Query Corner :BL

January 7, 2012:  

I am in possession of Satyam Computer bought at Rs 71 . What is the outlook for this stock? Should I continue to hold this?

T.V.K. Sankaran

Satyam Computer (Rs 67.5): When we consider the long-term chart of Satyam, it is appropriate to ignore the March 2008 peak of Rs 544, and instead restrict our analysis to the period after January 2009, when the scam was revealed.

The stock has key medium-term support at 54 and it is attempting to hold above it since November 2010. Investors can hold the stock as long as this support holds. Breach of this level can see the stock heading lower to Rs 34 or even the January 2009 low of Rs 11.

Medium-term resistance will be at Rs 101 and Rs 128. Long-term view will turn positive only on a close above Rs 128.

Subsequent target is Rs 189.

Please give me your views on Gitanjali Gems and Praj Industries.

Chandrashekhar R

Gitanjali Gems (Rs 308.6): Gitanjali Gems is struggling with the resistance zone between Rs 390 and Rs 400. It recorded a sharp reversal from here in November 2010 and again recently in October 2011.

This level needs to be surpassed before the stock moves to its all-time high of Rs 480. The medium-term downtrend that is in place since the October peak has supports at Rs 300 and Rs 245.

If the stock stabilises above the first support, it can move on to Rs 442 or Rs 531 over the long-term. Stop-loss for investors can be at Rs 246. Next long-term support is between Rs 150 and Rs 170.

Praj Industries (Rs 77.8): Praj Industries suffered a deep loss of over 80 per cent in the 2008 decline, and the recovery in 2009 could not help the stock retrace even one third of this decline.

The stock is moving sideways with a downward bias since the June 2009 peak of Rs 122. It spent the entire 2011 moving between Rs 62 and Rs 96.

Investors can hold the stock with stop at Rs 60. Slide below this level can result in the stock re-testing the March 2009 trough at Rs 45. Resistances for the medium-term will be at Rs 100 and Rs 125.

The zone between Rs 125 and Rs 130 is a key long-term resistance and investors can divest their holdings if the stock fails to cross this hurdle.

Long-term targets if the stock moves above Rs 130 are Rs 160 and Rs 186.

Please explain how put call ratio is calculated and why it should be less than unity in a bullish market.

A.K. Nawabjan

Put-call ratio: Put call ratio is calculated by dividing the volume of put options by the volume of call options. It is a sentiment indicator. In periods of panic, many traders turn bearish and hence buy put options.

The reverse is true in bullish phases. It is generally seen that investors are more optimistic in bull markets and number of call options is greater than the put options. This makes the put call ratio less than unity in bullish phases.

This ratio is also used as a contrarian indicator wherein the interpretation is contrarian to the reading. For instance, a high put call ratio is a bullish indicator since more traders turn bearish near market troughs.

Similarly a low put call ratio is bearish, since a greater number of traders turn bullish at market peaks.

The chief concern with this indicator is that it does not recognise that put and call options require writers of these options who have a contrary opinion to the buyers of these options.

I would like to know the short- and medium-term outlook for Hindalco and Suzlon.

Nilesh Dave

Hindalco (Rs 117.9): Hindalco is moving lower since the peak at Rs 252 recorded in July 2011. This downtrend has not reversed yet and both the short- as well as the medium-term trend in the stock are currently down.

That said, the stock is halting at key medium-term support zone between Rs 100 and Rs 120. Investors can continue to hold the stock with stop at Rs 100. Next long-term support is Rs 68.

Rebound from this level will take the stock higher to Rs 165 or Rs 200 in the upcoming months. Investors with short- to medium-term horizon can exit the stock on reversal from either of these hurdles.

Medium-term view will turn positive only on a close above Rs 200. Next target is Rs 250.

Suzlon Energy (Rs 18.4): There appears to be no end to the downward spiral in Suzlon Energy. The stock is incessantly trudging lower recording lower peaks and troughs. It is currently trading near its life-time low.

Previous long-term support at Rs 33, that is, the trough recorded in March 2009, will now turn into a resistance. Risk-averse investors can divest their holdings at this level and re-enter on a strong weekly close above Rs 33.

Subsequent targets for the months ahead would be Rs 58 and Rs 66. Medium-term view will stay negative as long as the stock trades below Rs 66. Key long-term resistance zone is between Rs 150 and Rs 190.

Please let me know your view on Ador Fontech.

Manoj

Ador Fontech (Rs 89.2): The structural uptrend that commenced in 2009 continues to be in force in Ador Fontech. The correction from its June 2011 peak has retraced only half the gains made in the previous rally.

The stock has supports at Rs 82 and Rs 65 and the second support can act as the stop-loss for investors.

Resistance for the months ahead would be at Rs 110 and Rs 125. Failure to move above the second resistance will imply that the stock can oscillate in the band between Rs 80 and Rs 125 for rest of the year. Area around Rs 150 will continue to be a long-term obstacle.

I would like to buy Shalimar Paints. Please discuss the stock's medium- and long term technicals.

Rajesh Reddy

Shalimar Paints (Rs 315): The medium- as well as long-term trend in the stock is currently down. It is attempting to hold above the support at Rs 300 since last week, but the recovery lacks conviction.

The stock has long-term support in the band between Rs 270 and Rs 330. Investors can buy the stock in this band with stop-loss at Rs 270. Next long-term support is at Rs 220. Resistances for the medium-term are at Rs 490 and Rs 600. Long-term view will turn positive only if the stock goes on to close above Rs 600.

I bought Century Textiles from a long-term perspective. Please let me know if I can continue to hold on to this stock.

Prabhakar

Century Textiles (Rs 222.7): This stock has long-term resistance in the zone between Rs 550 and Rs 600. It formed a double-top in this band and then reversed lower in September 2010. The stock has also penetrated its medium-term trend deciding level at Rs 300. Next long-term support is at Rs 146 and Rs 113.

Investors with low risk appetite can exit the stock at this point and re-enter once it closes above Rs 350. Subsequent targets are Rs 450 and Rs 600. It is hard to envisage a move above Rs 600 just yet.