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We recommend a buy in the stock of Dhanlaxmi Bank from a short-term perspective. It is seen from the charts of the stock that after encountering resistance at Rs 210 in late October 2010, it changed direction. Since then the stock has been on a medium-term downtrend. However, the stock appears to have hit the bottom (52- week low) in the beginning of this week. There is a strong long-term support for the stock between Rs 95 and Rs 100. Triggered by positive divergence displayed in the daily and weekly relative strength indices and in the daily moving average convergence divergence indicator, the stock reversed direction.
On February 3, it jumped almost 8 per cent accompanied with above average volume. Moreover, daily price rate of change indicator also displays positive divergence backing the stock's recent trend reversal. The daily RSI has entered in to the neutral region from the bearish zone and weekly RSI is recovering from the oversold region. Daily MACD has also signalled a buy.
We take a contrarian stance on the stock from a short-term perspective. We expect the stock to move higher until it hits our price target of Rs 110 or Rs 114 in the approaching trading session. Short-term traders can consider buying the stock with stop-loss at Rs 103.
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