The stock of Indian Oil Corporation is pausing after a strong 12 per cent surge in the previous week. Traders with a short-term perspective can make use of the current pause to buy the stock. The movement over the last two days appears to be a flag pattern that has broken though the key resistance at Rs 216. Flag pattern is a continuation pattern. It implies that the stock will resume its prior uptrend following a pause.

Moreover, the stock has emphatically broken out of a sideways consolidation band between Rs 194 and Rs 216. It has also decisively breached its 21- and 50-day moving averages. The relative strength index on the daily chart is featuring in the bullish zone. Similarly, price rate of change and moving average convergence divergence indicators are now in the positive territory backing the stock’s short-term uptrend. Resumption of the uptrend can result in a break-out from the flag pattern and the stock can then accelerate to Rs 234 and then to Rs 239. Buy the stock with a stop-loss at Rs 220.

(Note: The recommendations are based on technical analysis. There is a risk of loss in trading.)

(This article was published on January 21, 2014)
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