The Hindu Business Line : Query Corner

We purchased Rain Calcining at Rs 20.5 and Tata Teleservices at Rs 20.1. What is the long-term outlook and should I exit in the next uptrend? — Yashpal Arya & C.P. Bhartia

Rain Calcining (Rs 16.9): As observed earlier (edition dated March 28, 2004), the stock has completed a segment of the downmove recently at Rs 12.5. In line with expectations, it has also moved up after recording this low. The near-term trend appears positive and a move to the Rs 20-21 range appears likely. Taking into account the quantum of your holdings and near-term trend, it would be worthwhile holding on to this stock. Have a stop-loss at Rs 15 for a portion of the holdings. For another lot, have a stop-loss at Rs 12. For the balance holdings, have a trailing stop-loss in place and try to take profits/minimise loss in the event of an uptrend. At least partial profit booking may be considered if the share price moves past Rs 22.

Tata Teleservices (Rs 17.9): The stock appears to be bracing for the next major move on the upside. The near-term outlook is positive and a move to the Rs 21-22 range is not ruled out. The positive view would be negated if the stock drops below Rs 14. Remain invested with a stop-loss at Rs 14 and reduce exposures by taking profits once the stock moves to Rs 21. A drop below Rs 14 would warrant dilution of holdings.

Please let me know the prospects of Mercator Lines purchased at Rs 200. — Vishal Mehta

Mercator lines (Rs 275): The outlook for the stock is positive. A move to the Rs 305-310 range appears likely. Fresh buying may avoided for the time being as there is a risk of a drop to the Rs 215-220 range. A break below Rs 254 may push the stock down to this range. Remain invested with a stop-loss at Rs 253. Buying in small lots may be considered if the stock moves past Rs 285. Stop-loss for fresh purchases, on a price move past Rs 285, may be placed at Rs 264.

I am holding Cummins India bought at Rs 103. Shall I hold on this share for another three months? — Tom

Cummins India (Rs 123.7): The share price could move to the high of Rs 135 recorded a few of months ago. Have a stop-loss at Rs 115 for a portion of the holdings. Take profits on a part of the holdings if the stock moves closer to Rs 135. A drop below Rs 104 would warrant liquidation of a substantial portion of the holdings as this may lead to a further decline to the Rs 85-90 range.

What is the outlook for Reliance Energy bought at Rs 760 & Maruti at Rs 500. — Ravi Tandon & Manmohan Nayal

Reliance Energy (Rs 781.8): After touching a high of Rs 816 on Tuesday, the stock has turned weak in the past couple of days. There is a possibility that the recent price action would develop into a bearish "double top" pattern. A decline below Rs 740 would be an early indication of the onset of a near-term bearish trend. If the stock completes a double-top pattern, a drop to the Rs 620-630 range may then materialise. This pattern would be invalidated if the price closes above Rs 820.Conservative investors may take partial profits and have a stop-loss at Rs 765 for the remaining holdings. Those with a capacity for higher risks and those who have purchased at fairly lower levels could have a stop-loss at Rs 765 for a portion of the holdings and at Rs 740 for the rest.

Maruti (Rs 535.5): The price history is insufficient to arrive at a long-term outlook for the stock. From a near-term perspective, a drop below Rs 520 would have negative implications. Remain invested with a stop-loss at Rs 520. Long positions with a stop-loss at Rs 524 may be considered if the stock moves past Rs 546 in the next couple of days.

Based on your advice, I bought Bongaigon Refineries three months ago. Shall I book profit or wait for the price to reach higher levels? — S. Meikanda Vishnu Sathurappan

Bongaigon Refineries (Rs 79.8): The stock is in a consolidation mode now. A move past Rs 84 would result in the continuation of the recent uptrend. A move to Rs 95-100 may materialise. On the other hand, a drop below Rs 75 would lead to a further drop in price to the Rs 62-65 range. Remain invested with a stop-loss at Rs 75 for a sizable proportion of the holdings. Long positions (in limited quantity) may be considered on a move past Rs 84.

Kindly give resistance, support and target level for Reliance Capital. — B. Ramesh & Nagesh Shenoy

Reliance Capital (Rs 158.5): Considering the bullish outlook for the stock, there is no reason to sell it at prevailing price levels. The stock, still, has some significant upside potential. A move to the Rs 190-200 range appears likely. This view would be negated only if the stock drops below Rs 135. Remain invested with a stop-loss at Rs 135. Those who are uncomfortable with stop-loss at such a level, which is substantially lower than the prevailing price, can consider Rs 145 for their stop-loss level.

What is the outlook for GAIL purchased at Rs 303 and ONGC at Rs 968. — Praavin S. Warad

GAIL (Rs 238): Though the long-term outlook for the stock is positive, the stock appears unlikely to move close to your purchase price of Rs 303. In the near term, a move above the resistance level at Rs 248 would help the stock move to the Rs 270-275 range. Investors willing to take risk may consider long positions on a move past Rs 248, with a stop-loss at Rs 238. A portion of the holdings may be sold on evidence of weakness in the Rs 270-275 range. A drop below Rs 200 would have negative implications for the stock.

ONGC (Rs 887.5): The stock would become a part of the S&P CNX Nifty Index from Monday. This is likely to impart buoyancy in the near term. Going by the recent price movement, there is no reason to sell the stock at the moment. Have a stop-loss at Rs 810 and look to take partial profits on a move to Rs 1000. A close below Rs 810 would warrant significant dilution of holdings in the stock.

What is the outlook for Thomas Cook bought at Rs 494 and Novartis at Rs 434? If I wish to buy more at what price can I do so? — Hitesh Abhani

Thomas Cook (Rs 490.4): The stock has the potential to seek higher levels of Rs 530-540 in the near term. Hold on and sell a portion of the holdings on evidence of resistance at the Rs 540-550 range. A drop below Rs 450 would negate the near-term positive outlook and would warrant reduction of holdings in the company. Fresh buying may be avoided for the moment as the long-term trend is still not clear from price patterns.

Novartis (Rs 399): The stock could test the immediate resistance level at the Rs 430-435 range. Long-term investors may buy small lots of this stock with an initial price target of Rs 430. A close above Rs 440 could be used to enhance exposures. Existing holders may remain invested with a stop-loss at Rs 375.

Please let us know the outlook of Union Bank of India and Allahabad bank. — S. Manuja Chellam

Union Bank (Rs 61) & Allahabad Bank (Rs 33.5): The price data for both the stocks are inadequate to arrive at a medium-term or long-term outlook. From a near-term trading perspective, the share price of Allahabad Bank may move up, if it breaches Rs 36. Existing holders may remain invested with a stop-loss at Rs 30. In the case of Union Bank, the outlook appears positive and a move to the Rs 62-65 range appears likely in the near-term. A drop below Rs 56 would have negative implications. Have a stop-loss at Rs 56 for at least a portion of the holdings. Investors willing to take risks may consider long positions in both these stocks with the prescribed stop-loss.

I purchased ITC at a price of Rs 757. Is it advisable to hold on or dispose at the current price? Also, I want to know the meaning of the expression `trailing stop-loss' that is often used in your column. — S. Sampath

ITC (Rs 1090): The stock has reversed direction after facing resistance at the earlier high of Rs 1142 that was recorded in 1999. A meaningful uptrend would materialise only if the stock breaks past the resistance zone at the Rs 1170-1190 range. Taking into account your entry price and the technical position, it would be better to take some profit on price upmoves. A portion of the holding may be retained with a stop-loss at Rs 1000.

Trailing stop-loss: The concept of trailing stop-loss is crucial in protecting unrealised gains and guarding against unexpected trend reversals. Generally, stop-loss levels tend to remain fixed and would not be revised frequently. A trailing stop-loss, on the other hand, is more dynamic in nature and will vary with each trading day. There are quite a few techniques to arrive at a trailing stop-loss level. As a rule of thumb, a trailing stop-loss may be placed at ticks below the low recorded two days ago. For instance, for Monday's trading, the trailing stop-loss may be placed below the low recorded on Thursday. The reference point for Tuesday would be previous Friday's low. This technique would be particularly handy in a trending market.

(The analysis and opinion expressed in these columns are based on the technical analysis of the past price behaviour. Opinion and price targets are based on the Elliott Wave Analysis. The stop-loss level provided with the recommendation is important. The original view would stand negated if the stop loss level is breached. There is a risk of loss in trading)

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