Your stock portfolio: HDFC in a medium-term downtrend

Here are answers to readers’ queries on the performance of their stock holdings.

I want to buy shares of Housing Development Finance Corporation (HDFC). Can I enter at these levels? What are the support levels for the near term.

Muthiah Kannappan

Sudhin Bathija

Housing Development Finance Corporation (₹1060.7): Following a strong rally in the year 2014 and early 2015, the stock of HDFC registered a new high at ₹1,399 in early March 2015. However, it changed direction and has been on an intermediate-term downtrend since then. The stock has formed a key resistance in the band between ₹1,370 and ₹1,400 which limited its rally in July 2015. Both medium as well as short-term trends are down. The week before, the stock plunged 8.5 per cent breaking a key support at ₹1,150.

Last week, the stock extended its downtrend by declining 2 per cent. However, the stock has significant support in the band between ₹1,000 and ₹1,020.

A 50 per cent Fibonacci retracement level of the prior uptrend coincides with this support band. Investors with a long-term perspective can consider buying in declines while maintaining a stop-loss at ₹970.

An upward reversal from this support zone can take the stock northwards to ₹1,150 in the medium term.

An emphatic breakthrough of ₹1,150 can push the stock higher to ₹1,250 and ₹1,350 in the medium to long term. Having said that, if the stock fails to hold above the key support and plunges below ₹1,000, it can move lower to ₹900 in the medium term.

I purchased shares of Rural Electrification Corporation (REC) at ₹314. What are the prospects over the long run?

Vijaydev

Rural Electrification Corporation (₹159.1): The stock of REC has been on a long-term downtrend since encountering a key resistance at ₹380 in July 2014. It has breached various key supports while trending down. Medium and short-term trends are down.

The stock trades well below its 50 and 200-day moving averages. However, it is just poised above a significant long-term support in the band between ₹140 and ₹150 from which it has reversed direction historically.

There is an increase in daily volume over the past two weeks. Further, the indicators in the daily chart show signs of positive divergence which implies the downtrend is coming to a halt and trend reversal is possible. You can consider averaging the stock at current support zone and hold with a stop-loss at ₹125.

An upward reversal can take the stock higher to ₹180 and then to ₹200. Strong breakthrough of ₹200 can accelerate the stock upwards to ₹225 and ₹250 in the medium to long term.

Can I buy Pfizer for a long-term investment of five years?

Brij Mohan Lal

Pfizer (₹1,975.2): The stock's uptrend that commenced in late 2013 at around ₹800 has come to an end, recording a new high at ₹2,724 in September 2015. Since then, the stock has been on an intermediate-term downtrend.

The medium as well as short-term trends are also down. The stock plummeted 11 per cent breaking a key support at ₹2,175 in the week before.

Moreover, the stock decisively breached its 200-day moving average and trades way below it.

Nevertheless, the stock tests and trades just above a key long-term support at ₹1,950.

It can pause for a while before resuming its downtrend.

With the broader market under pressure, a conclusive breakthrough of this base can drag the stock down to ₹1,800 or ₹1,700 in the medium term.

Next crucial support is at ₹1,500.

The long-term uptrend will remain will be in place as long as the stock trade above the base zone of ₹1,700 and ₹1,740. Significant resistances above ₹2,200 are at ₹2,400 and ₹2,600.

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