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

Larsen and Toubro (2,637.4): The structural up-trend in Larsen and Toubro that began from the 2002 trough at Rs 72 ended last November and the stock is currently charting a long-term correction. In our previous review of this stock in February, we had expected this correction to halt above Rs 2,900. But it has declined to the next long-term support at Rs 2,300 that retraces 50 per cent of the rally from the 2002 trough. Long-term investors can however hold the stock as long as it remains above Rs 1,800.

A significant trough could have been formed at the July low at Rs 2,100. The medium-term trend in the stock is up since then. A close below Rs 2,400 is needed to negate this outlook. Investors with a medium-term horizon can hold the stock with a stop at Rs 2,400. Larsen and Toubro can rally to Rs 3,100 or Rs 3,400 over the medium-term.

Key medium-term resistance would be at Rs 3,700. A move beyond this level is needed to signal that the long-term trend has turned up again.

Please advice me on the technical outlook for Hindalco Industries and Triveni Engineering purchased at Rs 148 and Rs 108 respectively. Rajesh M Shah

Hindalco Industries (Rs 121):

Barring the brief spurt in April 2006, this stock has been moving in a trading range between Rs 115 and Rs 200 since December 2005. The recent decline from the May peak at Rs 185 has dragged the stock to the lower boundary of this trading range. Investors can hold the stock as long as this support (Rs 115) holds. Subsequent support band on the long-term chart exists between Rs 90 and Rs 95.

Strong resistance would be encountered between Rs 145 and Rs 150 over the next six months. Short-term investors can divest their holdings if the stock struggles to surpass this level. Subsequent resistance levels for the next year are at Rs 157 and then Rs 168.

Triveni Engineering (Rs 86.4): The medium-term rally from the July trough at Rs 64.5 in Triveni Engineering faces a strong impediment at Rs 118. Since the stock is reversing lower from this level, it can decline towards Rs 64 again over the next three to six months. Short-term investors should exit the stock on a close below Rs 85. The likely medium-term range for the stock is between Rs 60 and Rs 120.

Please explain the short and medium-term prospects of Goa Carbon purchased at Rs 130 and Dhanus technologies purchased at Rs 160. H V Kolwalkar

Goa Carbon (Rs 127.5):

This stock has been among the out-performers this year. Undaunted by the all-pervasive weakness in the stock markets, Goa Carbon’s stock price has more than doubled since the July trough at Rs 70. The short as well as medium-term view for the stock is positive. However, it is hovering close to the long-term peak at Rs 140 (formed in July 2005). A weekly close beyond Rs 155 would pave the way for the next surge in to un-chartered territory.

That said, the lack of liquidity on this counter would make it difficult to sell the stock once it commences declining. Short-term investors can divest part of their holdings at current levels and hold the rest with a stop at Rs 120. Medium-term investors can hold with a deeper stop at Rs 100.

Dhanus Technologies (Rs 160): This stock is moving higher in an upward moving trend channel since the July trough at Rs 119. The short-term view for the stock will stay positive as long as it remains above Rs 157. The immediate target for the stock is Rs 216. Medium-term investors can hold the stock with a stop below the recent trough at Rs 119. The stock can rally to Rs 245 or Rs 274 over the medium-term.

I have bought NTPC at Rs 193. Please advise whether I should hold these shares or sell them. Ajay Kumar Srivastava

NTPC (Rs 173.6): A 3-wave move down from the January peak at Rs 291 was completed by NTPC at Rs 149 in June. Subsequent movement of the stock implies that a sustainable trough could be in place at this level. However, as explained earlier, penetration of this level would drag the stock lower to the next support at Rs 130. Long-term investors can accumulate the stock in the band between Rs 130 and Rs 150.

The medium-term trend in NTPC is up since the June trough. Short-term investors can hold the stock with a stop at Rs 165. A re-test of the Rs 200 level is possible in the immediate term where they can pare positions. The presence of strong medium-term resistance around Rs 200 would make the stock move in a range between Rs 150 and Rs 200 over the next few months before it moves higher to Rs 220 or Rs 235.

I have purchased shares of Ispat Industries at Rs 71 per share and WWIL (Wire and Wireless Limited) at Rs 100 in the month of December 2007. Kindly advise whether to sell them and book losses or to hold them for some more time or to buy some more shares to average. C Ramchandra Reddy

Ispat Industries (Rs 22.9): Ispat Industries continues to be in the bear’s stranglehold. The rally from the July trough has petered off helplessly and the stock is once more slipping. The immediate supports are at Rs 23 and Rs 18. But the stock could slide towards the long-term base at Rs 10 over the next year.

In view of the weak medium-term outlook, it would be best to switch from this stock. An alternate course of action would be to hold with a stop at Rs 18 and wait for a bounce to Rs 30 or Rs 38 to sell. This would entail locking up your money for extended period plus bearing the risk of further capital erosion should the stock price retreat to Rs 10 or thereabouts.

Wire and Wireless (Rs 21.8): This stock is currently close to its all-time low recorded at Rs 18.5. The short trading history of this stock leaves a vacuum below this level and it would be difficult to gauge where the stock would finally bottom, once it declines below Rs 18.5. Hold with a stop at Rs 18. Though it is hard to envisage a rally towards your cost price at least for another year, the stock could move higher to Rs 50 where you can pare your exposure.

I’m holding IDFC purchased at Rs 91. Please give me the medium and long term outlook for these stocks. Manjunathan

IDFC (Rs 91): IDFC has declined below the key support at Rs 107 in July. The medium-term outlook for this stock will turn positive again only on a firm weekly close above this level. The stock is attempting to form a base around Rs 89. But the recovery so far lacks strength and the frequent attempts to decline below this level implies that the weakness can extend over the short-term. Subsequent support on the chart is in the band between Rs 75 and Rs 80. Investors can hold the stock with a stop at Rs 74. Long-term investors can bottom-fish if the stock stabilizes in this band.

Medium-term resistances for this stock are at Rs 110 and then Rs 140. Investors with a medium-term investment horizon can sell the stock on a failure to move beyond the second resistance. Long-term resistances are at Rs 177 and then at Rs 235.

Please give your technical guidance on Allahabad Bank bought at Rs 108. Sateesh Chandra

Allahabad Bank (Rs 63): Allahabad has been moving in a wide band between Rs 50 and Rs 100 since 2005. Since the January peak at Rs 119 was achieved in the final stages of the bull market, it is unlikely that the stock will rally towards this peak anytime soon. However, the stock has key long-term support at Rs 53 and it is currently trying to stabilize around this level. A reversal from here can take the stock back to Rs 87 or Rs 106 over the next two years. Investors can hold the stock with a stop at Rs 50.

— Lokeshwarri S.K.

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