Technical Analysis

Query Corner : Long-term trend bullish in Cummins India

Lokeshwarri S.K. | Updated on March 19, 2011 Published on March 19, 2011

I am a long-term investor. At which level can I enter Crompton Greaves and Cummins India? Also let me know the long-term targets for the above stocks.

T. Jayakumar, J.N. Phadke

Cummins India (Rs 649.7): Cummins India was also in a spectacular uptrend from the March 2009 trough of Rs 150 to Rs 800 last October. A mild decline is currently in motion that can pull it down to Rs 550. Investors can buy the stock in corrections with stop at Rs 540. The long-term view will stay bullish as long as the stock holds above this level. Consolidation between Rs 550 and Rs 800 will be conducive for the long-term outlook and will imply a propensity to move higher to Rs 1,000 or Rs 1,250 over the ensuing years.

Weekly close below Rs 550 will however spell trouble as it will mean that the stock can fall to Rs 480 or Rs 400 over the ensuing months. Long-term investors can hold the stock with stop at Rs 390.

Crompton Greaves (Rs 263.7): Crompton Greaves is in a serious correction since the December 2010 peak of Rs 349. This decline has resulted in the stock retracing more than one-third of the gains made since March 2009. The stock has immediate support in the band between Rs 220 and Rs 240. Investors can consider buying the stock at current levels with stop at Rs 215.

Sideways move in the trading band between Rs 220 and Rs 350 is possible for few more months before the stock attempts to break-out above Rs 350 to Rs 400 or Rs 506 over the long-term. Fresh purchases are however not recommended on a decline below Rs 215 since subsequent downward targets are Rs 206 and Rs 172. Investors who are in the stock for the long haul can hold as long as it trades above the second target.

I bought EID Parry for Rs 50. Please advise me whether I should hold this stock or sell.

R.M. Kumarappan

EID Parry (Rs 208.1): You have bought the stock far below the March 2009 trough of Rs 63. The structural trend in this stock is up since 2001 and the third leg of this uptrend is currently unfolding. The extent of current correction from the January peak will determine if the stock can break out to a new high over the next couple of years.

If the stock manages to hold above the support between Rs 180 and Rs 200 it can move in a wide band between Rs 180 and Rs 280 before moving higher to Rs 320 or Rs 400 over the next couple of years.

Medium-term investors can, therefore, hold the stock as long as it trades above Rs 180. Subsequent supports are at Rs 172 and Rs 146. Long-term investors can use the second support as stop-loss.



I have bought Alkali Metals at Rs 190 and Tata Communications at Rs 445. Please tell me whether I should hold these stocks or exit.

Girish B. Shah

Alkali Metals (Rs 46): This stock peaked at Rs 399 in June 2009 and has been sliding incessantly ever since. The corrective rallies are also lacking in strength and there are absolutely no signs of revival in this stock. It is also likely that Alkali Metals declines below its recent trough at Rs 46 in the upcoming weeks. It is best that investors switch out of this stock. Re-entry can be considered only on close above Rs 120.

Tata Communications (Rs 217.8): Tata Communications is one of the rare stocks that are trading far below their 2008 lows. This stock is in a prolonged downtrend since January 2008 and is currently trading 35 per cent below the trough made in October 2008.

The sequence of lower peaks and troughs since May 2009 indicates that the medium- and long-term outlook for the stock stays negative and it can decline to Rs 175 or Rs 130 in the months ahead.

Resistances for the medium-term are at Rs 300 and Rs 350. But since the near-term view for the stock is under cloud, investors can switch out at this point and consider re-entry on a close above Rs 350.



Please give me the long-term outlook for Karuturi Global and Supreme Industries. Can I accumulate at present level?

K. Ramachandran

Karuturi Global (Rs 13): Karuturi Global made a sudden dash higher to the high of Rs 38 in October 2010 but the speed with which it crashed in the next two months to Rs 15 implies that the rally was an unsustainable and speculation-driven one. In our review of this stock in July last year, we had written that medium- and long-term investors may hold this stock only as long as it trades above Rs 12.5. Next downward target was given at Rs 7.6. We retain this view.

Resistances for the medium-term would be at Rs 17, Rs 19.3 and Rs 23.7. However, we do not advise this stock for investors with lower risk-taking ability.

It needs to be noted that it comes to life at the fag end of every bull phase. Such stocks also tend to decline extremely fast leaving investors stranded.

Supreme Industries (Rs 142): The long-term uptrend from March 2009 low continues to be in force in Supreme Industries. The corrections since this trough have been very shallow and short-term in nature. However, the stock is in a protracted medium-term downtrend since last October. This downtrend is developing in a long-drawn correction in a narrow band instead of a deep and short-lived correction.

Key long-term support for the stock is at Rs 112 and the outlook will turn negative only on close below this level. Investors with greater risk-appetite can buy the stock at current levels with stop at Rs 125. Long-term target on a close above Rs 170 is Rs 230.

I am holding PowerGrid since its FPO. Please let me know its prospects.

Manish

PowerGrid Corporation (Rs 97.7): PowerGrid Corporation moved up to the peak of Rs 128 in June 2009 and it is moving in a sideways range ever since. That the stock was unable to move beyond the resistance at Rs 128 means that the long-term view stays negative. Strong close above this level is needed to make the stock move to its previous peak at Rs 167.

The sideways move in the range between Rs 95 and Rs 128 is positive from a long-term perspective and implies that the stock can attempt to move to a new peak over the long-term.

Medium-term supports are at Rs 90 and Rs 81. Investors can hold the stock with stop at Rs 80.

Can I buy IPCA Lab at current market price?

Akbar

IPCA Laboratories (Rs 288): This stock has medium-term support in the zone between Rs 250 and Rs 236 and it is currently attempting to reverse higher from this support zone. I

nvestors can buy the stock at current level with stop at Rs 230. If it holds above this zone over the ensuing months, it will mean that the stock can move to Rs 430 or Rs 450 over the long-term.

Fresh purchases are, however, not advised on a close below Rs 230 since subsequent supports are at Rs 200 and Rs 170.

(Readers can send in their queries, on not more than two companies, to >techtrail@thehindu.co.in Queries can also be sent by post to: Tech Trail, 859/860 Kasturi Buildings, Anna Salai, Chennai 600002. We would endeavour to answer as many queries as possible. However, constraints of space will limit the responses featured under this column.)

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