Technical Analysis

Query Corner: Bajaj Auto in medium-term correction

Lokeshwarri S.K. | Updated on January 30, 2011









Can we buy Indiabulls Securities and JSW energy at current levels? Boravake J.

Indiabulls Securities (Rs 19.2): In our review of this stock in January last year, we had written that as long as the stock traded below Rs 65, it would oscillate in a broad band between Rs 15 and Rs 65. We had also written that decline to Rs 15 was possible over the next 12 months. The stock recorded the low of Rs 17.5 on January 21, 2011 but there was a sharp intra-day rebound from that level denoting buying interest at those levels.

The stock also formed the long-term trough at Rs 16.8 in January 2009. So investors with greater penchant for risk can buy at current levels with stop at Rs 16. Bounce to Rs 30 or Rs 34 is possible over the medium-term. Weekly close above Rs 34 will give the long-term targets of Rs 45 and Rs 61.

JSW Energy (Rs 83.9): JSW Energy has a very short trading history since it was listed only last year. But the stock price is spiralling lower since this September. The stock has also declined below the stop-loss at Rs 118 indicated in our last review of this stock. Buying it now will be akin to catching a falling knife. Investors can wait for a firm close above Rs 120 before buying this stock. Alternative strategy would be to wait for the stock to rebound at least 20 per cent from its immediate trough before buying.

Please specify the technical outlook for Ashok Leyland and Bajaj Auto. Altaf Hussain

Ashok Leyland (Rs 56.5): Last time we visited this stock was in June 2010 when it was in a strong up-trend. We had advised short- and medium-term investors to hold the stock with stop at Rs 55 and had given the medium-term targets at Rs 71 or Rs 81. The stock struggled to cross the resistance at Rs 80 between April 2006 and January 2008 and hence this is a strong long-term resistance. The stock recorded the peak of Rs 81.9 in November last year and is currently in a serious correction. We stay with the view that investors with medium-term perspective can hold the stock as long as it trades above Rs 55.

Subsequent supports are at Rs 47 and Rs 39. Long-term investors can hold as long as the stock trades above Rs 39. Recovery above Rs 55 can make the stock consolidate between Rs 55 and Rs 80 for a few months before breaking higher to Rs 97 over the long-term.

Bajaj Auto (Rs 1,254.7): Bajaj Auto is in a downtrend since the peak of Rs 1,664 recorded last November. This move appears to be correcting the entire rally from December 2008 trough of Rs 147 to the November peak. Principal medium-term supports for the stock are at Rs 1,208 and Rs 1,084. Those wishing to buy the stock can do so in declines with stop at Rs 1,000.

If the decline halts above Rs 1,000, the stock can spend some time moving in the band between Rs 1,000 and Rs 1,600 before moving higher to the zone between Rs 1,900 and Rs 2,000 over the next 12 months.

That said, fresh purchases are not recommended on a close below Rs 1,000 since that would pave the way for decline to Rs 890 or Rs 720.

Please give the long- and medium-term analysis of EMCO. J. Sadeesh Kumar

EMCO (Rs 65.5): EMCO continues in the long-term downtrend that began from January 2008 peak. The stock has to more than double from current level and record a weekly close above Rs 138 before the long-term outlook turns conducive.

Key medium-term support is at Rs 59. Investors can hold the stock only as long as it sustains above this level. Close below can drag it to the March 2009 low of Rs 26.

Rebound from Rs 59 will keep the medium-term view positive and will imply that the stock can move on to Rs 89 or Rs 110 in the ensuing months.

Please advise me on Sun Pharma Advanced Research bought at Rs 104. Bharti Burle

Sun Pharma Advanced Research Company (Rs 79.5): Sun Pharma Advanced Research faces key resistance at Rs 112 and Rs 130 that are Fibonacci retracement levels of the down-move that began from December 2007. The stock is struggling to move past the zone between Rs 100 and Rs 110 since March last year and appears to be forming a rounding-top formation that is a top reversal pattern. The stock is currently testing the support at Rs 80. This is a key support and investors should divest their holdings on a close below Rs 78 since subsequent supports are at Rs 72 and Rs 65. Stop for long-term investors can be at Rs 63.

Kindly elaborate the technical view on Sintex Industries. T. Jayakumar

Sintex Industries (Rs 144.4): Sintex Industries formed a significant peak at Rs 237 last November and is in a corrective downtrend since then.

This correction appears to be retracing the entire up-move from March 2009 trough of Rs 35 to the November peak.

Fibonacci retracement supports for the stock are at Rs 135 and Rs 112. Investors can hold the stock as long as it trades above the second support. This stock can also be bought in declines with stop-loss at Rs 112.

However, investors should desist from making fresh purchases on a decline below Rs 112 since that would imply a reversal in the long-term trend and the possibility of the stock falling all the way down to Rs 91 or even to the March 2009 low.

I have purchased Simplex Infrastructures in August 2010 at an average price of Rs 480. Since then it is travelling only downwards. Please let me know whether I will be able get my price back in the near future. Venukumar T.K.

Simplex Infrastructures (Rs 336): This stock is in a downtrend since December 2009. Within this move, it spent the period between April and October 2010 in a sideways range between Rs 450 and Rs 500. The stock has now resumed its downtrend by penetrating the lower end of this range. Key medium-term supports are at Rs 330 and then at Rs 280.

Investors can hold Simplex Infrastructures as long as it trades above the second support. A rebound above this level can take the stock higher to Rs 380 or Rs 500 in the next 12 months. It is hard to envisage a move above Rs 500 just yet. Investors can divest their holdings on a failure to clear this level. Subsequent targets are Rs 560 and Rs 750.

Please provide the long-term outlook for Thermax purchased as a very long-term investment. Ajit K.

Thermax (Rs 663.6): Low liquidity on the Thermax counter makes it very volatile. The stock crashed from Rs 930 to Rs 150 in the 2008 crash and subsequently managed to recoup all the losses in the rebound that followed. The stock is once more reacting from its long-term resistance at Rs 900.

Immediate support for the stock is at Rs 635. But high impact cost can drag the stock lower to Rs 540 or even to Rs 450.

It would be best to divest part of your holding at current level and try to buy it back at the supports given above.

Readers can send in their queries, on not more than two companies, to > Queries can also be sent by post to: Tech Trail, 859/860 Kasturi Buildings, Anna Salai, Chennai 600002.

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Published on January 30, 2011

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