We recommend a buy in the stock of Ranbaxy Laboratories from a short-term perspective. It is apparent from the charts of the stock that after encountering key resistance at Rs 475 in mid-May this year, the stock resumed its intermediate-term downtrend. Subsequently, the stock declined sharply breaching important support at Rs 410. Nevertheless, its significant long-term support band between Rs 300 and Rs 310 provided base previous week. Triggered by positive divergence in the daily relative strength index, the stock changed trend.

On Tuesday, it jumped 6.5 per cent accompanied by extraordinary volume, witnessing buying interest, breaching its short-term downtrend-line. The daily rate of change indicator has entered the neutral region from the bearish zone and weekly RSI is recovering from the oversold levels.

Considering that the stock is reversing higher from a significant support band backed with positive divergence in daily RSI, we take a contrarian stance on it from a short-term horizon. We anticipate its up move to continue and reach our price target of Rs 359 or Rs 367 in the ensuing trading sessions. Traders with short-term perspective can consider buying the stock with stop-loss at Rs 338 levels.

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

(This article was published on July 2, 2013)
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