The Hindu Business Line : Techtrail: What the charts say

I have purchased shares of United Spirits at Rs 1,550 and Sona Koyo Steering System at Rs 56. Please let me know the medium and long term outlook of these shares. Krishan Kumar Gillon

United Spirits (Rs 1,284): This stock has given up half of the gains recorded since 2003 and is currently attempting to reverse from the long-term support at Rs 1,060. A long-term trough could have been formed at the July low at Rs 1,006. If this level is breached, the next support is at Rs 825. Long-term investors can hold the stock with a stop at Rs 800.

But the stock could take a year or more to surpass the previous peak at Rs 2,160. A sideways movement between Rs 1,000 and Rs 1,600 is likely for a few months. A firm close beyond Rs 1,700 is needed to signal that the long-term trend is turning up again. The current up-trend from the trough at Rs 1,006 can take the stock up to Rs 1,450 or Rs 1,600 .

Sona Koyo Steering (Rs 29.6): Sona Koyo Steering has key long-term support in the band between Rs 27 and 30. The unrelenting slide in the stock from the April peak at Rs 47.5 is halting in this support zone. A nascent recovery is also currently underway. Long term investors can hold the stock as long as it stays above Rs 24. Investors with a medium-term horizon can exit the stock on rallies to Rs 35 or Rs 47 over the next year. The stock might not muster enough strength to move beyond the second resistance in 2008.

Please advise me on the technical outlook for AIA Engineering. I bought the stock at Rs 1,544. Avinash

AIA Engineering (Rs 1,327.7): This stock has been one of the most resilient in the recent crash. Though the stock could not remain insulated from the broad-based sell-off in June, it is still trading above the October 2007 trough at Rs 1,044. We do not expect the stock to breach this low, even if it declines further.

AIA Engineering is moving in a range between Rs 1,100 and 1,800 since October 2006 and the support at Rs 1,100 has cushioned the fall twice since then. Investors can hold the stock with a stop at Rs 1,050. Long-term investors can also accumulate the stock as it approaches the Rs 1,100 support. The stock is likely to surpass its previous high at Rs 1,820 over the next two years.

Medium-term resistance would be encountered at Rs 1,430 and then Rs 1,580. Investors with a shorter investment horizon can divest their holdings at either of these levels.

I am holding Taj GVK purchased at Rs 148. I am a medium-term investor. Kindly give your outlook on this stock. Munish Bhatheja

Taj GVK Hotels and Resorts (Rs 91.9): This stock is in a protracted bear market and the bottom is not in sight yet. Taj GVK Hotels and Resorts has breached its key long-term support at around Rs 135. It made an attempt at rallying higher from this level in the last quarter of 2007. But the failure of this rally to move beyond the long-term down trend-line implied that the decline could intensify. The negative outlook for the stock can be salvaged only on a weekly close above Rs 135.

The stock is currently making an attempt to stabilize itself around Rs 90 but the pattern does not inspire confidence. A decline to Rs 78 or Rs 63 is possible in the medium-term. We recommend a switch from this stock at current levels. Re-entry can be contemplated on a weekly close above Rs 135.

Please advise whether Union Bank can be bought at this level for long term. Arvinder Singh

Union Bank of India (Rs 137.1): This does appear to be a good level to buy Union Bank of India’s stock. The slide in the stock price since January has brought it to the key long-term support at about Rs 100. The stock is attempting to reverse from this area. A long-term trough is possible here. Investors can accumulate the stock in declines, every time it moves towards Rs 100. The stop loss level needs to be at Rs 80, from where the stock reversed strongly in July 2006 and again in March 2007. The current up-trend will face resistance at Rs 150 and then at Rs 165. Short term investors can sell the stock at either of these levels.

Please let me know the technical outlook for Sundaram Fasteners and Gabriel India. I am holding these shares bought at Rs. 55 and 34 respectively 2 to 3 years back. K A Nath

Sundaram Fasteners (Rs 24.2): Most auto component stocks had a horrendous 2007 followed by an even worse 2008 that has taken their stock prices to abysmal depths. Sundaram Fasteners could not escape the bludgeoning that stocks in this sector underwent. The stock is down 75 per cent from its January 2007 peak and is 62 per cent below its January 2008 high.

You have purchased the stock at a very important support level. However, the stock has penetrated this support at Rs 55 as well as the lower support at Rs 40. The recovery thus far is far from convincing and a slide lower to Rs 15 is possible. Investors can switch out from Sundaram Fasteners since the stock faces an up-hill task in pulling itself out of the current quagmire. Re-entry can be considered only on a weekly close above Rs 40.

Gabriel India (Rs 15): The outlook for Gabriel India is akin to that of Sundaram Fasteners. The bear phase in the stock has intensified since this January. Investors can, however, hold the stock since it is close to the long-term support at Rs 11. A switch is advised if this level is penetrated. The area around Rs 21 will be an important resistance for the next year.

I have invested in Monsanto India at Rs 1,450 with long term perspective. The stock has been falling since January. What would be the technical stop loss if you suggest a ‘hold’? Does the gap left on daily charts in June 2008 need to be filled? Sandeep Dhawan

Monsanto India (Rs 1,488.1): Monsanto India has been moving in a broad range between Rs 1,500 and 2,500 since 2004. This stock is currently poised close to the lower end of its long-term range. The stock is certainly a ‘hold’ at this juncture. The stop loss level for long-term investors ought to be at Rs 1,100. Those wishing to acquire this stock can do so in the band between Rs 1,100 and Rs 1,400. A rally towards Rs 2,200 is likely over the next couple of years. Medium-term resistances for the stock would be at Rs 1,600 and then Rs 1,750.

Though we are positive regarding the long-term prospects of Monsanto, it would not do to wait for the gap in the chart formed in June 2008 to be filled anytime soon. The gap in question is a breakaway gap that followed a sideways movement between Rs 1,850 and Rs 2,000. Breakaway gaps occur at major reversal points and are not always filled. Secondly, the gap in June along with the gap in the daily chart in May formed an island cluster reversal pattern. This pattern too implies a significant turnaround that takes a while to reverse.

I hold shares of GVKPIL bought at Rs 55. Kindly let me know the short and medium-term outlook of this stock. Halappa

GVK Power and Infrastructure (Rs 39): The stock is currently attempting a short-term recovery from the support at Rs 30. This up-trend can extend to Rs 46 or even Rs 54. Investors with a short to medium-term horizon can divest their holdings at either of these levels. A sideways move between Rs 30 and Rs 55 is possible over the next few months.

Medium-term outlook will turn positive only on a move above Rs 54. Investors can hold the stock with a stop just below at Rs 28.

I wish to know if the Nifty has formed a long term head and shoulders pattern between June 2007 and May 2008 and if it has broken out of it hence?

Pavithra Shanmugam

Though the pattern in Nifty in the period mentioned by you does resemble a head and shoulders pattern, the volume action does not conform. Please note that the volume expanded during the formation of the head. It is also better to identify head and shoulders patterns where the shoulders are closer to the head in magnitude and time even if they occur on the long-term charts. This is helpful in arriving at a more meaningful target for the decline following the pattern.

— Lokeshwarri S.K.

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