Do not open shortsell positions till Sensex breaks below 2,950 points

July 3: On Friday July 3, 1998 the BSE Sensex closed at 3089 points. Compared to the close of the previous week the index showed a net loss ...

July 3: On Friday July 3, 1998 the BSE Sensex closed at 3089 points. Compared to the close of the previous week the index showed a net loss of 120 points. The volatility in the market was markedly reduced as this was the last week before the Sebi ban on short sales was to be lifted. The volumes were also very much on the lower side. The state-of-affairs at the centre was slightly uncertain as the grand lady from Chennai again started playing truant. The long standing demand, virtually coaxing the prime minister to put an end to the DMK government in Tamil Nadu has not been fulfilled. It is indeed intriguing how a person with a comparative handful of seats in the Parliament can hold the entire country to ransom. Sebi has again revised the guidelines for the circuit-breaker limits.

The daily limit is 8 per cent now and the settlement limit has been raised to 40 per cent. The margin requirements have also been changed and the new system of margins is made a bit more complex. The new system of margins wouldsee to it that the brokers could spend a better part of their time in working out the margins payable to the stock exchange.

Last week, we anticipated that the index could try and reach the level of around 3450 points before the downtrend started. The rally in the index was short-lived as the index fell after making a high of 3305 points. The movements in the index generally during the week were jagged as no clear cut signs of a trend were visible. Since the second week of the previous month the index has been moving in a range. On the downside we have two bottoms at the level of 2951 points. The two tops were at the level of of 3430 and 3305 points. Thus the index has shown a tendency to stay within a fixed band. The volumes in this period have also shown a decline. In technical terms this is nothing but formation of a descending triangle. Now a triangle can either be a continuation pattern or a reversal pattern depending on the breakout. If the breakout takes place on the downside the trend is assumed tocontinue and if the breakout is on the upside the trend is expected to reverse. Now we have a problem here. We have been anticipating that it was unlikely that the market would go below the level of 2950 points. But the latest price movements suggest that there is a chance that the market may go under this level. We cannot allow past opinions to override new price developments. Our conclusions have to change if there are indications thereto. Alternatively it is equally likely that the market may show a breakout on the upside. Nothing can be said until the index stages a breakout. The only option that we have is that we have to wait for the index to stage a breakout. We are facing this problem as the market is in its initial stages of reversal and more often than not the market is most treacherous when the trend is in a phase of reversal. There has not been change in the level of indicators. The MACD Moving Averages Convergence Divergence is still in a buy mode. The 14-day RSI Relative Strength Index: notshown here is showing some signs of weakness. Traders may await for the market to give clear cut signals before the positions can be taken.

The level of 2950 points is a major psychological barrier and if this level is broken then we do not rule out a decline.

The ban on short sale ban is to be lifted on July 6 and we do not rule out some short selling. Traders are cautioned not to open short sell positions till the index breaks below the level of 2950 points.

Siemens: A good bet

This stock is poised very near to its February 1998 low of Rs 147. This is a multi year low and the chances of the stock reversing from this level are quite high. On the up side the stock had touched a high of Rs 300 not too long ago. At current the risk reward ratio in this stock is quite favourable. On may consider buying this stock as near as possible to the support level of Rs 147. Keep a stop loss level below Rs 145.

Asian Paints: Buy signal

On the weekly charts this stock has formed the bullishcandlestick pattern The morning star8217;. On the daily charts the MACD has given a buy signal. One may consider buying this stock at current levels. Keep a stop loss level below the level of Rs 225.

Carrier Aircon: Sell on declines

Story continues below this ad

This stock has broken below its major support level of Rs 195. The stock now faces support at the level of Rs 157. If this level is also broken the stock could decline to the level of around Rs 100. Holders of this stock may consider selling at current levels.

German Remedies: Sell short

This stock has broken down from its ascending triangle. Traders may sell short at current levels. Keep a stop loss level above Rs 320.

Castrol: Go short

Appearance of a long black candle in this stock in Friday8217;s trading suggests bearishness. Traders may sell short. Keep a stop loss above Rs 571.