Stock markets seen up, but key resistance ahead

MUMBAI: Indian stock markets appear to have nearly bottomed out, with the

charts of several index heavyweights showing signs of bottoming out or bullish

patterns, technical analysts said at the weekend.

But unless the 30-share benchmark Bombay index closes above 4,086 on Monday,

the bullish trend may not be confirmed, they said.

The index closed at 4036.58 on Friday.

"Monday's close has to be above the neckline of the head and shoulder

formation for confirmation of the trend," said Vivek Patil, technical

analyst at Livestock Information Technologies.

A head and shoulders pattern is a trend-reversing chart pattern.

"Software leaders like Infosys and Satyam are looking good on the

charts, while prices of State Bank of India and Hindustan Petroleum reflect the

upbeat mood in their respective sectors," said Devangshu Datta, an

independent New Delhi-based analyst.

Infosys Technologies and Satyam Computers together account for about 16.5 per

cent of the benchmark 30-share Bombay index , while State Bank of India accounts

for about four per cent and Hindustan Petroleum nearly two per cent. Infosys

Technologies, which closed on Friday at Rs 5,797.95, created a double-bottom

formation just above Rs 5,500 earlier this month, indicating firm technical

support for the share at that level, analysts said.

Pennant formation



"The Bombay index is currently in a pennant pattern and if there is a
breakout beyond the falling trendline, it runs straight into a resistance at the

200-day exponential moving average," said Datta.

The pennant pattern, similar to a symmetrical triangle, consists of two

trendlines - the upper trendline connecting the falling tops and the lower

trendline linking the rising bottoms of a graph.

The 200-day exponential moving average of the Bombay index closed on Friday

at 4,170.45.

"All pennant patterns are inherently bullish, but at this stage it is

being overshadowed by the third wave of the current downtrend," said Patil.

The Elliot wave theory goes beyond traditional charting techniques by

providing an overall view of market movement to help explain patterns. The basic

Elliot pattern consists of five waves, with three waves in the direction of the

movement and two waves against the direction.

However, if it fails to break the upper trendline, the Bombay index will find

support at around 3,800.

"The level is arrived at by multiplying the life high of 6,150.69 by

61.8 per cent, a Fibonacci number," Patil said.

Digital and Mastek also seen gaining



"In software stocks, Digital Equipment, with all momentum indicators
turning positive, and Mastek, having violated the falling trendline on large

volumes, are showing bullish formations," Datta said.

Mastek, which issued a profit warning in December, on Friday announced a 54

per cent decline in net profit for the October-December quarter.

Digital Equipment, which is to announce its results Thursday, last week

closed above its 200-day exponential moving average for the first time since

mid-December - a bullish signal according to technical analysts.

The 200-day exponential moving average, used to track long term moving

trends, is calculated by averaging the prices of the last 200 days with weights

assigned in descending order, the latest data having the highest weightage.

(C) Reuters Limited 2001.