Trading pick of the week: REC Ltd (Rs 135.5): Sell

Investors with a medium-term horizon can sell the stock of REC Ltd at current levels. After encountering a key long-term resistance in the band between ₹156 and ₹160 in mid-February this year, the stock started to weaken and plunged .

Extending the recent down-move the stock fell 5.9 per cent on Friday, decisively breaching the key support at ₹140 as well as the 21- and 50-day moving averages.

The stock has been in an intermediate-term uptrend since it took support at around ₹80 in March 2020. Following a short-term correction, it took support at ₹92 in last October and continued to trend upwards. Since then, it has been in a medium-term uptrend. From mid-December last year, the stock began to form an ascending broadening wedge pattern; it is a bearish reversal pattern.

After testing the upper line in mid-February, the stock started to decline and it currently tests the lower line with a negative bias.

Both the daily as well as the weekly relative strength indices are displaying negative divergence, backing the trend reversal. The daily RSI is likely to enter the bearish zone from the neutral region and the weekly RSI has entered the neutral region from the bullish zone.

Besides, the daily price rate of change indicator features in the negative territory, indicating selling interest and the weekly indicator is on the brink of entering the negative territory.

The short- to medium-term outlook is bearish for the stock. It has potential to extend the down-move on a strong fall below the lower line at ₹135.

Such a fall can drag the stock down to the price targets of ₹122 and ₹112 over the medium term. Investors can book profits at this juncture and sell the stock with a stop-loss at ₹148.