Investors with medium-term perspective can consider buying the stock of Patel Engineering (Rs 119). After recording a multi-year low at Rs 73 on 20 December 2011, the stock bottomed out. This reversal was triggered by positive divergence in weekly relative strength index and moving average convergence divergence indicator. Since then the stock has been on a medium-term uptrend. Encountering resistance at Rs 120 in mid-February 2012, the stock started to consolidate sideways with positive bias. In the second week of April, the stock breached its moving average compressions (21, 50 and 200-day moving averages) and is testing the resistance at Rs 120. The weekly RSI is on the brink of entering into the bullish zone from the neutral region. The weekly MACD is moving higher in line with the stock price and is also likely to enter the positive terrain implying upward momentum. The daily as well as weekly price rate of change indicators are hovering in the positive area.
We are bullish on the stock from a medium-term perspective. We expect the stock to break through its current resistance and rally to Rs 142 in the medium-term. However, we do not rule out a minor pause around Rs 130 while trending higher. Investors with medium-term perspective can consider buying the stock with deeper stop-loss at Rs 105.
Follow up – J.B.Chemicals & Pharmaceuticals (Rs 68.7)
After moving higher to an intra-week high of Rs 76, the stock started to decline. It fell 1.8 per cent last week. Nevertheless, we are bullish on the stock from a medium-term perspective. We reiterate our buy recommendation with price target and stop-loss mentioned last week.
(This recommendation is based on technical analysis. There is a risk of loss in trading.)