The Hindu Business Line : Tech Tools

You had recommended KEI Industries at around Rs 360 and I had bought 100 shares. You had given one-year target of Rs 520. Post-split the target comes to Rs 104. It is now at Rs 95. Is it worth holding for the rest of the year to gain 10 per cent? S. P. Srinivas

Time and price are two factors that pre-occupy technical analysts. Projecting the price target is easier than projecting the time that a stock will take to reach a certain price.

Price targets are also more easily achieved when compared with time-based targets. Time targets can go wrong more often in small cap stocks with less volumes as it takes just a little bit of buying power to move such stocks.

We have written in this column before that price takes precedence over time. If we anticipate that a certain price will be achieved by a stock in one year's time and the projected price is achieved in one week, it is time to book profit or at least to move your stop loss higher.

If one waits for the time target also to be achieved, then he could be staring at a negative return.

This applies for short-term investors and traders concerned about short-term capital gains tax would, of course, be bound to wait for a year unmindful of the gyrations in the stock market subsequent to purchase.

Another factor that we wish to stress here with respect to our chart focus calls is that every time an investor or a trader initiates a buy or sell based on our recommendation he should have a fixed target return in mind. This can be 10 per cent, 20 per cent or 30 per cent.

This would be in addition to the targets given in the column. Once your target return has been attained, move the stop loss to your target return so that the profits are protected.

KEI Industries (Rs 117.1)

As you have rightly pointed out, KEI Industries has attained its target of Rs 104 in two months' time. Some profit booking can be expected around this level as the previous all time high in April 2006 was made at Rs 105.

If you are satisfied with the return, you should book profit and exit.

But the chart is showing no sign of fatigue as yet. A close above Rs 110 can take the price towards Rs 150. Re-enter the stock once it closes firmly above Rs 110.

Alternatively, you can hold the stock with a trailing stop of 15 per cent from its recent peak. This will ensure that you do not exit the stock too soon.

Is it true that chart patterns such as head and shoulders, double top/bottom can be identified and interpreted only on bar charts and not on line charts? T. Sutha

The chart patterns such as head and shoulder, double bottom, double top etc. can be identified and analysed with both line charts as well as bar charts.

But line charts are drawn using only the closing price of a stock, whereas bar charts represent the day's opening, high, low and closing price.

So, the price projections and support, and resistance identification would be more precise while employing bar charts.

Lokeshwarri S. K.

More Stories on : Technical Analysis | Stock Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page