The Hindu Business Line : Query corner

Sesa Goa (Rs 1,162): The outlook is positive and a move to Rs 1,275-1,300 appears likely in the short-term. Hold with a stop loss at Rs 1,130 for a portion of the holding and at Rs 1,050 for the balance. Take partial profits on the evidence of resistance at Rs 1,275-1,300.

What does the term "gap opening" mean? Valli Kasi

Whenever the price opens at a gap in relation to the previous day's close, such a price action is referred to as "gap opening". The gap could be either on the upside or the downside.

Gap opening indicates the overwhelming force of buyers or sellers as the case may be. Prices invariably get back to fill the gap in most cases.

Price gaps, especially if the open price is higher than the previous day's high or low, would often act as strong support/resistance zones. As a result, they can be used as a reliable stop loss level as well. Readers may study the price chart of Infosys for a better understanding and importance of price gaps/gap opening.

The share price of Infosys took a pounding after the announcement of the performance for the quarter ended December 2005. The stock opened with a huge gap on January 12.

The downward gap has acted as a strong resistance zone. Though the share price tried to move closer to this huge gap, it has not yet managed to move past this zone.

Is it advisable to buy Saint Gobain Sekurit? Please let me have your views on KCP bought at Rs 133. E. Raju

Saint Gobain (Rs 40): Based on the recent chart patterns, it would be better to consider short-term trading positions in the stock. Investors may buy at the prevailing levels, with a stop loss at Rs 37.

Consider profit booking on a move to Rs 49-50. The short-term positive outlook would be negated on a close below Rs 37.

KCP (Rs 170): There appears to be little downside risk from prevailing levels. The stock has been on a corrective phase after having touched a high of Rs 230 in January.

This corrective phase appears to be complete and the next leg of the rally could get underway shortly. There is a strong support level at Rs 165-168.

The trend would turn bearish on a close below Rs 156. Hold with a stop-loss at Rs 156. There is a possibility of a rally to Rs 235-240 as long as this stop-loss is not breached.

Please provide your views on Mangalam Cement? Would you recommend any other stock in the cement sector? Ravindra Singh

Managalam Cement (Rs 118): We are bullish on the cement sector as such. Within the cement sector, stocks such as Mangalam Cement, India Cements, ACC, Grasim and Gujarat Ambuja Cement would be our top picks.

These stocks appear to upside potential of about 20-25 per cent in the short-term. As far as Mangalam Cement is concerned, the stock could move to Rs 135-140 in the near term. Stop loss for existing long positions and fresh exposures may be placed at Rs 110.

Please advise if I can hold Bank of Baroda bought recently. Varan

Bank of Baroda (Rs 225): Similar to quite a few stocks from the banking space, the share price of this company too has been confined to a broad trading range in the recent months. The stock is ruling close to its crucial support level at Rs 215-220.

A breach of this support zone would have bearish consequences and a subsequent drop to Rs 200-205 may materialise. There would be a possibility of a rally to Rs 245-250 as long as the stock holds above this support zone. Hold with a stop loss at Rs 215.

Fresh exposures may be considered by short-term traders, with a stop at Rs 215. It would be better to look for exit opportunities on price rally as the medium-term outlook does not appear too positive. Only a close above Rs 270 would impart bullish trend.

What is the out look for Jindal Stainless purchased at Rs 140 and Genus Overseas at Rs 155? Sanjeev Hombali

Jindal Stainless (Rs 103): Based on the recent price action, it is not clear if the downward corrective phase that commenced at Rs 165 is complete or not. A close below Rs 95 would indicate that the stock still has downside risk while a close above Rs 115 would indicate that the stock could move to Rs 135-140. Shareholders may remain invested with a stop-loss at Rs 95 for a portion of the holding and at Rs 90 for the balance.

Genus Overseas (Rs 140): It would be safer to sell a portion of the prevailing levels as the price action has been devoid of any trend in the recent months.

Only a close above Rs 165 would reinstate bullish momentum.

It would be better to take fresh exposures on a close past this positive trigger level. Stop-loss for long positions may be placed at Rs 126.

What is your view on HCL Infosystems? N. Dhanaraj

HCL Infosystems (Rs 175): There is a strong support at Rs 160-165. The stock could recover to Rs 225-230 as long as the support level at Rs 160-165 is not breached. Remain invested with a stop-loss at Rs 160.

I hold shares in both Hawkins Cookers Limited and TTK Prestige Limited, companies in the same business.

Fundamentally, Hawkins appears to be much stronger than TTK Prestige.

I am surprised that in spite of that, TTK Prestige is traded at a higher price than Hawkins.

Can you explain the rationale for this share price behaviour? R. Krishnamurthy

We have discussed about this concept at length a few weeks ago. We would like to highlight that price action of any stock need not necessarily be rational as the stock market reflects the cumulative psychological forces of buyers and sellers who are in turn driven by basic emotions of greed and fear.

As a result, there is bound to be discord between fundamentals and the share price of a company concerned.

It must however be remembered that such disconnect between fundamentals and valuation is bound to be set right over a period of time. In some cases, it happens quite quickly and in others it may take a while.

Investors also need to realize that stock market always looks at future prospects and developments that are likely to unfold in the near term.

Hence, if a stock appears to be attracting interest ahead of its relatively stronger peers, there could be something that the stock market could have discovered which may become apparent at a later date.

Investors need to develop a liking for the stocks that the majority of market participants like.

This particular trait along with a strong money management strategy is essential to succeed in stock market investing.

I have been accumulating India Glycols from Rs 181 onwards. Now that the stock is falling steadily, is it advisable to sell and buy at much lower levels? — Suhas Pai

India Glycols (Rs 159): It would be advisable to sell a portion of the holdings now as there are no signs of the completion of the recent downtrend.

The stop loss for the balance holding may be placed at Rs 148. A close below Rs.148 may result in a fall to Rs 110-115.

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, Kasturi & Sons, 859-860, Anna Salai, Chennai 600 002.

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