We recommend a sell in the stock of Muthoot Finance from a short-term perspective. It is apparent from the charts of the stock that it has been on a medium-term downtrend since encountering resistance in the band between Rs 185 and Rs 200 in early February. However, following a near-term corrective up move from Rs 118, the stock met key long-term resistance around Rs 150 in late June this year and resumed its downtrend. This reversal is helped by negative divergence in daily relative strength index.

Further, the stock tumbled 5.6 per cent with good volume forming a bearish engulfing candlestick pattern on Tuesday. It is a downward reversal pattern which has short-term implication. Both daily and weekly RSI are declining in the neutral region towards the bearish zone. The daily moving average convergence divergence indicator has signalled asell. The daily price rate of change indicators are hovering in the negative terrain implying selling interest. Our short-term outlook on the stock is bearish. We expect its downtrend to prolong and touch our price target of Rs 127.5 or Rs 123.5 in the forthcoming trading sessions. Traders with short-term perspective can consider selling the stock with stop-loss at Rs 136.

(This article was published on July 17, 2012)
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