The Hindu Business Line : Query Corner

As a result, it would be better to tread the path of caution and look to reduce exposures at prevailing levels. Have a stop-loss for the residual holding at Rs 28.

What is the difference between the Classical and Neo-Wave theories? What are the ways of learning them? Would you please recommend some books on these subjects? — Rakesh

Both classical and Neo-Wave theories trace their origin to Elliott Wave Theory conceived by R.N. Elliott. There are two popular personalities - Robert Prechter and Glenn Neely amongst the universe of Elliott Wave analysts. Robert Prechter's book titled Elliott Wave Principle has its leanings to the classical mould. Glenn Neeely has taken the theory a step forward in his book - Mastering Elliott Wave, by bringing in more rigour and rigidity to the classical Elliott Wave theory.

It is up to the reader concerned to decide and follow the approach that suits them. We follow the book, "Elliott Wave Principle", authored by Robert Prechter and A.J. Frost. The tutorial and analytical material available in the Web site www.elliottwave.com would also be of immense help to an Elliott Wave enthusiast.

We also recommend Robert Miner's Web site www.dynamictraders.com. This Web site has newsletters/tutorials, which again would be a treat to read for any analyst. And, we would like to conclude by reproducing the advice of Mr Miner: "Don't become an Elliott Wave maniac." This advice is essential for maintaining sanity as well as preserving personal networth.

I bought Polyplex Corporation at Rs 200. Is there any scope for appreciation if I hold till March 2006? — K. Manish

Polyplex Corporation (Rs 188): The share price has fallen sharply from the high of Rs 279 recorded in September. The stock could slide to Rs 145-150 range. Look for opportunities to exit.

Fresh exposures may be considered later at lower levels. Evidence of support at around Rs 145-150 range may be used to take fresh exposures, with suitable stop-loss in place. It would require a close above Rs 220 to reinstate bullish trend. Stop-loss for long positions may be placed at Rs 170.

Please give your views on IPCL and Engineers India. — Ravindra Singh, S.K. Murthy

IPCL (Rs 228): The near-term outlook is positive and it would be remain so, as long as the stop-loss level of Rs 215 is not breached.

A close below Rs 215 would lead to a drop to the Rs 200-205 range. A close above Rs 238 would confirm the positive outlook and the stock could move to the Rs 265-270 range subsequently. Investors may hold with a stop-loss at Rs 215.

Engineers India (Rs 653): Remain invested with a

stop-loss at Rs 625. There is a fair chance that the stock would move to the target zone of Rs 695-700 shortly.

A close below Rs 625 may push the stock down to Rs 545-550.

What is the outlook for Nagarjuna Construction bought at Rs 234 and LIC Housing Finance at Rs 191? — Vinod

Nagarjuna Construction (Rs 243): The share price appears to be headed towards Rs 265-270. This view would be valid if the stock holds above Rs 222. Stop-loss for long positions maybe placed at Rs 221. A close below Rs 221 would impart short-term bearish trend but would not negate the chances of a rally to Rs 265-270. Only a close below Rs 185 would negate the chances of a rally to the target range. Having the stop-loss at Rs 185 would be impractical from a money management angle.

Investors may, therefore, settle for the next higher stop-loss level at Rs 221.

LIC Housing (Rs 205): The stock is in a long-term uptrend. It, however, has entered in a downward corrective phase since April.

The long-term uptrend would reassert itself on the completion of the corrective phase. The next leg of the upward move could take the stock to Rs 345-350. Though the move to the target zone is not likely to happen in a hurry, a steady move towards this zone may be expected.

Investors willing to hold for at least a year may consider exposure in this stock. Existing holders may have a stop-loss at Rs 170.

What is the view on Chambal Fertilisers and Ecoboard Industries? — Ibraheem

Chambal Fertiliser (Rs 40.4): The recent price patterns suggest that there is room to be covered on the upside. A move to the Rs 48-50 range appears likely. Hold with a stop-loss at Rs 36. Fresh exposures may also be considered on weakness, with a stop-loss at Rs 36. Take partial profits on the evidence of resistance at around the target zone of Rs 48-50.

A trailing stop-loss may also be used in the event of a steady run up in price.

Ecoboard (Rs 18.2): The share price is ruling close to the support level at Rs 15-16 range. A close below Rs 15 would have negative implications. A close above Rs 21 is the minimum requirement to reinstate positive trend. Hold with a stop-loss at Rs 15. Fresh exposures may be avoided.

Shall I hold or exit from my position in Shriram Investment? — Sulabh Sharma

Shriram Investment (Rs 109): The short-term outlook is bullish and a move to Rs 125-130 range appears likely. There is, however, uncertainty relating to the earlier downward corrective phase. There is no concrete signs to suggest that fall from the high of Rs 127 has been completed at the low of Rs 84.4. If the downtrend is not over, the stock could retest the latest low of Rs 84.4 on the completion of the expected short-term uptrend. Alternatively, a close above Rs 135 would suggest that the next leg of the uptrend is underway and would also confirm that the earlier correction was over at the low of Rs 84.4.

I would like to know about the prospects for Shriram Transport Finance. — Sanjay Jain, Sulabh Sharma

Shriram Transport (Rs 118): The outlook is positive and a move to Rs 135-140 range appears likely. Remain invested with a stop-loss at Rs 100. Fresh exposures may be considered on declines, with the stop-loss at the same level. A close below Rs 100 would be an early indicator of trend reversal and a drop below Rs 88 would impart prolonged weakness.

What is the outlook and target for Bank of India bought at Rs 76 and Jindal Drilling at Rs 140? — Nikhil Parekh

Bank of India (Rs 112.4): The share price could move to the target zone of Rs 125-130 shortly. This view would be negated on a close below Rs 100. Hold with a stop-loss at Rs 100. Fresh exposures maybe considered on declines, with a stop-loss at Rs 100. A close above Rs 135 would help the stock seek Rs 148-150.

Jindal Drilling (Rs 206.2): The outlook is positive and a move to Rs 255-260 may materialise in the next few weeks. The bullish outlook would be under threat if the stock closes below Rs 185. Investors may settle for a stop-loss at Rs 184. At least partial profit-booking may be considered on a move to Rs 255-260.

I am holding Chettinad Cement bought at Rs 160. Kindly let me have your views on outlook for the stock. — Seema

Chettinad Cement (Rs 212): Taking into account the positive outlook and your entry price, there is no reason to exit at prevailing levels. The stock appears to be headed towards Rs 245-250.

Long-term investors may find opportunities to exit at levels beyond Rs 300. The bullish outlook would be in force till such time the stock trades above the stop-loss level of Rs 180.

I would like to know the importance of trading volume in the context of technical analysis. — Sandeep Dhawan

Trading volume has relevance while studying chart patterns and arriving at investment decision based on technical analysis. Typically, a move in price that is accompanied by a pick-up in trading volume would be considered as a healthy sign. Investment positions may be considered with a high degree of conviction in such a scenario, as it indicates that there is growing market interest towards the stock. This theory is valid for both upward and downward moves.

Typically, ahead of a sharp move, price tends to congest in a narrow trading zone while the daily trading volume tends to swell. As the buying pressure builds up, prices tend to explode in the direction of the breakout. Similarly, after a prolonged upward or downward move, the momentum behind the earlier move would wane. Trading volumes would also subside. Prices would get into a consolidation mode and trading volumes would gradually pick-up, resulting in the reversal of the earlier trend. Identifying such trend reversals early would be a key aspect to success at market place.

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.

(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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