Query Corner: ITC poised at fresh life-time high

Please throw some light on Shipping Corporation of India and ITC for one-year horizon.

Vivek and JP

Shipping Corporation of India (Rs 110.8): In our review of this stock in January we had emphasised that the structural trend was up in Shipping Corporation of India. We had also indicated that the zone between Rs 200 to Rs 220 could be hard to surpass. We had then given the downward targets at Rs 95 and Rs 70.

The stock recorded the trough of Rs 98 in February and is currently attempting to move higher. Medium-term resistances are at Rs 138 and Rs 162. Investors with short- to medium-term horizon should exit on failure to move beyond the first resistance. The stock will then move lower to Rs 90 or even lower in the upcoming months.

Long-term view will turn positive only on a move beyond Rs 162 with the next target at the long-term resistance zone mentioned above.

ITC (Rs 191.9): The long-term uptrend from October 2008 ended at the peak of Rs 184 in October last year. But the correction that followed resulted in the stock retracing 30 per cent of its prior up-move, and the long-term uptrend appears to have resumed from the February low of Rs 150.

The stock is currently poised at a new life-time high. Corrections over the medium-term could halt at either Rs 178 or Rs 168. Investors with medium-term horizon can hold the stock with stop at Rs 165. Long-term investors can hold with deeper stop at Rs 145.

If ITC halts the correction above Rs 165, it can move on to Rs 220 over the upcoming months. However, weekly close below Rs 145 will mar the long-term view, paving the way for a decline to Rs 135 or Rs 122.

What is the immediate prospect of Rural Electrification Corporation (REC) and IDBI under technical lens?

Krupa

REC (Rs 238.7): In our review of REC in February this year, we had given the medium-term trend deciding level at Rs 190. The stock bottomed at Rs 216 in March, and it is currently trying to hold above this level. Key short-term resistance is at Rs 292. Failure to move above this level in the ensuing weeks can result in the stock declining to Rs 205 or Rs 190 over the medium-term.

Short-term view will turn positive only on a rally above Rs 292 paving the way for a subsequent up-move to Rs 314 or Rs 336.

Long-term view will turn positive on a close above Rs 336, which will in turn confirm that the stock is headed towards its previous life-time high of Rs 409.

IDBI Bank (Rs 143.5): When we had looked at the prospects of this stock in November last year, we had written that the entire up-move from March 2009 to November 2010 could be correcting, and that minimum downward targets for the move were Rs 153 and Rs 140. The stock declined slightly below these targets to bottom at Rs 123 in February.

Key medium-term supports based on Fibonacci retracement levels are at Rs 118 and Rs 100. The current nascent uptrend will face resistance at Rs 155 and Rs 173. Failure to move beyond the first resistance will imply a propensity to decline over the upcoming months. Conversely, move above Rs 173 can take the stock to Rs 225 in the medium-term.

At what levels should I buy Asian Hotels?

Geetika

Asian Hotels (Rs 223): This stock formed a long-term trough at Rs 191 in March 2009. After a heady rally to Rs 700 by April 2010, Asian Hotels is once more testing this support. Investors can buy the stock at current levels with stop at Rs 180.

There is strong support in the band between Rs 190 and Rs 200. But it needs to be borne in mind that penetration of this support band can cause a sharp decline in price to Rs 150 or even Rs 95.

Medium-term targets for the stock are at Rs 354 and Rs 445. Investors can divest their holding on a failure to cross the first resistance.

Please discuss the technical outlook of Allied Digital Services.

Jatin shah 

Allied Digital Services (Rs 90.9): The carnage in stock markets in 2008 dragged Allied Digital Services to the low of Rs 73 by March 2009. The subsequent recovery could not take the stock past the resistance at Rs 260 and the stock is once more testing its long-term support around Rs 70. Investors holding the stock can continue to do so with the stop-loss at Rs 65. It is hard to state where the rot will be stemmed once the stock begins sliding below Rs 70.

The stock will face resistances at Rs 150 and Rs 196 in the months ahead. Investors with short- to medium-term perspective can divest their holdings on a sharp reversal from either of these levels.

Please explain the long-term prospects of City Union Bank.

Rohit

City Union Bank (Rs 43.7): Long-term trend in City Union Bank is up since March 2009. That the stock was able to surpass its January 2008 peak of Rs 43 in this run also bodes well for the stock. It is however in a medium-term correction since last December. This down-move will get support at Rs 36, Rs 31 and Rs 26.

The stock is currently halting above the first support. If it continues to hold above this level, it can move higher to Rs 62 or Rs 80 over the next couple of years.

Sideways movement in a broad range between Rs 36 and Rs 54 is, however, possible for a few more months before the stock breaks above the resistance zone around Rs 54.

In the technical analysis, it is said that when a scrip is moving up, it makes higher top and higher bottom. In this regard, please tell me how to conclude that that scrip has made a bottom.

Ghanshyam

The opposite is true when the stock is trending lower. It makes lower peaks and lower bottoms. When the sequence of lower peaks and lower troughs reverses and the stock starts recording higher peaks and higher troughs, it can be concluded that the stock has bottomed.

One way of ensuring this is with the aid of trendline. In a down-move, trendline is drawn by connecting the peaks.

When the stock price closes strongly above the downward sloping line, a bottom can be ensured. Similar break-outs above short-term moving average lines are also useful in this regard.

I have bought Edserv Softsystems at Rs 152. Please advise on its future prospects.

K.S.Suryanarayanan

Edserv Softsystems (Rs 148.9): Edserv Softsystems is advised only for investors with high risk appetite. The stock moved up from one circuit to another between July and October 2009, racing from Rs 34 to Rs 257 in this period.

The stock is, however, in a protracted corrective phase since January last year. Key support for this correction is at Rs 130. The stock bounced off this support in February and again in March.

Decline below this level can drag the stock all the way down to Rs 50. Medium-term resistances are at Rs 182 and Rs 230.

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