The Hindu Business Line : Query Corner

I hold shares of Reliance Energy at an average cost of Rs 475 share. Should I continue to hold these shares or book profits? P. Bhola, Hari Kishan

Reliance Energy (Rs 1,447.1): The first leg of the long-term bull phase in Reliance Energy made the stock rise from Rs 215 in 2003 to Rs 816 in April 2004.

The stock then went in to a protracted consolidation phase that made it move in a range between Rs 450 and Rs 800 that extended up to June 2007. The third leg of this long-term bull-run has been in motion since June this year.

If we extend the target for this third leg, we get the targets of Rs 1,689 and then Rs 2,452.

The extremely swift and powerful move seen in this stock since September has all the appearance of the third wave.

The movement of the stock can now follow either of these two paths,

I) If the third leg of this up trend ends at these levels, REL could spend a few months in a sideways move between Rs 1,180 and Rs 1,600, as the fourth and fifth leg of the move yp complete themselves.

II) The alternate path could be the third leg extending further and taking the stock towards the next target at Rs 2,452.

Investors who have bought the stock at lower levels can consider booking partial profits at current levels and holding the rest of the shares with a stop at Rs 1,180.

Those contemplating fresh buys in the stock should wait for a correction before doing so.

I have purchased Bongaingaon Refineries at Rs 58 in Sept 2006. Should I continue to hold this share?

What are the future prospects of Reliance Petroleum? Prasad

Bongaigaon Refineries (Rs 63.9): The long-term support at Rs 40 halted a down-move in the stock yet again in April this year and the stock is in an intermediate term up-trend since this trough.

Bongaigaon Refineries faces resistance from Rs 73 and then from Rs 81. The stock is expected to struggle to rally above Rs 81 over the next few months.

A reversal below either of these levels can pull the stock lower towards the support at Rs 40.

Investors with a short-term horizon can book profits at these levels.

Medium term investors can hold the stock with a stop at Rs 55.

A move past Rs 81 is required to mitigate this negative outlook and to take the stock towards its all-time high again.

Reliance Petroleum (Rs 159.1): The stock recorded a significant break-out in June when it moved past Rs 100. Following a sideways move between Rs 100 and Rs 120 for a couple of months, the third leg of the move from January lows began in September.

The targets for this leg of the up-move are Rs 175 and then Rs 217.

Since the first target has almost been achieved, we suggest booking partial profits at current levels. Re-entry can be considered on a close above Rs 178.

Long-term investors can hold the stock as long as it trades above Rs 100. Investors with a shorter time horizon can hold with a higher stop loss at Rs 145.

Kindly outline the technical outlook for Bajaj Hindusthan bought at Rs 235 and Geodesic Information Systems bought at Rs 305. Vinita Rani, Shenoy

Bajaj Hindusthan (Rs 161.6): Bajaj Hindusthan has been in a long-term bear phase since the April 2006 peak of Rs 570. This bear phase has made the stock fall way below its long-term support at Rs 220.

The nascent rally that commenced in late August has not made much headway till now. The immediate resistance for the stock is at Rs 210. A move above this level can take the stock to Rs 293.

But we do not expect the stock to move much beyond the resistance at Rs 293 over the medium term. Exit the stock as it nears your cost price.

The immediate support for the stock exists at Rs 150 and then at Rs 115. Long-term investors should sell their holdings if the stock falls below Rs 115.

Geodesic Information Systems (Rs 193): There has been a sharp reversal in Geodesic Information Systems from the July peak of Rs 276. Though this down trend has not reversed yet, the stock price is nearing key support level at Rs 180.

Since the 200-day moving average and the long-term trend line are positioned here, this level is expected to arrest the slide in the stock in the short-term.

However, a slide below this support can pull the stock down to the next support in the zone between Rs 140 and Rs 155.

Hold the stock with a stop at Rs 145. A fall below Rs 145 is needed to make the long-term outlook negative for this stock.

I hold KEI Industries at Rs 87 and Macmillan at Rs 305. Should I hold these stocks or sell them? Manjula

KEI Industries (Rs 78.2): KEI Industries has been in a down trend since January.

Though the fall halted at Rs 65, the subsequent moves recorded by the stock are not encouraging and lead to the assumption that the bear phase is yet to end.

The stock could move in the band between Rs 60 and Rs 100 in the next six months. A move above Rs 105 is required to mitigate this negative outlook. You can hold the stock with a stop at Rs 70 and exit as it moves past your cost price.

Macmillan (I) (Rs 268.2): This stock is in the bear’s strangle-hold. The downward move from August 2006 is ominous as every minor rally has been met with a bout of selling, thus preventing any meaningful recovery over the last one year.

The only factor favouring the stock is the fact that it is currently poised at its long-term support at Rs 265. However, chart movement suggests that this support would be breached in the medium term.

Hence, we recommend an exit from this stock.

Could you elaborate the long term prospects of Indo Tech transformers purchased at Rs 316 and Hindustan Zinc purchased at Rs 920? I am a long term investor. Yogesh Mohan

Indo Tech Transformers (Rs 496): Indo Tech Transformers is in a structural bull phase. The rally witnessed since June 2006 is very impressive with extremely shallow corrections. Though the stock is moving down since September, we do not expect the stock to fall below Rs 400.

Investors can hold the stock with a stop at Rs 400. The short history of this stock makes projection of long-term targets difficult, but a move beyond Rs 600 is expected over the next one year.

Hindustan Zinc (Rs 843): Hindustan Zinc has been in a long-term consolidation phase since May 2006. A symmetrical triangle is evident in the weekly chart. The stock is making an attempt to move beyond the upper boundary of this triangle that is positioned at Rs 850.