Technical Analysis

IOB on a reversal mode

Yoganand D | Updated on January 12, 2018 Published on January 15, 2017





Strong rally beyond ₹28.5 can take the stock higher to ₹32 in the long term

Here are answers to readers’ queries on the performance of their stock holdings.

I have been holding shares of IOB for a number of years. Since the price has come down to ₹25 level, can this be averaged to take advantage of any future price rise?

G N Sivaraman

Indian Overseas Bank (₹25.4): The stock of Indian Overseas Bank is in a downtrend across time frames — short, medium and long term. In February 2016, the stock recorded a multi-year low at ₹21.1 and started moving sideways with upside capped at ₹32. In November, the stock re-tested the low at ₹21.1 and bounced up. It is currently attempting to move higher after testing the key support at around ₹24 last month. You can consider averaging it with a stop-loss at ₹23.

However, the upside is limited to the significant resistance level of ₹32, which is a 25 per cent return from the current levels. Strong rally beyond ₹27 and ₹28.5 can take the stock higher to ₹32 in the long term. Further breakthrough of ₹32 can pave the way for an up-move to ₹35 and ₹36 levels. But inability to move beyond ₹32 will be a cue to exit the stock and switch. On the other hand, a slump below the immediate support level of ₹24 will pull the stock down to ₹23 and then to ₹21.1.

I have purchased Suven Life Sciences at ₹207. I am a long-term investor interested in holding it for three to five years. Please advise long term prospects for the stock.

S Sudhakarreddy

Suven Life Sciences (₹176.5): After a strong rally in 2014 and early 2015, the stock of Suven Life Sciences recorded an all-time high at ₹338.5 in April 2015. Since then, the stock has been on an intermediate-term downtrend. However, the key support at around ₹150 cushioned the stock in February 2016 and again in November that year. The stock finds difficulty in exceeding beyond the significant resistance in the band between ₹185 and ₹190 over the past two months. You can consider averaging your investment by buying more shares at current levels with a stop-loss at ₹145 levels.

Strong breakthrough of ₹190 can push the stock higher to ₹210 and then to ₹230 in the medium term. Only an emphatic rally beyond ₹250 will alter the stock’s intermediate-term downtrend and take it northwards to ₹280 and ₹310 levels in the long run. Key support below ₹150 is at ₹120.

I have bought the stock of Vascon Engineers at an average price of ₹38. What are the prospects for of the stock?

Subir R

Vascon Engineers (₹33.9): Following a strong rally in October 2016, the stock encountered a key long-term resistance in the range between ₹38 and ₹40. It has been on a short-term downtrend ever since.

However, the stock found support at ₹26.5 in late December and started moving up. Last week, it gained 10.5 per cent. With this momentum, the stock surged another 7.6 per cent in the previous week, breaking through the 38.2 per cent fibonacci retracement level of the prior downtrend and a vital resistance at ₹32.5.

Now the uptrend can extend in the coming week and the stock can test the next resistances at ₹36, ₹38 and ₹40 levels. You can consider averaging the stock at current levels with a stop-loss at ₹30 and exiting at ₹38 or ₹40 levels.

Long-term trend is down for the stock and the long-term picture is bleak. Immediate support is at ₹30. Strong tumble below the key support level of ₹26.5 will strengthen the downtrend and pull the stock index down to ₹22.5 and then to ₹20 in the medium to long-term. In such a scenario, consider exiting the stock.

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Published on January 15, 2017
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