The Hindu Business Line : Query corner

Reliance Capital (Rs 469.4): Even after the recent run-up, the stock appears to have upside potential. Though the stock could get into a short-term corrective phase, it can recover to the target zone of the Rs 560-575 range. Long-term investors may hold with a stop-loss at Rs 425. Risk-averse investors, especially those who have entered at lower levels, may consider partial profit booking. Fresh exposures may be considered either at lower levels or on a move above Rs 490.

Tata Sponge (Rs 166.6): The stock has been in a major downward corrective phase since March. In the process, it has underperformed in relation to broad market indices. There is no indication to suggest the completion of the corrective phase. It would be advisable to switch to a stock that is in an uptrend. Fresh exposures may be considered on a close above Rs 190, as this would reinstate a bullish trend.

What is the outlook for Oswal Chemicals bought at Rs 15 and SPIC at Rs 28? — Madan Kankariya

Oswal Chemicals (Rs 24.8): The short-term outlook is bullish. The stock has just broken out of a "bull flag" pattern and could move to the target zone of Rs 29-30. Remain invested with a stop-loss at Rs 21. Considering your purchase price and the upside potential, there is no reason to sell the stock now. Use a trailing stop-loss in the event of an uptrend.

SPIC (Rs 29.8): Though chart patterns do not provide clues about the long-term trend, the stock could seek higher levels in the near term. A move to the Rs 36-37 range appears likely. The positive outlook would be negated if the stock closes below the stop-loss level of Rs 27.

Should I hold or sell Nagarjuna Construction bought at Rs 235.5 and Melstar Information? — K. Shiva Chandar, Hari Kishan

Nagarjuna Construction (Rs 226): The stock has been in a major uptrend for over two years. It has recently moved into a corrective phase. There is no indication of the completion of this corrective phase. Considering that the extent of the downward move cannot be ascertained now, it would be safer to sell at least a portion of the holdings. Stop-loss for long positions may be placed at Rs 209. The stock could get into an uptrend on a close above Rs 250.

Melstar Information (Rs 31.5): Though a drop to the Rs 28-29 range appears likely in the near term, the stock is likely to move to the long-term target of the Rs 41-42 range. Hold with a stop-loss at Rs 25. Fresh exposures may be considered on weakness, with a stop-loss at Rs 25.

What is the outlook for Praj Industries bought at Rs 124? — K. Ramkumar

Praj Industries (Rs 110): Investors may reduce exposures, as the stock appears to be headed towards lower levels. A drop to the Rs 90-92 range is not ruled out. Investors with a high-risk tolerance and who have entered at lower levels may hold with a stop-loss at Rs 90. Based on the recent price patterns, there is no reason to hold this stock. Fersh exposures may be considered on a close above Rs 132.

What is the outlook for India Glycols? — R.B. Saboo, Suhas Pai

India Glycol (Rs 254.4): After a sharp spurt in the recent weeks, the stock has turned weak in the past few days. The decline in share price last week is a correction to the earlier rally. Price patterns suggest that the correction is not over. A drop to the Rs 220-225 range appears likely. Investors may hold with a stop-loss at Rs 240. Fresh exposures may be considered either on signs of support at the Rs 220-225 range or on a close above Rs 268.

I purchased Hindustan Motors at Rs 47. The stock has been falling in the last few days. What should I do now? — J.S. Arora

Hindustan Motors (Rs 44.4): The recent downtrend does not appear complete. A close below Rs 43 would confirm the continuation of the downtrend. Hold with a stop-loss at Rs 43. Pare exposures on a close below this level as the bearish trend could accelerate subsequently. Fresh exposures may either be considered on evidence of support around the Rs 34-35 range, or on a close above Rs 48.

What is your view on Great Eastern Shipping? — Gopal Vijay Mohan & V. George

G.E.Shipping (Rs 207.4): We had mentioned earlier (in the edition dated June 19) that the stock might drop to the Rs 110-115 range. The price movement has been in contrast to our expectations. We are now reversing the bearish call, as the stock has comfortably moved past the positive trigger level of Rs 170. We had clearly mentioned that the bearish view would be negated on a close above this level.

The long-term trend appears positive and a move to the Rs 235-240 range appears likely. Hold with a stop-loss at Rs 194 for a portion of the holding and at Rs 185 for the balance. A close above Rs 216 would confirm the possibility of a rally to the target zone.

In this context, we would like to highlight that there would be instances where our assessment of the likely future trend would turn out to be incorrect. In such instances, investors need to strictly take fresh positions if the stock concerned moves above the opposite trigger level.

I have read a few books including the ones written by John Murphy and Martin Pring. I tried reading the book on the Elliott Wave theory authored by Glenn Neely but found it too difficult to understand. Please recommend other good books. — Bansi Madhain

Quite a few people have found Glenn Neely's book to be relatively tough to digest. This book would be better understood if the reader has a prior knowledge of the basics of the Elliott Wave theory. There is a wealth of information on the subject available in various Web sites. Sites such as www.elliottwave. com and www. Dynamictraders. com may be worth visiting on a regular basis. If you are really keen on the subject, try to read the book authored by Robert Prechter and A.J. Frost.

More importantly, we would like to caution Elliott Wave enthusiasts that there would always be occasions when the price pattern may not throw up clear-cut clues about the future direction. In such situations, it would be better to stay aside till such time clarity about the probable wave count emerges. And, above all, those interested in the Elliott Wave should be cautious of not becoming an "Elliott Wave maniac" and turn too rigid about their analysis. The theory per se is meant to be more flexible, and trying to bring in more rigidity into the subject could spell disaster.

What is the meaning of the term "profit booking" that is used quite often by you? Does it mean exiting from the scrip or selling of a part of the scrip to recover profits? For example, if I have 100 shares bought for Rs 1 lakh and my expected return is 30 per cent. Should I sell the entire lot on the price reaching the target return of Rs 1.3 lakh? Or sell just a portion of the shares and continue to hold the balance? — B. Harish

It is encouraging to notice that the investors are turning their attention towards the concept of money management. Effective money management would be crucial to generate as well as enhance the returns from stock market investment. As we have always maintained, investors should always buy or sell their budgeted quantity in more than one tranche.

Taking your instant case, it would be advisable to sell about 50 per cent on achieving the target returns. This would enable investors afford to have a slightly aggressive stop-loss for the balance holding, as there is the cushion in the form of profits booked already. On achieving the target returns, the most important aspect is to move the stop-loss for remaining holding to at least the breakeven level, if not higher.

Keep pushing up (or down) the stop-loss in the event of the price moving along expected lines. The idea is to extract as much as possible from the profitable move.

Another important concept is that investors should always be alert to enhance exposures when the basis for the trade is still valid and the stock is moving in the anticipated direction. Positions may be added/reduced if fresh "buy" or "sell" signals gets triggered. There need be no inhibition about buying or selling the same stock at levels higher or lower than the earlier entry. If there is reason to take trading positions, investors should act on it. Always have a stop-loss in place, which is essentially an insurance premium to protect you just in case the prices were to spring a surprise by moving against expectations.

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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