Trim holdings in Dr.Reddy's

B.Krishnakumar

The buoyancy witnessed at the stock market on Monday tended to fade off as the week progressed.

During the week, the Sensex tended to close somewhere near the day's low, erasing a major part of the gain recorded earlier in the day.

As observed last week, the move past the 3100 mark imparted upward momentum to the Sensex. The move up from the low of 2594 has been fairly impressive. The entire rally since this low has been in five legs in Elliott Wave parlance.

Going by the price formation in the bigger time frame charts, there is still no reason to believe that a bear market low has been established at 2594. The Sensex touching a new low below 2594 continues to be the preferred view as of now.

In the near term, a move past 3327 would impart positive trend while a decline below 3205 would lead to a further decline in the Sensex. As of now, it would be safer for investors having exposure to index stocks to book profit on price upmoves.

The focus this week is on Dr.Reddy's Laboratories. The outlook for the stock has turned weak consequent to the break of the upsloping trend line. Though the scrip could rule firm in the near term, it is unlikely to move past the resistance level at Rs.1019.

Going by the recent price action, the share price of Dr.Reddy's is likely to ebb below Rs.865 in the next few weeks. Existing holders could remain invested while short positions may be contemplated on evidence of resistance at around the Rs.1000-1020 range.

Recommendation follow-up

The price movement in cement majors ACC and Larsen & Toubro (L&T) was in line with last week's expectations. In the case of L&T, the share price of the company opened with a huge upside gap on Monday. After touching a high of Rs.224.75, the scrip remained largely range bound.

Though the share price of L&T declined below the support level of Rs.200 (mentioned last week), the outlook for the company continues to remain positive. As of now, only a move below Rs.185 would impart negative sentiment. A move past Rs.216 would impart short term uptrend while a decline below Rs.195 could push L&T to Rs.186-190 range.

Existing holders could remain invested as the scrip still has the potential to touch the Rs.235-240 range. Fresh buying may be contemplated if the share price moves above Rs.225. Alternatively, an evidence of support in the Rs.186-190 range could also be used to take fresh exposures in L&T.

In the case of ACC, the share price of the company ruled firm in line with expectations. The scrip managed to move towards the projected target price of Rs.170. After touching a high of Rs.168.2, it turned weak on Thursday. On Friday, the price action has resulted in the formation of a long black candle which is a bearish signal.

Going by the recent price action, the near term upside potential for ACC appears rather limited. Existing holders could look for opportunities to reduce exposures in the company. Fresh buying may be avoided for the time being.

(Note: Recommendations in this column is based entirely on Technical Analysis using Elliott Wave and Point & Figure theory of the past price behaviour of the scrip concerned. There is a risk of loss in trading.)