The Hindu Business Line : Query Corner: What the charts say

Suzlon Energy (Rs 218): It has been a disappointing performance by Suzlon Energy thus far in 2008. The stock has been sliding lower forming lower peaks and troughs. As indicated in our previous review of this stock earlier this year, the key support band exists between Rs 220 and Rs 250.

We had recommended investors to divest their holding on a decline below Rs 220 as the next support was at Rs 186.

Suzlon Energy formed a low at Rs 174 on July 4.

But the movement of the stock since this trough has been far from heartening. A re-test of the July trough and a decline towards the next long-term support at Rs 155 appears likely over the next three months.

That said, investors can utilize such declines to accumulate the stock with a long-term perspective.

Risk-averse investors can wait for firm signs of recovery in the form of a close above the down-trend line at Rs 250 before buying the stock. Resistances over the ensuing year would be at Rs 250 and then at Rs 300.

I would like to know the short and medium prospects of RCF bought at Rs.75. Y Rajesh

Rashtriya Chemicals and Fertilizers (Rs 60.2): The pattern formed by RCF between October 2007 and March 2008 in the candle stick chart resembles the tower of Sauron built by the dark lord in the Lord of the Rings.

There are the gaps in the tower that give it an ethereal look combined with the red candlesticks appearing like tongues of fire. Needless to add, that this formation would have caused great pain to many investors.

Since the race towards Rs 143 happened at the peak of the bull-market frenzy, this level cannot be taken as the target price for purchasing the stock.

The stock would in fact struggle to move past Rs 85 over the next two years with the outer target at Rs 110.

Immediate supports are at Rs 60 and then Rs 55. Short-term investors should exit their positions on a breach of Rs 55 since the next target would be Rs 45. Short-term resistances would be at Rs 73 and then Rs 80.

Please furnish the outlook for Videocon Industries purchased at Rs 272. At what levels should I buy more of these shares? Mrityunjoy Chowdhury

Videocon Industries (Rs 272.5): Videocon Industries recorded a dizzy rally from Rs 407 to Rs 830 in December 2007 and followed it up with an equally swift fall that has dragged the stock to Rs 242 by March this year. Immediate support for the stock would be at Rs 250, where the stock has found support thrice this year. Hold the stock as long as it sustains above this level on a closing basis.

The medium and long term-view on this stock is negative. We do not recommend fresh purchases in this stock. Inability on the part of rallies to sustain at higher levels implies that the stock could slide lower towards the next long-term support at Rs 200 over the next twelve months. This negative view will be mitigated if the stock closes above Rs 350.

I have purchased shares of Housing Development and Infrastructure at Rs 835 and Polaris Software at Rs 162. Please indicate the technical outlook and whether I should hold, buy or exit at current levels. Tushar Kanti Ghosh.

Housing Development and Infrastructure (Rs 288.3): This stock has been attempting to pull back from the July trough at Rs 254 that is 77 per cent below the all-time high recorded in January. It is doubtful whether the recent trough would hold since the brief rally in this stock terminated after forming a double-top at Rs 410 and it is once more slipping and sliding.

Near-term patterns signify that HDIL could test the Rs 254 trough and even decline below it. Due to the limited trading history, supports below this level cannot be identified on the charts. Investors can hold the stock with a stop at Rs 250 and exit on rallies to Rs 400 or Rs 480 levels. It is hard to envisage a move beyond Rs 580 over the next year.

Polaris Software (Rs 101.5): Polaris Software briefly crossed Rs 1,000 at the peak of the dot-com boom in February 2002 but this level has not been re-visited since then. The stock has been moving in a wide trading range with the base at Rs 50 and the ceiling at Rs 280 since May 2001. The stock reversed from Rs 64, close to the lower base, twice this year and is currently attempting a short-term rally. This rally would face strong resistance from Rs 116 and then Rs 130. Investors with a shorter investment perspective can sell the stock at either of these levels.

A sideways move between Rs 60 and Rs 130 is likely over the next one year before Polaris Software moves towards the upper boundary of its long-term trading range again. Stop loss for long-term investors ought to be at Rs 49.

I am holding shares of Indusind Bank bought at Rs 50 and Mercator Lines at Rs 135. Please give the six month outlook for both these stocks. Viswanadham

Indusind Bank (Rs 60.3):The decline in this stock since the beginning of this year is halting just above the long-term trend line that is currently poised at Rs 57.

The stock also has key long-term support at the same level. Indusind Bank can try to form a long-term trough in the support band between Rs 48 and Rs 60. Since your cost price is in this band, hold with a stop at Rs 46.

The stock can rally higher towards Rs 74 or Rs 82 over the next six months. Medium-term investors should divest their holdings at either of the targets cited above. A move to Rs 92 or Rs 105 is possible over one-year time frame.

Mercator Lines (Rs 79.7): This stock has resumed its long-term down-trend from the May peak at Rs 129. Since it has declined below the long-term trend line as well as the moving average lines, a slide towards Rs 68 or Rs 56 is possible over the next six months. This negative outlook will be mitigated only on a close above Rs 136. Resistance levels for the medium-term would be at Rs 100 and then at Rs 130.

Please advice me on the technical outlook for Gwalior Chemicals and Motherson Sumi purchased at Rs 123 and Rs 93 respectively. Rajesh M Shah

Gwalior Chemicals (Rs 97.2): This stock has defied the weakness in the stock markets to test its 52-week high in July and again in August this year.

However, the resistance at Rs 128 is proving to be too strong and the stock is once more sliding lower from this barrier. Immediate supports exist at Rs 93 and then at Rs 72.

A reversal from the first support would imply that the stock could move beyond Rs 135 over the next six-months.

Gwalior Chemicals is moving between Rs 35 and Rs 130 since October 2006.

Decline below Rs 72 would drag the stock to its long-term support at Rs 35. Long-term investors can hold the stock with a stop at Rs 70. Fresh purchases are recommended only on a close above Rs 140.

Motherson Sumi Systems (Rs 82): Despite the steep decline in 2008, the structural up-trend in Motherson Sumi Systems has not ended yet.

The long-term trend line, positioned at Rs 48 coincides with the trough formed in May 2006. Investors can hold the stock as long as this level stays. A morning star (bullish reversal pattern) apparent in the monthly chart denotes that a long-term trough could have been formed at Rs 67 in July.

There is however a strong resistance around Rs 90, from where the stocks reversing currently. Motherson Sumi Systems can spend a few months moving between Rs 70 and Rs 90 before moving higher towards Rs 100 or Rs 120.

Investors with a shorter horizon can hold the stock with a higher stop loss at Rs 82.

— Lokeshwarri S.K.

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

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