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We recommend a sell in the stock of Essar oil at the current market price of Rs 12.90 from a short-term perspective. It is seen from the charts of the stock that since June 2009 peak of Rs 194, it has been on a long-term downtrend. Moreover, medium and short-term trends are also down for the stock. Last week, the stock encountered resistance between Rs 140 and Rs 143 range and once again started to decline.
On January 7, the stock tumbled 4 per cent penetrating its moving average compression (21, 50 and 200-day moving averages positioned around Rs 134), strengthening the downtrend. Further, the stock slumped 4 per cent with above average volumes on Monday. With this the daily moving average convergence divergence oscillator has generated a sell signal and is on the brink of re-entering in to negative territory implying downward momentum.
The daily relative strength index has entered in the bearish zone from the neutral region and weekly RSI is slipping towards this zone . We are bearish on the stock from a short-term perspective. We expect its ongoing decline to prolong until it reaches our price target of Rs 122 or Rs 118 in the approaching trading sessions. Short-term traders can consider selling the stock with stop-loss at Rs 130.
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