We recommend a buy in the stock of Gujarat Narmada Valley Fertilizers Company (GNFC) from a short-term perspective. It is apparent from the charts of the stock that its long-term uptrend that started in March 2009 low of Rs 52 has ended after encountering resistance around Rs 145 in November 2010. Since then, the stock has been on a medium-term downtrend. The stock breached its key support at Rs 120 and 200-day moving average around this level in early January, and continued to decline.

However, the stock's decline appears to have come to an end recently as it found support at Rs 105 and bounced up almost 4 per cent on February 22. We notice that there is an increase in volumes over the last seven trading sessions. Moreover, the daily moving average convergence divergence indicator is displaying positive divergence signalling an impending trend reversal. Both daily and weekly relative strength indices have entered into the neutral region from the bearish zone.

Considering that the stock is reversing from significant long-term support, MACD is displaying positive divergence and the increase in daily volume we take a contrarian view on the stock from a short-term perspective. We expect it to move higher until it hits our price target of Rs 111 or Rs 114.5 in the forthcoming trading sessions. Traders with short-term perspective can consider buying the stock with stop-loss at Rs 105.

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