Technical Analysis

Stock query: Larsen & Toubro is trending downwards

Yoganand D | Updated on March 01, 2020

Last week, the stock plummeted 7.6%, conclusively breaking a vital support at ₹1,270

Here are the answers to readers’ queries on the performance of their stock holdings.

I hold shares of Larsen & Toubro purchased at ₹1,320. What is the short- to medium-term view?

Sundeep Singh

Larsen & Toubro (₹1,183): The stock of Larsen & Toubro registered a new high at ₹1,606.7 in May 2019. The key resistance between ₹1,500 and ₹1,600 limited the upside in July and in September 2019. Subsequently, the stock changed direction and started to decline.

Since last July, it has been on an intermediate-term down-trend. It conclusively breached a key medium-term support at ₹1,400 as well as the 200-day moving average in November 2019. Thereafter, the stock continued to trend downwards and found support at ₹1,270 in December.

Last week, it plummeted ₹97, or 7.6 per cent, conclusively breaking the vital support at ₹1,270 levels. Moreover, the stock has decisively breached a key long-term support in the ₹1,250-1,270 band.

The short- as well as the medium-term outlook appears to be bearish for the stock. However, a near-term corrective rally to ₹1,270 is possible. Inability to move beyond this resistance can pull the stock down to ₹1,150 and then to ₹1,100 in the short term. The subsequent supports below ₹1,100 are at ₹1,050 and ₹1,000.

A conclusive plunge below ₹1,000 will mar the long-term uptrend that started from the 2016 low of ₹677 levels. In that scenario, the stock can head southwards to ₹900 in the long term. You can exit the stock if the stock fails to move beyond ₹1,270, and consider buying at lower levels.

Investors with a long-term perspective can stay invested and consider averaging in declines, with a a stop-loss at ₹860 levels.

On the upside, a decisive break above ₹1,270 can push the stock higher to ₹1,350 in the medium term. To alter the intermediate-term downtrend, the stock needs to break out of a significant resistance at ₹1,400.

The next resistances are at ₹1,460 and ₹1,500.

I bought Canara Bank shares at ₹217, and the stock is declining now. Should I sell or hold it?

KBD Prasad

Canara Bank (₹144): Last week, the stock of Canara Bank nose-dived 16.6 per cent and recorded a multi-year low at ₹141.

With the recent sharp fall, the stock appears to have resumed its long-term downtrend that has been in place from the high marked at ₹820 in 2010.

Both the daily oscillator and the indicator are featuring in the oversold territory, and a corrective rally can’t be ruled out this juncture.

The stock can test an immediate resistance at ₹151. A decisive break above this level can take it upwards to ₹171 in the short-to-medium term.

A further rally above ₹171 can extend the up-move to ₹180 and then to ₹200 over the medium term. Failure to break above ₹171 can keep the stock consolidating sideways in between ₹140 and ₹171 for a while.

On the downside, a fall below ₹140 can drag the stock down to ₹130 and then to ₹112 over the medium term horizon. If you have an appetite for high risk, you can consider averaging the stock with a stop-loss at ₹130.

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Published on March 01, 2020

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