Query Corner: L&T close to key support level

Please tell me know the outlook for Larsen and Toubro.

Vivek Agarwal

Larsen and Toubro (Rs 1,610.8): The 2008 correction in Larsen and Toubro was long-term in nature as it retraced more than 61.8 per cent of the uptrend from September 2001 trough. The recovery in 2009 was equally dramatic and the stock almost reached its former peak at Rs 2,335. The entire zone between Rs 2,200 and Rs 2,400 is a strong resistance area and since the stock is reversing after testing this zone in November 2010, the current correction could continue for a few more months.

Investors can watch out for support from the area around Rs 1,380 that occurs at 50 per cent retracement of the previous rally. This can also act as the stop-loss level for medium-term investors. Next support is at Rs 1,200 and the long-term view will turn negative only on a close below this level.

Medium-term resistances would be at Rs 1,750 and Rs 1,930. Long-term target on a close above Rs 2,200 is Rs 2,500.

Please let me know about the technical prospects of Navin Fluorine and Tata Chemicals.

M. D'Cunha

Navin Fluorine International (Rs 245.3): This stock faces long-term resistance in the zone between Rs 500 and Rs 600 and it reversed lower from here twice, in September 2005 and December 2007. The recovery from the 2009 low, however, could not pull the stock towards this zone and it is in a medium-term correction from its January 2010 peak of Rs 397. This correction will receive support from Rs 235 and then from Rs 200.

Since the stock is attempting to steady itself above the first support, investors with short and medium-term perspective can hold with stop at Rs 230 while those with a long-term horizon can hold as long as the stock trades above Rs 200.

Resistances for the medium-term would be at Rs 300 and Rs 336. Subsequent targets are Rs 400 and Rs 600.

Tata Chemicals (Rs 329): Tata Chemicals made a double-top formation around Rs 450 in January and May 2008 before reversing lower. This resistance zone thwarted the stock's rise last year too, and it is declining since the peak of Rs 446 formed last October. Immediate support for the stock would be in the zone between Rs 300 and Rs 320. If the stock holds above this zone, it will be construed as positive from a long-term perspective and leave open the possibility of a break-out to Rs 515 over the next 12 months.

Conversely, the medium-term trend will turn negative on a close below Rs 300 paving the way for decline to Rs 274 and Rs 233. Stop-loss for long-term investors can be at Rs 230.

Please guide me on the outlook for Chambal Fertilisers and Educomp Solution for the next 12 months.

Vivek Agarwal

Chambal Fertilisers and Chemicals (Rs 70.1): Chambal Fertilisers is currently retracing the rally from the October 2008 trough to the November 2010 peak of Rs 105. The stock is currently pausing after retracing half of this up-move. Key medium-term support is at Rs 60 and investors can continue to hold it as long as it trades above this level. However, close below this level will mar the long-term outlook as well and portend an impending decline to Rs 47 or even below in the months ahead.

The stock will encounter resistance at Rs 81 and Rs 90 in the days ahead. Failure to move above the first resistance will mean that the stock will continue to tread lower.

Educomp Solutions (Rs 465.4): Educomp Solutions recorded its life-time high at Rs 1,130 in January 2008. The stock tested this level once more in October 2009 and is sliding lower since then. This decline is currently halting above the key long-term support at Rs 400. Investors can hold the stock as long as it trades above this level on a weekly closing basis.

If the stock breaches this support emphatically, next halt will be in the zone between Rs 270 and Rs 300. Resistances for the next 12 months would be at Rs 630 and Rs 780. Investors with short-term horizon can divest this stock on failure to move above the first resistance. The stock will continue to face strong long-term resistance around Rs 1,000.

Please advise me on the medium- to long-term outlook for Vivimed Lab.

D.S. Negi

Vivimed Labs (Rs 250.7): Vivimed Labs recorded a parabolic up-move between July and September last year when it raced from Rs 167 to Rs 350. But the stock was unable to move past the ceiling at Rs 350 and it is currently in a medium-term correction.

This correction can halt around Rs 230. Such a halt would be positive from a long-term view and will imply the possibility of a break higher to new high. Medium-term resistances for the stock would be at Rs 270 and Rs 300.

But decline below Rs 230 will mean that the stock could fall to Rs 192 or Rs 154. Stop for long-term investors can be at Rs 150.

I have purchased Kalpataru Power at Rs 188 and Rs 130. Please let me know whether the stock will appreciate or shall I sell it and exit the counter.

S. Parasuraman

Kalpataru Power Transmission (Rs 119.3): This stock continues to be in a long-term bear market since the recovery in 2009 could help the stock retrace only half of the loss suffered in the previous down-move.

Key long-term resistance is at Rs 276 and the long-term view will turn positive only on a strong weekly close above this level. The stock is currently moving in a downward trajectory but investors can take heart from the fact that it is halting at the key medium-term support around Rs 120. This is a strong support since it occurs at 61.8 per cent retracement of the rally from March 2009 lows.

Investors can, therefore, hold the stock as long as it holds above Rs 110 (to allow for a sudden short-term blip).

Rebound from these levels can cause a rally to Rs 170 or Rs 200 where investors with lower investment horizon can divest their holding. Long-term resistances will be at Rs 230 and Rs 276.

I am holding shares of Deccan Chronicle. What is the outlook for this stock?

Suresh Kumar Yadav

Deccan Chronicle Holdings (Rs 72.7): Deccan Chronicle has key long-term resistance at Rs 180 and the stock made two attempts to move above this resistance between December 2009 and March 2010 before reversing lower. The viciousness of this correction means that the long-term trend continues to be under a cloud. That the stock has breached the key support at Rs 84 also spells trouble.

The stock has feeble support at Rs 55 and then at Rs 37. But as long as it trades below Rs 84, the possibility of decline to the March 2009 low of Rs 26 remains open. Immediate resistances are at Rs 104 and Rs 132.

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