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Investors with a medium-term perspective can consider buying the stock of Elgi Equipments (Rs 68.6).
The company is a manufacturer of air compressors and automobile service station equipment.
After bottoming out at around Rs 14 in the first quarter of 2009, the stock has been on a structural uptrend.
After marking an all-time high at Rs 106 in November 2010, the stock reversed downwards. Since then, the stock has been on an intermediate-term downtrend.
However, presence of key long-term support in the band between Rs 62 and Rs 65 cushioned the stock's decline recently.
Taking support from the band and triggered by positive divergence in daily relative strength index as well as daily price rate of change indicator, the stock started to move higher. It has advanced 5 per cent last week.
The 14-day RSI which determines the speed and alteration of price movements has entered into the neutral region from the bearish zone and weekly RSI is recovering from oversold area.
Daily moving average convergence divergence indicator has signalled a buy.
The daily price rate of change indicator is hovering in the positive territory indicating buying interest. After displaying a positive divergence the daily stochastic oscillator has recovered from the oversold territory and is inching higher in the neutral region.
Taking a contrarian stance on the stock we are bullish on it from a medium-term perspective.
We believe that Elgi Equipments has the potential of trending north and reaching our medium-term price target of Rs 80, with minor pause at around Rs 75. Investors with a medium-term perspective can consider buying the stock with stop-loss at Rs 62 levels.
Follow up – Kaveri Seed Company (Rs 443.5)
The stock gained Rs 22 or 5.3 per cent last week, which is in line with our expectation.
We reiterate our medium-term bullish outlook on the stock with 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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