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We recommend a buy in the stock of Tata Sponge Iron from a short-term horizon. It is apparent from the charts of the stock that following a steep decline during November and December 2011, the stock took support at its long-term base level at Rs 232 in early January this year. Since then, the stock has been on a medium-term uptrend and has retraced more than 61.8 per cent fibonacci retracement level of its prior decline.
After taking support at around Rs 275 in late February, the stock resumed its up move. Strengthening this up move, the stock jumped six per cent on Tuesday. Further, it broke through a significant long-term resistance at Rs 305 by gaining four per cent in the next trading session. The stock is hovering well above its 50- and 200-day moving averages. We observe that there is an increase in volumes over the past three trading sessions. The daily relative strength index is featuring in the bullish zone and weekly RSI is moving higher in the neutral region towards the bullish zone.
The daily moving average convergence divergence indicator which is hovering in the positive area has signalled a buy. The medium-term up trend-line of the stock is intact. We are bullish on the stock from a short-term perspective. We expect its rally to continue and hit our price target of Rs 320 or Rs 334 in the ensuing trading sessions. Traders with short-term perspective can consider buying the stock with stop-loss at Rs 306.
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