The Hindu Business Line : Query Corner

Dena Bank (Rs 73.2): The fall in the price of Dena Bank since this January is long-term in nature as the stock has lost more than 50 per cent from this peak. But the reversal from the trough at Rs 45 has been very swift and the stock has moved above the long-term 200-day moving average as well as the medium-term trend line since then.

If we consider the entire rally in the stock price from 2002, the recent fall has retraced more than 50 per cent of this move.

In other words, the stock could have made a long-term low at Rs 45. Investors with a long-term perspective can accumulate the stock in the zone between Rs 41 and Rs 45 with a stop at Rs 40. Those with a shorter horizon can divest their holdings in short-term bounces to Rs 78 or Rs 83.

Alok Industries (Rs 74.8): To say that the recent fall has wreaked havoc in the stock prices would be an understatement. Alok Industries fell from the lofty height of Rs 98 to Rs 53 in just three trading sessions! No one would have had the time to react to such swift devastation.

Alok Industries breached its long-term trend line just briefly last Tuesday before closing above it. The long-term outlook for the stock remains positive as long as it trades above Rs 50.

But it might be a few months before the stock can move back to your cost price. It would face resistance from the zone between Rs 84 and Rs 86 in the intermediate-term.

Those who are not in the stock for the long haul can exit the stock if it fails to go past this level.

Please give your advice on Twilight Litaka Pharma and Reliance Natural Resources Ltd from a one-year perspective. Ravindra

Twilight Litaka Pharma (Rs 64.2): This stock has wiped out all the gains recorded since November 15, 2007; proving that the move from Rs 52 to Rs 107 recorded in the last two months was an unwarranted speculative burst in the stock price.

However, if we ignore the rally since November 2007 and the subsequent fall, the stock continues to be in a long-term up-trend. The long-term trend deciding level is Rs 40.

Investors with a long-term perspective can hold the stock as long as this level holds.

Reliance Natural Resources Ltd (Rs 144.3): Those who have been around in the Indian stock markets for more than ten years would remember the fall in stocks such as Amararaja Batteries in 2001.

The stock fell from Rs 64 to Rs 15 in less than a month and it was more than five years before the stock could surpass the Rs 64-peak again. The RNRL chart is very similar to the pattern in Amararaja Batteries recorded in 2001.

The falling volumes and negative divergence in the oscillators coupled with the fact that the 200-day moving average of the stock was positioned way down at Rs 85 were warning signals that the stock was running up too fast.

The immediate support for the stock is present at Rs 110; that is the 61.8 per cent retracement of the move from the April 2007 trough. The long-term moving average at Rs 85 is the next support. The stock can bounce to Rs 148 or Rs 181.

Investors should use such up-moves to pare their positions.

I purchased KEI Industries at an average price of Rs 91, but failed to book profits when it touched Rs 150.

Please let me know your one-year perspective on the stock. Also, let me have your view on Maruti purchased at an average price of Rs 475. Vimal Bhatia

KEI Industries (Rs 89.1): KEI Industries is in a solid long-term up trend. However, the stock tends to undergo spurts of speculative outbursts that tend to melt away in no time.

One such rally was witnessed from January 7 that made the stock rise from Rs 95 to Rs 168.

The stock has given up all the gains in two weeks and is once again nearing its long-term trend line that is present at Rs 81.

Long-term investors should hold the stock with a stop at Rs 68.

Addition to the present holding can also be done at those levels.

The stock is likely to make a gradual progress towards Rs 120 or Rs 140 over the next one year.

Maruti Suzuki India (Rs 829.6): Maruti Suzuki has been in a steady up-trend since it’s listing in 2003. The long-term trend line in the stock, positioned at Rs 809, needs to be conclusively breached before the structural bull market in the stock ends.

That said it also needs to be borne in mind that the stock has completed a classic five-wave move at the peak formed in November 2007. The implication is that the stock is currently in a long-term corrective move that can prolong for a few months. The stock could move between Rs 700 and Rs 1,200 as this move unfolds. The third part of the long-term up-trend will eventually make the stock rise well beyond Rs 2,000.

But that may take two years or more.

Long-term investors should hold the stock with a stop at Rs 550. Correction to the zone between Rs 600 and Rs 700 will be an ideal opportunity to accumulate the stock with a long-term perspective.

I would like to know the future of Himachal Futuristic Communications Ltd. The stock is always in circuit, either upper or lower. What should I do? Sanjeev Agarwal

Himachal Futuristic Communications Ltd (Rs 31.4): You have rightly observed that Himachal Futuristic Communications moves up from one circuit to another once it starts trending higher and moves down in a similar fashion.

Though some stocks do move higher from circuit to circuit due to a significant fundamental trigger that leads to a re-rating, more often than not, such moves are merely speculative in nature.

It is best to steer clear of such stocks because it is difficult to offload them once they reverse.

HFCL has the immediate support at Rs 31 or Rs 26. But it would be best to switch out of this stock because it is in a long-term bear phase.

Please let me have your views on Nagarjuna Fertilisers purchased at Rs 83. N. Venkateswaran

Nagarjuna Fertilisers (Rs 42.5): In our previous review of this stock in August 2007, we had warned the readers that this stock can trap lay investors, so it would be prudent to book profits and exit the stock.

Though the recent rally in the stock from the March 2007 trough did make the stock price move beyond the long-term peak at Rs 52, the fall in January 2008 has proved yet again that rallies in this counter tend to be unsustainable.

Long-term investors ought to switch out of this stock in rallies. Near-term support for the stock exists at Rs 19 and then at Rs 12.

Once the stock price fall below Rs 20, it is likely to spend at least a year oscillating between Rs 10 and Rs 20.

— Lokeshwarri S.K.

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