The Hindu Business Line : Query corner

Three weeks ago, you had written in your column that according to Elliott Wave theory, Wave 5 may unfold in the Sensex. Since the last two weeks you are writing that a first wave of a new bull run has begun. Kindly let me know whether we are in the first wave or fifth wave. — Naveen Prakash

As we have highlighted earlier, the Elliott Wave theory is always discretionary in nature. There is bound to be instances when more than one equally probable possibilities or views may exist from Elliott Wave perspective. Only during course of time would certain set of possibilities get eliminated and there would emerge some clarity about the most probable outcome.

Now, getting back to your question, there is no inconsistency in our stance over the recent weeks.

If the Sensex has indeed commenced the fifth wave from the recent low, as anticipated by us earlier, this move would again get subdivided into five individual segments. This in essence is the "fractal" nature of market behaviour. So, when we mention that a fresh leg of an upward move has commenced, it would be the first leg of the Wave 5 that we have been referring to.

Again, the views expressed are based on the price action that has unfolded till date.

We may be forced to revise our view if the future price action warrants us to do so.

Readers can, however, be rest assured that we would keep them posted on such changes in the view.

Last week you had recommended buying Bongaigaon Refineries. But this will be perhaps based on technical analysis. Do you take into consideration other developments (such as a possible merger with the parent company, in this case) while giving your views or suggestions? — Srivatsan

The views featured in this page are based entirely on the study of historical price action using Elliott Wave and Point and Figure Charts. We also use a few other techniques, which are again confined to the price action.

We do not take into account the impact of extraneous events or developments.

The basic premise behind using technical analysis is that the price action should capture the impact of all possible events that affect a company's performance.

ence, we believe that by studying price patterns, there is a fair chance that the impact of all factors affecting the company's fundamentals would get captured automatically. Obviously, there would be instances where the analysis might go awry.

The "Technical Analysis" theory should not be blamed in such instances; it is the analyst concerned who would be invariably at fault. Besides, the concept of stop-loss is devised only to insure against such mishaps.

What is the outlook for Gujarat NRE Coke purchased at Rs 140? Please advise whether to sell or hold. — Harikrishnan

Gujarat NRE Coke (Rs 111.2): The share price has been in a corrective phase since September. The stock is ruling close to its support level at Rs 97. A close below Rs 96 would push the stock to the Rs 75-80 band.

Taking into account the recent price action, it appears that the stock is likely to hold ground and move to the next resistance level at the Rs 128-130 range.

A close above Rs 113 would validate the possibility of a move to this resistance area. Remain invested with a stop-loss at Rs 96.

I would like to know the prospects for MRO-TEK bought at Rs 84. Is it advisable to buy Adani Exports at prevailing levels? — Vinod

MRO-TEK (Rs 87): The outlook is positive and a move to Rs 98-100 appears likely. Hold with a stop-loss at Rs 75. Fresh exposures may also be considered with a stop-loss at Rs 75. The positive view would be negated on a close below Rs 75.

A close below Rs 62 would push the stock into a bear orbit.

Adani Exports (Rs 63): Elliott Wave Theory has worked like a charm in this stock. The stock completed a major high at Rs 127, way back in 1999.

It had since completed a correction, which took the shape of a "zig-zag" pattern in Elliott Wave parlance.

This correction was completed at Rs 12. The stock appears to have commenced a fresh leg of "impulsive" move. The first segment of this move has been completed at Rs 85.45 a couple of months ago.

The subsequent correction could be the second segment and the stock could move into the explosive Wave 3. If this view is valid, a move to a conservative target of Rs 135-140 appears likely.

The positive view would be negated on a close below Rs 55. Investors may buy at prevailing levels and on declines, with a stop-loss at Rs 55.

At what levels would it be advisable to buy Union Bank of India? — Ekamber

Union Bank (Rs 117): Long positions may be considered at prevailing levels provided you are comfortable with a return of about 25-30 per cent in a six-month time frame. The stock is likely to move to the Rs 135-140 range shortly. This view would be valid as long as the price holds above Rs 105. Investors who consider the stop to be too wide may wait for declines to pick up the stock. Short-term traders looking for an 8-10 per cent move may settle for a stop-loss at Rs 110.

Shall I hold or sell Orchid Chemicals bought at Rs 235 and MRF at Rs 3,000? — N. Manikandan

Orchid Chemicals (Rs 225): The short-term outlook is positive and a move to the Rs 255-260 range appears likely.

Hold with a stop-loss at Rs 205. Fresh exposures may also be considered by short-term traders, with a stop-loss at Rs 205.

A close below the stop-loss level would blunt the positive outlook, while a close below Rs 180 would result in prolonged weakness.

MRF (Rs 2,887): This chart is another delight to watch for an Elliott Wave analyst.

The share price has commenced a fresh leg of an uptrend way back in 2002, at the low of Rs 400. The stock appears to be in the explosive Wave 3 in Elliott Wave parlance.

Though there is a possibility of a drop to Rs 2,200-2,250 range, such price weakness would be an opportunity to accumulate the stock, as the long-term trend is bullish. A move to the Rs 3,650-3,700 range appears likely.

The only uncertainty at the moment is whether the stock would move to this target zone straight away or after dropping to the Rs 2,200-2,250 range.

A close below Rs 2,700 would indicate that the stock could seek lower levels before resuming the uptrend.

Until this level is breached, we would remain bullish and have a "buy" recommendation. Stop-loss for long positions may be placed at Rs 2,690.

What is the outlook for Malabar Building Products bought at Rs 175? — Vijay S. Panpalia

Malabar Building (Rs 138.1): There is possibility of the stock moving to the Rs 185-190 range. This, however, is subject to the share price holding above Rs 120. A close below Rs 120 would blunt the positive outlook.

Hold with a stop-loss at Rs 120. Fresh exposures may be considered on a close above Rs 147, with a stop-loss at Rs 130.

I am interested in buying IDFC with a holding period of about a year. Please suggest entry, stop-loss and target price for the stock. — Paresh Maru

IDFC (Rs 75): The stock got listed at the bourses recently. As a result, there is insufficient price data to arrive at long-term view.

From a short-term trading perspective, long positions may be taken at the Rs 70-72 range, with a stop-loss at Rs 65 and target price of Rs 88-90.

I am holding Reliance Industries purchased recently at Rs 790 and ING Vysya Bank at Rs 210. Please advise if I should hold or exit from these stocks. — Girish Jain

Reliance Industries: The outlook for the stock is covered regularly every week along with a few other key pivotals. You can refer to that section (featured elsewhere on this page) for the view on Reliance.

ING Vysya (Rs 166.4): There is a strong support at the Rs 152-155 range. A close below Rs 150 would have bearish implications.

There would be a chance of a rally to the Rs 195-200 band till such time Rs 150 is not breached. Hold with a stop-loss at Rs 150.

Kindly suggest a few useful Web sites to gain knowledge about technical analysis and indicators in Metastock and Advanced Get. — P. Shanmugarajan

There are several Web sites that provide basic explanation of indicators that are featured in popular charting software such as Metastock or Advanced Get. We would recommend Web sites such as www.stockcharts.com, www.chartfilter.com or www.investopedia.com.

There is also another interesting site www.chartpatterns.com, which is also worth visiting. This site deals about important chart patterns with real life examples as well. The "help" menu in Metastock software is also quite exhaustive in terms of explaining the basics of an indicator and how to interpret them.

We would like to advise investors to stick to a handful of indicators and get a complete understanding of them. There is no point running through the myriad indicators that the software throws up. Doing so would invariably lead to confusion and delay in executing investment decisions.

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.

(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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