The Hindu Business Line : Query Corner

Manali Petro (Rs 24.2): As anticipated (edition dated October 9), the stock dropped to the support level of Rs 17-18 on the breach of the support level at Rs 21.

It has, since, staged a recovery and closed on a firm note

this week. Investors may hold with a stop-loss at Rs 21 as

the near-term outlook is positive.

A move to Rs 26-27 range appears likely. Fresh exposures may also be considered on weakness with a stop-loss at Rs 21.

Dabur (Rs 165.2): The stock is stuck in a range of Rs 158-178 in the past few weeks. A decisive trend would emerge only if the stock gets out of this range. Hold with a stop-loss at Rs 155. Investors may take long positions either on weakness (with a stop-loss at Rs 155) or on a break above Rs 180, with a close stop-loss in place.

A close above Rs 180 would help the stock move to the next resistance zone at the Rs 200-205 range. On the downside, on a close below Rs 155, a drop to Rs 135-140 range appears likely.

Kindly highlight the long-term outlook for Wipro and Satyam. — R. Sathiyanarayanan

Wipro (Rs 404.2): The outlook is bullish and a move to the Rs 475-480 range appears likely. Investors may hold with a stop-loss at Rs 350.

Fresh exposures may also be considered at prevailing levels as well as on declines, with a stop-loss at Rs 370. From a long-term perspective, there is a potential to move to the target range at the Rs 525-550 range.

Satyam (Rs 652): The stock is in a long-term uptrend. The outlook would be bullish if the stock manages to hold above Rs 540.

Long-term investors may remain invested with a stop-loss at Rs 600 for a portion of the holding and at Rs 540 for the balance. There is a fair chance that the share price could move to the Rs 850-900 range. The positive outlook would be under threat only a close below Rs 540.

Long positions may be considered at Rs 635-640 range, with a stop-loss at Rs 600.

Please advise whether to hold or sell Melstar information bought at Rs 29 and Ahmednagar Forgings Rs 515 (cum bonus). — B.F. Manoharan

Melstar Info (Rs 19.1): There is no reason to sell the stock at prevailing levels as the short-term outlook is positive. There would be opportunities to exit at Rs 24-25.

Hold with a stop-loss at Rs 17. Fresh exposures may be

considered by investors willing to take risk. Stop-loss for fresh long positions may also be placed at Rs 19. A trailing stop-loss may be employed in the event of a sustained upward move beyond Rs 25.

Ahmednagar Forgings (Rs 140): The stock has been on a corrective phase after hitting a high of Rs 187 in September. It is positive to notice that the stock has managed to hold ground at the crucial support level at the Rs 120-124 range. There is a possibility of rally to the Rs 165-170 range, as long as the stock holds above Rs 120. Remain invested with a stop-loss at Rs 120. Fresh buying may also be considered on declines, with a stop-loss at Rs 120. A close below Rs 120 would push the stock to the Rs 85-90 range.

Is it advisable to invest in Chambal Fertiliser and Southern Iron and Steel? — Uma Maheswara Rao, C.P. Kunhammed

Chambal Fertiliser (Rs 36): The short-term outlook is bullish and a move to the Rs 41-42 range appears likely.

Fresh exposures may be considered from a short-term trading perspective, with a stop-loss at Rs 32. Only a close above Rs 45 would indicate that the long-term trend has also turned bullish. Till such time, investors may refrain from taking long-term positions. Profit-booking may be considered on the evidence of resistance at around Rs 41-42.

Southern Iron and Steel (Rs 20): The stock enjoys strong support at Rs 17 and resistance at Rs 22. A breakout from this range is a prerequisite for the stock to get into a trending mode.

Those holding the stock may continue to do so, with a stop-loss at Rs 17. Fresh exposures may be considered on a close above Rs 22, with a stop-loss at Rs 19.

I purchased Star Paper at Rs 91. Kindly let me know the future prospects of the company from a one-year perspective. — Rajesh Khurana

Star Paper (Rs 79): The share price has dropped sharply after having moved to a high of Rs 124 in September. This fall could be classified as a correction to the earlier rally.

There is a possibility of the stock moving to the Rs 95-100 range. This, however, is subject to the stock holding above Rs 68. Stop-loss for long positions may be placed at Rs 68.

I purchased Mid-day Multimedia at Rs 113 and Usha Martin at Rs 211. Please advise whether to sell or hold these shares. — Prema Shanmugam, Paresh Maru, T.K.N.Chaudhury

Mid-day Multimedia (Rs 79): The stock has been in a

recovery phase after touching a low of Rs 65 a few weeks

ago. There are no signs to indicate that the recent recovery is the start of a fresh bullish move.

A close beyond the resistance level of Rs 82-83 would impart strength and a rally to the Rs 95-100 range may materialise subsequently.

Only a close above Rs 115 would confirm that the recent recovery is the start of a fresh uptrend, which could have bullish long-term implications. Till such time, it would be advisable to adopt a cautious approach.

Usha Martin (Rs 174): The short-term trend is positive and a move to the Rs 210-215 range appears likely. A close above Rs 186 would confirm the positive outlook. Fresh exposures may be considered with a stop-loss at Rs 155.

Exposures may be enhanced with a close stop-loss on a close above Rs 186. A close below Rs 152 would push the stock to the Rs 115-120 range.

Shall I hold or exit from Bongaigaon Refineries bought at Rs 100? — P.K. Chakravarthy

Bongaigaon Refineries (Rs 74): The short-term outlook is positive and a move to the Rs 88-90 range appears likely.

Remain invested with a stop-loss at Rs 65. Fresh exposures may also be considered on weakness, with a stop-loss at Rs 65.

A close above Rs 78 would confirm not only the short-term positive outlook but also the possibility of a rally to the Rs 88-90 range.

I am an investor intending to hold onto the stock for about two or three years. Should I still be worried about having a stop-loss? To word it differently, is stop-loss necessary even if a stock is in a long-term uptrend? In such cases, isn't there a chance of the continuation of the rally at a later date even if once the stop-loss is triggered? — Pramoth

This is an interesting question that you have asked. No matter in what timeframe you are interested in, having a

stop-loss would be imperative. Even if a stock is in a long-term uptrend, there would be a stretch of time when it would get into a corrective mode, before the uptrend resumes. One cannot be too sure as to when the corrective phase would get over and at what level the stock would seek support.

Though a rough estimate of the likely support range may be arrived at, there is no guarantee that the stock's slide would halt at the expected support zone. Given this backdrop, it would always be a safe option to have a stop-loss for all positions.

Investors can always take fresh exposures if a "buy" signal is triggered afresh, after the stop-loss is triggered. Looking at it from another perspective, if the stop-loss gets triggered and the stock gets into a prolonged corrective phase subsequently, there is no point holding on to the stock, as the money locked-in could be deployed elsewhere. You can enter the stock at a later date when there are indications that the correction is over.

Besides, when a stop-loss gets triggered, the stock concerned would invariably under-perform the broad market indices. Hence, it would always be advisable to have a stop-loss, whatever is the timeframe you may be interested in investing.

Investors need to realise that the key to successful investing lies in identifying the entry, exit and stop-loss levels. The success in stock market activity would be influenced to a major extent by stop-loss. An error in identifying a stop-loss level would result either in loss of capital or a loss of profit-making opportunity.

(Note: The analysis and opinion expressed in these columns are based on the technical analysis of the past price behaviour. Opinion and price targets are based on the Elliott Wave Analysis. The stop-loss level provided with the recommendation is important. The original view would stand negated if the stop-loss level is breached. There is a risk of loss in trading)

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