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

I have recently purchased Era Infra Engineering at Rs 88 and Selan Exploration at Rs 177. What rates can be expected in the short and medium term in these stocks? Abhayakumar Shah

Era Infra Engineering (Rs 114.6): The slide of 2008 halted around the key long term support at Rs 70 in Era Infra Engineering and after moving around this support between October 2008 and March 2009, the stock spurted upward to the peak of Rs 125. A long-term trough appears to have formed in the region between Rs 60 and Rs 70.The stock is in a short-term corrective phase that can halt around Rs 102.

Short-term investors can buy in declines as long as it holds above Rs 100. Short-term target for the stock is between Rs 125 and Rs 130. Medium-term investors can hold with a stop at Rs 88. The stock can rally up to Rs 145 over the medium-term.

But we do not envisage a rally beyond this level over this calendar year.

Selan Exploration (Rs 211.3): This stock too has had a spectacular rally from Rs 100 in March to Rs 245 by June 2. But Selan Exploration has key intermediate resistance at Rs 245 and a reversal from here can drag the stock lower to Rs 165 or Rs 150 over the medium-term.

Investors with a short to medium-term investment horizon should therefore take some profits home at current levels and hold the rest with a stop at Rs 185. A sideways move between Rs 200 and Rs 250 for a few days would however imply that the stock can move higher to Rs 280 or make an attempt to move to its all-time high again.

Can you please give technical advice for Shasun Chemicals and Drugs purchased at Rs 140. R M Kumarappan

Shasun Chemicals and Drugs (Rs 22.1): This stock has gained almost 200 per cent since its March trough at Rs 10 but the magnitude of the decline from the July 2007 peak is such that the stock would have to cover a lot more ground before it moves to a position of safety and we can be assured about the progress of a long-term up-trend.

Shasun Drugs and Chemicals is currently reversing from the key medium-term resistance at Rs 30. Failure to move above this level can result in the stock falling to its 2008 base of Rs 10 once again.

We advise a switch from this stock at current levels. Those who wish to hold on can do so with a stop at Rs 20 where the long-term down-trend line as well the 200-day moving averages are positioned. The ceiling for the next 12 months is likely to be Rs 67.

Kindly tell us the technical outlook of Federal Bank. Balaji Subramanian

Federal Bank (Rs 244.3): This stock reversed from the long-term support at Rs 110 that coincides with the trough formed in June 2006. The rally since then has made the stock retrace almost 50 per cent of the down-move recorded since November 2007.

Immediate resistance for the stock is in the band between Rs 250 and Rs 260. Rally above this level will take the stock to the intermediate term resistance at Rs 288.

However, it is quite likely that Federal Bank is unable to move beyond Rs 260 just yet and declines to Rs 205 or Rs 170 instead.

Short-term investors can buy in declines as long as the stock trades above Rs 200. Investors with a medium-term perspective can hold with a deeper stop at Rs 165.

I purchased a few shares of Bharti Airtel at Rs 620 a few months ago. What is the technical view on this company over a medium to long-term investment period? S A Bashu

Bharti Airtel (Rs 830.4): Key long-term support for Bharti Airtel, if we consider the retracement of the structural up-move from the 2003 low, occurs at Rs 457.

The stock reversed from the low of Rs 484 in October 27, 2008 and it went on to form a higher bottom at Rs 544 in March 2009. The formation of a higher trough is a positive from a long-term perspective.

Further, the stock is still holding firm above its long-term trend-line. It can thus be concluded that the structural up-trend that began in 2003 continues to be in force in Bharti Airtel.

That said the stock faces key intermediate-term resistance at Rs 900. A downward reversal from here can result in a range bound move between Rs 600 and Rs 900 for a few months.

Strong support for the medium-term is in the zone between Rs 700 and Rs 740. Medium-term investors can buy on decline to this level. Long-term investors can hold the stock as long as it holds above Rs 450. A rally to its all-time high is possible over the next two years.

I have bought shares of Adlab Films at the rate of Rs 525. What are the medium and long-term prospects for these stocks? Pavithra Kumar

Adlabs Films (Rs 404.1): This stock has recorded a long-term reversal from the support at Rs 130. A double bottom was formed at this level before the stock rallied to 240 per cent gains in less than three months.

Key medium-term resistance will be in the band between Rs 485 and Rs 540. The trough formed in March 2008 at Rs 485 can impede the rally over the next three months. However, the stock will get support at Rs 340 and then Rs 300 over the medium-term and investors can buy on upward reversal from these levels with a short to medium-term perspective.

A long-term trough appears to have been formed at Rs 140 and the stock is likely to receive support from the band between Rs 200 and Rs 250 over the next 12 months. The target for the stock for the next two years is Rs 570. If this level is crossed, the next target would be Rs 780.

In the last 5 years Cadila Healthcare is moving between a range of Rs 210 and Rs 410.What are the potential targets if the share price crosses Rs 410? Sanjeev shahane

Cadila Healthcare (340.1)

You are correct in pointing out that Cadila Healthcare has been moving in a range between Rs 210 and Rs 410 over the last five years. The structural bull-market in this stock commenced from the 2001 trough of Rs 41.5.

That the stock has retraced only 50 per cent of this rally in the correction of 2008 indicates that the long-term outlook remains positive for Cadila Healthcare.

This sideways move can therefore be construed a halt before the long-term up-trend resumes. Simple extrapolation of the first leg of this up-trend gives us the target of Rs 580 on a break beyond Rs 440.

But investors should tread with care around Rs 400 since the stock has made two unsuccessful attempts to move above this level in April 2006 and June 2007. Medium term investors can buy in declines with a stop at Rs 300 with the medium term target of Rs 400.

— Lokeshwarri S.K.

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