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

Cairn India (Rs 221.3): In our previous review of this stock in April, we had expected a sedate base-building move between Rs 180 and Rs 240 for a few months before an upward break-out. But the stock peaked at Rs 342 following a strong rally in April and May. The long-term trend line drawn from the March 2007 trough has been breached in the ensuing decline, thus proclaiming the onset of a protracted corrective phase.

But the stock is halting above the key long-term support at Rs 200. The zone between Rs 180 and Rs 200 will act as a strong support in declines and long-term investors should consider divesting their holdings only on a weekly decline below Rs 180. In fact, investors can utilize this zone to accumulate Cairn India.

The stock would face strong resistance at Rs 250 over the next year. Investors with a short to medium-term perspective can sell their holdings on a rally to this level. Subsequent resistance would be at Rs 284.

I have recently purchased Madras Aluminum at Rs 225. What is the outlook for this company? Suresh Kumar Yadav

Madras Aluminium (Rs 129.7): Madras Aluminium spiralled upward in a dizzy manner as soon as Sterlite Industries announced its restructuring plans on September 8, taking the stock price from Rs 155 to Rs 225 in just three sessions. But the decline from this peak has been equally abrupt as the nuances of the deal were assimilated by the markets. Immediate support for the stock is at the troughs formed in June and July at Rs 125. If we peruse the long term charts, it is evident that the stock is moving in an upward moving trend channel since April 2004. The lower boundary of this channel at Rs 116 needs to be breached on a weekly basis before the long-term outlook turns negative for the stock. March trough at Rs 85 is the other level that investors can expect support in a protracted down-trend.

In short, stop loss for short-term investors ought to be at Rs 124 while long-term investors can hold as long as the stock trades above Rs 85. The upper boundary of the trend channel gives the target at Rs 300 over a two to four year time-frame.

I have purchased Jaiprakash Associates at Rs 142. Please explain the future outlook of the stock. If I were to book profit at a future date, at what level can I do so ? Ishwar Patil, Puja

Jaiprakash Associates (Rs 135.2): In our previous review of this stock in February, we had assumed that the correction from the January peak would halt above Rs 240 and the stock could oscillate between Rs 300 and Rs 500 for a few months.

But Jaiprakash Associates slid below the key long-term support at Rs 240 in March converting the long-term outlook to negative. The next support for the stock is at the March 2007 trough at Rs 93. If this level is breached, the May 2006 trough at Rs 56 would be in reckoning.

A short-term bottom appears to be in place at the recent trough at Rs 118. Hold the stock with a stop at Rs 115 and try to book profit at the short-term resistance levels at Rs 150 and Rs 165. Medium-term resistances are at Rs 200 and Rs 250.

I have brought Manaksia at Rs 154 and Rajesh exports at Rs 148. I want to know the medium to long-term outlook for these stocks. Should I hold them or sell? Shiva Prasad M Nayak

Manaksia (Rs 58.5):This stock has extremely short history since it was listed only this January. Stocks such as this, that are listed close to a bull-market peak take many years to revisit their listing price since they are listed at exorbitantly high levels due to the prevailing bullish fervour. This stock recorded a peak at Rs 248 on its listing day and has not returned to those levels since then.

Manaksia is moving in a wide range between Rs 50 and Rs 100 since March. Hold the stock as long as it trades above Rs 50. Resistances over the next year would be at Rs 100 and then Rs 130.

Rajesh Exports (Rs 36.3): When we reviewed Rajesh Exports in April, we had warned that the long-term outlook for this stock would turn explicitly negative on a decline below Rs 68. This level was breached emphatically in July and the stock is currently poised about 40 per cent below. Subsequent supports on the long-term charts are at Rs 28 and then Rs 20. A halt is very likely around Rs 20, from where the stock reversed in October 2005 and again in July 2006.

Investors can hold the stock with a stop at Rs 20 and try to exit in rallies to Rs 50 or Rs 68. Rajesh exports will however find it difficult to surpass Rs 68 over the next year.

Please give your view on XL Telecom purchased at Rs 274 and ICSA at Rs 400. M C Agarwal

XL Telecom (Rs 186.2): This stock is currently in a structural bear phase. The sequence of lower peaks formed since January implies that the down-trend can prolong. Investors can hold the stock with a stop loss at Rs 155. If this trough is breached, the next support would be at Rs 120 and then at Rs 94. Resistances for the next year would be at Rs 280 and then Rs 330. Fresh investments in this stock are recommended only on a weekly close above Rs 330.

ICSA (Rs 296.2): ICSA India has key long-term support at Rs 248. Long-term investors can hold the stock as long as this level holds. Resistance over the next year would be encountered at Rs 400 and then at Rs 500. Reversal from the first resistance would lead to the stock moving within Rs 250 and Rs 400 range for a few months. Investors with a short to medium-term perspective can sell the stock on a reversal from either of these levels. The intermediate term view for this stock would turn positive only on a close above Rs 500.

Please advice me on the technical outlook of Development Credit Bank purchased at 62. K N Reddy

Development Credit Bank (Rs 41.1): The current market correction has shaved off almost 76 per cent of the share value from the January peak at Rs 162 in DCB.

The stock is back to where it started from in October 2006. It is currently close to its all-time low at Rs 35. Investors can hold the stock with a stop at Rs 34.

A rebound is possible from here that takes the stock higher to Rs 60 or Rs 75 where investors with a short term perspective can sell their holdings.

I hold shares of Morepen Laboratories bought at Rs 18 and Assam Company bought at Rs. 37. Please advise whether to hold these shares or sell them. R K Gupta

Morepen Laboratories (Rs 9.3): This stock has been in a long-term bear market since February 2000 when it recorded the peak at Rs 242. After vacillating between Rs 5 and Rs 15 between 2004 and 2006, it showed some signs of a possible long-term trend reversal. But the pattern charted by the stock this year clearly signals that the long-term outlook stays negative. It appears to be heading towards its long-term base between Rs 5 and Rs 10. We suggest a switch from this stock at current levels.

Assam Company (Rs 20):Assam Company too is reeling under selling pressure since the beginning of this year. The stock will receive support from the long-term trend-line at Rs 16, if the decline prolongs.

The panic low formed in May 2007 at Rs 13 should be the stop loss level for long-term investors. If this level is breached, the next halt is likely to be at Rs 6.

The stock has been moving within a broad range between Rs 16 and Rs 34 since June 2005. A reversal above Rs 16 can pull the stock towards Rs 34 or Rs 40 again over the next two years.

— Lokeshwarri S.K.

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