We recommend a buy in the stock of Patel Engineering from a short-term perspective. It is apparent from the charts of the stock that after encountering resistance around Rs 124 in April 2012, the stock started to decline. Since then, the stock has been on a medium-term downtrend. However, registering a multi-year low at Rs 62 on September 13, the stock reversed direction. This reversal has been backed by positive divergence in daily indicators and oscillators.

Strengthening the near-term bullish momentum, on Tuesday, the stock jumped 6.7 per cent breaching its 21-day moving average. We observe that there is an increase in daily volume in the past five trading sessions. After displaying positive divergence, the daily relative strength index is moving higher in the neutral region towards the bullish zone. The weekly RSI is on the brink of entering neutral region from the bearish zone. The price rate of change indicator is featuring in the positive territory implying buying interest.

We take a contrarian stance on the stock from a short-term perspective. We expect its up move to prolong and reach our price target of Rs 76 or Rs 77.5 in the approaching trading sessions. Traders with short-term perspective can consider buying the stock with stop-loss at Rs 71.30 levels.

(This article was published on September 19, 2012)
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