Query Corner: LIC Housing Finance in medium-term uptrend

I am holding shares of Vikas WSP purchased at Rs 11. What is the outlook for this company? Should I exit this stock?

Suresh Kumar

Vikas WSP (Rs 66.6): After taking support at around Rs 10 in December 2011, the stock reversed direction and started moving higher. Jumping from circuit limits to circuit limits, the stock penetrated its long-term resistance at Rs 36 in early March and accelerated until it encountered resistance at Rs 70.

The stock is likely to test this resistance in the near future. Its weekly as well as monthly indicators are hovering in the overbought territory signalling a potential short-term corrective decline.

The stock had reversed down from Rs 70 in early 2008 also. Therefore, we advise you to exit from the stock and take profits off the table at this juncture.

A downward reversal can pull the stock down to Rs 50 and then to Rs 36 in the medium-term.

Further fall below Rs 36 will mar the stock's medium-term uptrend and pull it down to Rs 25 or Rs 20. Conversely, breakthrough of the immediate resistance at Rs 70 can push the stock higher to Rs 85 or to Rs 95 in the medium-term.

I have bought Jain Irrigation Systems at Rs 113 for the short-term. What is your view on this stock for the next six months?

Venkatesh

Jain Irrigation Systems (Rs 102.6): Ever since peaking out from its August 2010 at Rs 264, Jain Irrigation Systems has been on a long-term downtrend.

In October 2011, the stock breached significant long-term support at Rs 140 and landed at Rs 75 and Rs 80 base zone in December 2011.

The stock has been on a wide sideways consolidation phase between Rs 80 and Rs 120 since then.

An emphatic breakthrough of the upper boundary will push the stock northward to Rs 140 and then to Rs 160 in the forthcoming months.

However, only a strong up move above Rs 180 can alter the stock's long-term downtrend and take it higher to Rs 210.

Investors with medium-term perspective can hold the stock with deeper stop-loss at Rs 80.

Decline below the lower boundary at Rs 80 will reinforce the stock's long-term down-trend and pull it down to Rs 65 and to Rs 53 eventually.

I have bought Shyam Telecom in 2007 for Rs 174. What do the charts describe?

Subramanian

Shyam Telecom (Rs 27.7): You have brought the stock at around its key resistance level at Rs 175, from which the stock peaked out in December 2007.

Since then, the stock has been on a long-term downtrend, under the bear's grip.

But, the stock found support at its long-term base level around Rs 23 after registering a multi-year low in December 2011. This support is cushioning the stock. A strong jump above Rs 38 will push the stock higher to Rs 49 and then to Rs 60 in the forthcoming quarters.

Next important long-term resistance is positioned at Rs 80.

Only an emphatic rally above Rs 100 will reverse the downtrend and push the stock to Rs 120.

On the other hand, downward break through of the support at Rs 23 will pave way for a decline to Rs 15 in the medium-term. Investors can make use of the rallies to exit the stock.

I have invested in shares of LIC Housing Finance at Rs 252. Please give your short-term view.

J.H. Krishna Murthy

LIC Housing Finance (Rs 267.3): After taking support between Rs 35 and Rs 40 in early 2009, the stock has been on a long-term uptrend. Both the intermediate and medium-term trend are also up for the stock.

In early March this year, the stock took support from its key base level at Rs 240 and resumed its medium-term uptrend.

The stock is presently facing important resistance at Rs 280 from which it had reversed downwards this February. A decisive breakout of this resistance can take the stock to its previous high at Rs 299 in the approaching three months. Nevertheless, failure to move above Rs 280 will confine the stock's trading between Rs 240 and Rs 280 for some more time.

As long as the stock trades above Rs 240, medium-term perspective investors can prolong their holdings while maintaining stop-loss at the same level.

A downward penetration of Rs 240 will mar the medium-term uptrend and drag the stock down to Rs 210 or even to Rs 195 in the forthcoming months.

Immediate supports for the stock are pegged at Rs 257 and Rs 248.

Please discuss the medium and long-term outlook of Cadila Healthcare and Cipla.

Anil

Cadila Healthcare (Rs 731.8): Following an intermediate-term downtrend from its life-time high at Rs 983 marked in July 2011, the pharma stock found support at around Rs 650 during January this year.

However, the stock changed direction subsequently from this support, sparked by positive divergence in the weekly indicators. It is a short-term uptrend and is currently testing significant trend deciding zone between Rs 755 and Rs 775. This zone also coincides with the 38.2 per cent fibonacci retracement level of the stock's previous downtrend.

Strong up move from Rs 775 will lead the stock higher to Rs 820 or to Rs 850 in the medium-term.

A conclusive rally above Rs 850 is required to strengthen the stock's long-term uptrend that has been in place since early 2009.

In this scenario, the stock can rally to Rs 930 and then to Rs 983 in the long-term.

Inability to move above Rs 775 will pull the stock down to Rs 690 and to Rs 650. A damage of Rs 650 will pull the stock down to Rs 600 and to Rs 565 levels.

Cipla (Rs 305.9): The stock's important resistance band between Rs 360 and Rs 370 has been restricting it from conclusively moving higher since the late 2009.

After encountering this resistance in February, the stock did a volte-face and declined steeply.

And it found base at its key long-term support band between Rs 280 and Rs 290 recently.

Strong breakthrough of this support will reinforce the bearish momentum and pull the stock down to Rs 260 and eventually to Rs 240 which is the next important support in the medium-term.

Significant medium-term resistances are positioned at Rs 320 and Rs 340. Only an up move above Rs 320 can push the stock higher to Rs 340.

Robust breakthrough of the aforementioned resistance band will reinforce the bullish long-term outlook and take the stock to Rs 400.

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