The price of this stock has registered a break out above the level of Rs 75. At this juncture the price has broken its series of falling tops and bottoms and it has now given a buy signal. The price of the stock may rally to around Rs 100. On the daily charts the MACD has given a buy signal. One may buy this stock at current levels. Keep a stop loss below Rs 75.
ICICI Bank: Worth buying
The price of the stock has broken out of its symmetrical triangle. The breakout has been with a very good increase in volumes. The price faces a very strong resistance level at Rs 38 and once this level is surpassed the price of this stock may rally to Rs 48. One may consider buying this stock on break above Rs 38. Keep a stop loss below Rs 37. BSES The price of this stock faces strong resistance level at Rs 197. Break above his level and the price may rally to around Rs 215. Traders may consider buying this stock on breakout above Rs 197. Keep a stop loss below Rs 190.
ACC
Stocks in the cement sector are showing all round recovery. The price of the stock may rally to higher levels on break above Rs 224. The price of the stock may rally to around Rs 242 once the level of Rs 242 is cleared on heavy volumes. One may buy with a stop loss below Rs 220.
(The writer's e-mail address is shahmani1@yahoo.com)
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