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Investors with medium-term perspective can consider selling the stock of Escorts (Rs 88). After marking a multi-year peak at Rs 245 in November 2010, the stock changed its direction triggered by the negative divergence in the weekly indicators. Since then, the stock has been on an intermediate-term downtrend forming lower peaks and lower troughs. Further, in April 2011 the stock encountered resistance at around Rs 150 and resumed its intermediate-term downtrend.
It has been on a medium-term downtrend since then and its short-term trend is also down. Last week, the stock tumbled more than 10 per cent, emphatically breaking through its long-term support band between Rs 100 and Rs 110. This break through has reinforced the stock's downtrend. It is trading well below its 21- and 50-day moving averages.
The daily relative strength index which determines the speed and alteration of price movements is featuring in the bearish zone and weekly RSI is also hovering in the bearish zone. Daily moving average convergence divergence indicator has signalled a sell and is declining in the negative territory which is in line with the stock price.
Weekly MACD is also featuring in the negative territory indicating downward momentum. Both daily and weekly price rate of change indicators are featuring in the negative territory implying selling interest. The stock's medium-term downtrend line is in tact.
We are bearish on Escorts from a medium-term perspective. We believe that the stock has the potential of trending downwards and reach our price target of Rs 70 in the medium-term, following a minor pause around Rs 79. Medium-term perspective investors can consider selling the stock with stop-loss at Rs 99 levels.
Follow up – ABG Shipyard (Rs 384.9)
The stock was volatile and declined Rs 3.5 or 0.9 per cent last week. However, we are bullish on the stock from a medium-term perspective and reiterate our buy recommendation in the stock while retaining the price target and stop-loss mentioned last week.
(This recommendation is based on technical analysis. There is a risk of loss in trading.)
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