Raymond (Rs 367.5): Raymond was moving at a sedate pace, in the band between Rs 180 and Rs 270, till August this year. But the stock suddenly spiked higher this month to record an increase of Rs 185 or 81 per cent in just nine sessions. Immediate resistance for the stock is at Rs 416. This is a key medium- and long-term resistance since it occurs at 61.8 per cent retracement of the decline from May 2006 peak.
Investors with short- to medium-term perspective can divest some of their holdings on a failure to move beyond this resistance. Stop-loss for investors with medium-term horizon can be at Rs 280 while long-term investors can hold the stock with stop at Rs 200.
Long-term targets on a weekly close above Rs 416 are at Rs 480 and Rs 625.
Monsanto India (Rs 1,836): If we consider the long-term chart of Monsanto India, the stock is straggling along in a trading band between Rs 1,100 and Rs 2,500 since October 2003. Upper target for the long-term will stay in the zone between Rs 2,200 and Rs 2,500. It is hard to envisage a break beyond this zone just yet. But if the stock does so, next target would be Rs 2,900.
Investors can hold the stock with the stop at Rs 1,400. Medium-term range for the stock is likely to be between Rs 1,500 and Rs 2,000. Short-term investors can buy close to the lower boundary and sell near the upper.Can you please clarify whether the stop-loss levels recommended in your column for medium-term refer to daily closing or weekly closing basis? S. Uma
The stop-loss recommended for medium- and long-term investors is on a weekly closing basis. This is because stocks often tend to breach the stop-loss on a particular day but they tend to move back below the stop in a day or two. Such moves are called false break-outs. Adhering to stops on a daily basis for medium-term holdings will result in premature exit from a position.
It is also recommended to have a filter of three sessions for medium-term positions. That is, the stock should continue to close below a stop for three sessions before it is assumed as violated. This will take care of instances when stop-losses are breached on Friday or close to the weekend. This will also prevent a wrong closing out of positions due to whip-saw movements in stock prices.
SRF (Rs 216.7): The long-term decline that commenced from the July 2006 peak of Rs 373 came to an end in February 2009 at Rs 62.
A strong fight-back was witnessed since this low and the stock has retraced half of the down-move recorded from 2006 when it made the peak of Rs 220 in October last year. However, the resistance around Rs 220 is proving to be too strong to breach and the stock has made three unsuccessful attempts to do so over the last seven months.
That said the reversals from this peak have been quite shallow resulting in a sideways move between Rs 170 and Rs 220 in the aforementioned period.
Investors with medium-term investment horizon can hold the stock with stop at Rs 168. It can attempt to move to Rs 258 over this period.
The long-term trend will however turn positive only on a strong weekly close above Rs 258, subsequently paving the way for a rally to the stock's former peak at Rs 373. Long-term investors can hold the stock as long as it trades above Rs 150.
Action Construction Equipment (Rs 50.2): Action Construction Equipment was
one of the stocks that had a stellar run in the last quarter of 2007 only to be decimated in the crash that followed. The recovery that ensued from the first quarter of last year has not yet managed to take the stock above the key intermediate term trend deciding level of Rs 57.
The stock needs to record at least two weekly closes above this level to signal that it is on the road to a sustainable recovery. Else it can decline to Rs 27 or even below. A sideways move between Rs 27 and Rs 60 then becomes a strong likelihood for the medium-term.
A close above Rs 57 can take the stock higher to Rs 71 or Rs 86 over the long-term. It is hard to envisage a move beyond Rs 86 in the foreseeable future and investors can divest part of their holding on a failure to move beyond this level.
SRF (Rs 344.3): SRF faces key long-term resistance at Rs 375. Since the stock is reversing lower after moving close to this zone, the correction can now pull the stock down to Rs 330 or Rs 310. Investors with short- to medium-term perspective can cash out at this level since the stock is likely to struggle to move above Rs 375 in the ensuing months.
Investors with long-term perspective can hold with stop at Rs 300. Next downward target is Rs 270. Strong move above Rs 375 is required to take the stock to its record peak of Rs 444.
Monsanto India (1,897.2): Monsanto India is also reversing downward from its key long-term resistance at Rs 1,975. This decline can pull the stock to Rs 1,800 or Rs 1,700 over the ensuing weeks. Investors with short-term perspective can book some profit at current level and hold the rest with stop at Rs 1,800. The stock will however find it hard to move above Rs 1,975 in the upcoming months. A broad side-ways move between Rs 1,700 and Rs 2,000 appears likely over the medium-term.
I have invested in Monsanto India at Rs 1,450 with long term perspective. The stock has been falling since January. What would be the technical stop loss if you suggest a ‘hold’? Does the gap left on daily charts in June 2008 need to be filled? Sandeep Dhawan
Monsanto India (Rs 1,488.1): Monsanto India has been moving in a broad range between Rs 1,500 and 2,500 since 2004. This stock is currently poised close to the lower end of its long-term range. The stock is certainly a ‘hold’ at this juncture. The stop loss level for long-term investors ought to be at Rs 1,100. Those wishing to acquire this stock can do so in the band between Rs 1,100 and Rs 1,400. A rally towards Rs 2,200 is likely over the next couple of years. Medium-term resistances for the stock would be at Rs 1,600 and then Rs 1,750.
Though we are positive regarding the long-term prospects of Monsanto, it would not do to wait for the gap in the chart formed in June 2008 to be filled anytime soon. The gap in question is a breakaway gap that followed a sideways movement between Rs 1,850 and Rs 2,000. Breakaway gaps occur at major reversal points and are not always filled. Secondly, the gap in June along with the gap in the daily chart in May formed an island cluster reversal pattern. This pattern too implies a significant turnaround that takes a while to reverse.
I would like to know the importance of trading volume in the context of technical analysis. — Sandeep Dhawan
Trading volume has relevance while studying chart patterns and arriving at investment decision based on technical analysis. Typically, a move in price that is accompanied by a pick-up in trading volume would be considered as a healthy sign. Investment positions may be considered with a high degree of conviction in such a scenario, as it indicates that there is growing market interest towards the stock. This theory is valid for both upward and downward moves.
Typically, ahead of a sharp move, price tends to congest in a narrow trading zone while the daily trading volume tends to swell. As the buying pressure builds up, prices tend to explode in the direction of the breakout. Similarly, after a prolonged upward or downward move, the momentum behind the earlier move would wane. Trading volumes would also subside. Prices would get into a consolidation mode and trading volumes would gradually pick-up, resulting in the reversal of the earlier trend. Identifying such trend reversals early would be a key aspect to success at market place.
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