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We recommend a buy in the stock of Kalyani Steels from a short-term perspective. It is apparent from the charts of the stock that since peaking out in August 2010 around Rs 156, it has been trending downwards. While trending down, the stock formed a falling wedge pattern spanning between late November 2010 and late May. Generally falling wedge patterns are continuation patterns. However, in few cases, it also portrays a bottom formation. In this case it is a bottom reversal pattern.
The stock found support around Rs 72 and bounced up changing its direction last week. This reversal is backed by the positive divergence in the weekly moving average convergence divergence indicator. On Wednesday, the stock jumped five per cent, breaking out of the falling wedge pattern with good volumes. It has also breached its 21-day moving average. Daily MACD has signalled a buy and is inching towards positive territory. The daily relative strength index is rising towards bullish zone in the neutral region and weekly RSI has entered in to the neutral region from the bearish zone.
Our short-term outlook is bullish on the stock. We anticipate its current rally to prolong until it reaches our price target of Rs 84 or Rs 86.5 in the approaching trading sessions. Short-term traders can buy the stock with stop-loss at Rs 79.
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