The Hindu Business Line : Query corner

Polyplex Corporation (Rs 204.2): The outlook would turn bullish on a close above Rs 232. On the contrary, a close below Rs 160 would impart weakness. Investors who have entered at lower levels may remain invested with a stop-loss at Rs 160.

Others may sell a portion of the holdings at prevailing levels and have the stop-loss for the balance at Rs 190.

If the stop-loss gets triggered, fresh exposures may be considered on a subsequent close above Rs 240.

Ruchi Soya (Rs 273.5): After a period of consolidation, the stock appears to have commenced the next leg of rally. The sharp rally on the back of a surge in trading volumes, evident in weekly price charts, indicates that the next leg of the rally is underway.

The stock appears to be headed towards the target zone of the Rs 325-330 range in the near term.

Remain invested with a stop-loss at Rs 240. Fresh exposures may be considered on price weakness, with a stop-loss at Rs 240.

I purchased Colgate at Rs 255 and Praj Industries at Rs 655. Please advise whether to hold or sell these shares. — R.C. Babu

Colgate (Rs 244.3): Hold with a stop-loss at Rs 220, as the outlook is bullish. The stock appears to be headed towards the immediate target zone of the Rs 265-270 range. Long-term investors may find opportunities to exit at the Rs 295-300 range.

Fresh exposures may also be considered with a stop-loss at Rs 234. A close below Rs 220 would warrant dilution of holdings, as this would negate the positive outlook.

Praj Industries (Rs 859.4): Taking into account your entry price and the positive outlook, there is no reason to sell the stock now.

Hold with a stop-loss at Rs 770. The stock appears to be headed towards the Rs 945-950 range in the near term. At least, partial profit-booking may be contemplated on a close below Rs 770.

In your articles, there is a repeated reference to the term "stop-loss". Will you kindly explain this concept in detail? — Santosh Mahajan

The subject of stop-loss is so vast and important that it would be difficult to provide a comprehensive reply in a few columns of a newspaper.

We have discussed this topic earlier in the edition dated April 10, 2005. Previous issues can be accessed at the archives section of our Web site www. blonnet.com.

I would like to have your views on KSB Pumps bought at Rs 330 and India Cements at Rs 92. — Abhayakumar Shah

KSB Pumps (Rs 378.3): The stock appears to be headed towards the target price of the Rs 415-420 range.

The positive outlook would be negated if the share price drops below the stop-loss level of Rs 360. At least partial profit booking may be considered on evidence of resistance at the target zone.

India Cements (Rs 89): The outlook is bullish and the share price could move to the Rs 105-110 range in the near term.

The bullish trend would be invalidated on a close below Rs 83. Hold with a stop-loss at Rs 83 and use a trailing stop-loss in the event of an uptrend in price. Fresh exposures may be considered on a close above Rs 91, with a stop-loss at Rs 84.

Should I hold or sell SAIL bought at Rs 56 and Andhra sugars at Rs 155? — Karthik Nathan

SAIL (Rs 60.3): After a sharp drop, the share price has been in a recovery mode over the past couple of weeks.

The short-term outlook is positive. The stock could move to immediate resistance zone at Rs 68-70.

The recent price pattern does not, however, provide clues about the longer-term trend.

It, however, remains to be seen if the recent rally is the start of a new uptrend or just a correction in the context of a bearish trend.

A close below Rs 50 would indicate that the earlier downward move is not complete and the stock could drop to the Rs 35-38 range.

We would favour a positive view till such time the stock holds above Rs 50.

Andhra Sugar (Rs 155.2): The share price could move to the target zone of the Rs 170-175 range in the near term.

The stock is into a new bullish phase, which appears to have started in the month of March. Investors may retain holdings with a stop-loss at Rs 120.

Fresh exposures may be considered on price weakness, with a stop-loss at Rs 120.

What are the prospects for Gujarat Alkalies bought at Rs 151 and Nilkamal Plastics at Rs 125? — Vinod

Gujarat Alkalies (Rs 145.3): The near-term outlook does not appear positive. Only a close above Rs 155 would impart strength.

Sell a portion of the holdings now and have a stop-loss at Rs 135 for the balance.

It is better to switch to stocks that are in an uptrend. Fresh exposures may be considered with a close stop-loss when the stock closes above Rs 155.

Nilkamal Plastics (Rs 127.8): The stock faces resistance at the Rs 135-138 range. It has twice turned direction at this range, resulting in the completion of a potential "double top" pattern. A close below Rs 117 would be an early sign of weakness and a drop below Rs 104 would confirm the completion of this pattern.

Remain invested with a stop-loss at Rs 117 and look to reduce exposures on price rally. A close below Rs 104 is likely to push the stock down to the Rs 86-90 range.

What is outlook for Kochin Refineries bought at Rs 149 and VBC Ferro at Rs 120? — Dilip Kumar Mundada, Deepti Mohanty

Kochi Refineries (Rs 158.1): The short-term outlook is bullish and a move to the Rs 172-175 range appears likely. There is no reason to sell the stock now.

Hold with a stop-loss at Rs 146 for a portion of the holding and at Rs 119 for the balance. Investors who have entered at lower levels and those who can afford to take risk may settle for the stop-loss at Rs 119 for the entire holding.

A close above Rs 176 would indicate that the stock is headed towards higher levels of Rs 192-195.

VBC Ferro (Rs 93.4): There are no signs of the completion of the recent bearish trend. A drop to the Rs 65-70 range appears likely.

It would take a lot of time for the stock to get back towards your entry price. It would be safer to sell at least a portion of the holdings now and have a stop-loss at Rs 89 for the balance. At the moment, only a close above Rs 105 would impart strength and could help the stock stage a recovery to the Rs 115-120 range subsequently.

I have observed the usage of the term "trading zone" on quite a few occasions in your replies to reader queries. Kindly explain this term. — Santosh Mahajan

The concept of "trading zone" is normally used when the stock concerned is confined to a narrow trading range. Typically, the price action during a trading zone would be confined to a rectangular box with a relatively shorter height and a longer width. For the sake of clarity, readers may take a look at the chart of the Nifty. The price action during June 27 to July 18 would constitute a trading zone. Prices normally get into a trading zone invariably after a sharp move. The trading zone would be part of a corrective phase and typically, the price would stage a breakout in the direction of the trend prior to getting into the trading zone.

More often than not, a breakout from the trading zone would be followed by a sharp move in the direction of the breakout. This concept is evident in the case of Nifty as well. The index moved up swiftly subsequent to the breakout from the trading zone that occurred on July 22.

One of the relatively safer ways to trade is to identify stocks that are in a trading zone and take positions in the direction of the breakout. The longer the time spent within the trading zone, the sharper and more volatile would be the move after the breakout. It would, however, be safer to wait for a confirmed breakout from a trading zone and take an investment decision in the direction of the breakout, rather than taking positions beforehand.

An easy way to identify a stock that is in a trading zone is to take a look at a set of moving averages of varying time period. Investors may, for instance, study the position of, say, a 5, 13 and 34-day moving averages. When a stock is in a trading zone, these moving averages would get intertwined. On the contrary, during a trending phase, these moving averages would have a distinct slope in the direction of the trend and they would also be well spaced out.

(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, Chennai 600002.

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

(Note: 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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