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B. Krishnakumar

Based on your recommendation, I purchased Visaka Industries at Rs 145.2. I, however, failed to exit when the stop-loss was breached. Now that the stock has recovered ground, should I hold or exit? What is the outllook for GTL bought at Rs 119.8? — Sangeeta Kapoor

Visaka Industries (Rs 142.4): After the breach of the stop-loss mentioned earlier, the stock dropped to a low of Rs 109 and has since been on a recovery path. We wish to emphasise that stop-loss levels should be strictly adhered to. If the investor feels that stop-loss level is not within acceptable limits, it would be advisable to stay away from the trade.

Long positions may be considered when the stock gets closer to the stop-loss level and the risk is within the comfort level. If the stop-loss gets triggered, investors may always look for opportunities to re-enter the stock on the next support or resistance level. In this example, the stock took support around the Rs 106-109 zone where two pivots (a high at Rs 109 and low at Rs 106) were completed earlier. This is a potential support level and investors could have considered fresh long positions and the investment would have yielded a healthy return of about 40 per cent in less than two months.

As far as the near-term outlook for Visaka Industries is concerned, the stock faces resistance at the Rs 157-161 range. Investors may look to reduce exposures on evidence of resistance at this level. Remain invested with a stop-loss at Rs 136; fresh buying may be avoided.

GTL (Rs 108): There appears to be little downside risk. Hold with a stop-loss at Rs 100 as the stock could get back to your entry price shortly. A move above the immediate resistance level at the Rs 110-111 range would help the stock move to the next resistance level at the Rs 128-130 range.

We purchased IFCI at Rs 19.1 and Tata Teleservices at Rs 29.6. What is the outlook for these stocks? — Rajiv Vir

IFCI (Rs 15.2): The stock has reversed direction a few weeks ago at the crucial 78.6 per cent retracement of the earlier decline from Rs 23.7 to Rs 6.65. The near-term outlook is negative and a drop to the Rs 11-12 level appears likely. Hold with a stop-loss at Rs 14.5 look to reduce exposures on intermittent price upswings.

Tata Teleservices (Rs 31.2): Hold with a stop-loss at Rs 27.5 as the stock could see a sharp move on the upside. A move to the Rs 38-40 range appears likely. This view would be negated if the stock closes below the stop-loss level of Rs 27.5.

Should I hold or sell Lupin bought at Rs 700 and Cholamandalam Finance at Rs 75? — T. Ahamed

Lupin (Rs 591): Remain invested with a stop-loss at Rs 500, as there appears to be marginal downside risk. Though such wide stop-loss is not a prudent strategy, it is warranted in this case. The stock is prone to sharp intra-day swings and the historical volatility is relatively high. Besides, the stock has the potential to get back to your entry level of Rs 700. The risk-reward in this case in excess of one, which, though not too healthy in the present bullish market condition, is not bad either.

Cholamandalam Finance (Rs 75.4): A move above Rs 77 would impart bullishness and the stock could seek higher levels of Rs 84-86 subsequently. Hold with a stop-loss at Rs 70. A bullish "triple top" buy signal would be triggered in the "point and figure" chart if the stock moves above Rs 77. This would help the stock seek the projected target range.

I bought a huge lot of Steel Authority of India at the rate of Rs 61. What is the outlook for the stock from a two-year holding perspective? — P. Sastry

Steel Authority (Rs 66.6): The stock faces resistance around the Rs 67-69 range. A strong upward move would not materialise, till such time the stock rules below this zone. Hold with a stop-loss at Rs 60. The immediate target for the stock is at the Rs 75-78 range. Partial profit booking may be considered on evidence of resistance at this target range. Even if you are willing to hold for two years, it would be advisable to take profits periodically and explore opportunities to re-enter at declines.

Should I hold or sell Pricol bought at Rs 58 and Kale Consultants at Rs 72? — A. Rajee

Pricol (Rs 52.6): The stock appears to have significant upside potential. There is no evidence of the completion of the downward move that commenced in the week ended December 26, 2004. The stock would resume the upward trend on the completion of the ongoing downward move. A move past the immediate resistance level at Rs 60 would help the stock move to the Rs 85-90 range. Hold with a stop-loss at Rs 50 for a portion of the holding and at Rs 47 for the balance.

Kale Consultants (Rs 89.8): The share price could recover to the Rs 102-105 range in the near term. Investors may hold with a stop-loss at Rs 84 and partial profit booking may be considered on a move to the Rs 102-105 range.

Kindly advise about my holdings in Pfizer at Rs 550 and Tata Infotech at Rs 397. — R.L. Ohri

Pfizer (Rs 682): The stock has room to be covered on the upside. A move to the Rs 775-800 range appears likely in the near term. Given this backdrop, there is no reason to sell the stock now. Hold with a stop-loss at Rs 630.

Tata Infotech (Rs 391.7): Based on the recent price patterns, we are unable to arrive at a conclusion about the near-term outlook. The near trend would turn weak on a drop below Rs 360. Hold with a stop-loss at Rs 360 and use a trailing stop-loss in the event of a steady upward move.

Is it worth holding Bongaigaon Refineries bought at Rs 96.5? — A. Ramesh Rao, Srikanth Matrubai & Sunil K. Jha

Bongaigaon Refineries (Rs 92.9): The outlook is positive. The stock appears to be preparing for a sharp move on the upside. The stock could rise to the Rs 115-120 range in the near term. Hold with a stop-loss at Rs 80.

I need clarifications regarding your recommendation. Are the recommendations valid for only for a particular time frame and is there any relationship between the technical view for a particular stock and broad index? — Elango

The recommendations mentioned in this page are not time-bound. The view would be valid as long as the stock does not breach the stop-loss mentioned along with the recommendation. In certain cases, the stock would reach the target price within a couple of weeks and in certain instances, it may take longer.

Our earlier recommendation pertaining to Mangalam Cement, for instance, took quite some time before reaching the price target. Despite the time lag, the stock stayed above the stop-loss level mentioned earlier. On the other hand, our recent recommendations such as KEC International, Jindal Saw or Bombay Dyeing have hit the target zone in a time frame of less than two weeks.

As far as the second question is concerned, it is not necessary that a stock and an index should move in unison. Though most of the stocks tend to mimic the index, the degree of move would vary between the stock and the index concerned. Besides, there would always be a set of stocks whose movement would be against the trend recorded by the index. Such stocks would either under-perform or out-perform the index.

Though the trend in the index should be one of factors behind taking positions in any stock, it need not be the governing force behind the final decision. A study called the Relative Strength Comparative Index (not to be confused with Relative Strength Index or RSI) addresses your question.

Most of the popular charting software such as Metastock or Tradestation would have this study. This study compares the rise recorded by a particular stock in relation to any benchmark index. It is generally advisable to identify stocks that have a high relative strength; this would indicate that the stock is outperforming the underlying index that has been chosen for comparison. A "buy" signal generated in such stocks may therefore be traded confidently. A larger quantity may be traded in such stocks if the position taken is in sync with the overall direction of the market or the index.

Readers can send in their queries, on not more than two companies, to

techtrail@thehindu.co.in

Queries can also be sent by post to:

Tech Trail, 859/860 Kasturi Buildings, Anna Salai, Chennnai 600 002

We would endeavour to answer as many queries as possible. However, constraints of space will limit the responses featured under this column.

(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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