ICICIdirect recommends buying Punjab National Bank (PNB) in the range of Rs 600-609 for target of Rs 700 with stop loss of Rs 552 on a closing basis for period of 3 months.
Commenting on technical rationale, ICICIdirect said, ''At the inception of the January series, the highest options base for the Nifty was placed at the 6,100 Put and 6,500 Call strike. Despite a round of profit booking, the Nifty held its support of 6,100 and is now approaching its lifetime high levels. Stocks across sectors are witnessing closure of positions. The PSU banking space, which has underperformed the broader market significantly in the last year also observed noteworthy accumulation of short positions. Stocks like PNB have seen some initial signs of short covering during the January series. This may prompt upsides towards Rs 700 in the days to come.
Calendar year 2013 saw PNB declining from the highs of Rs 900 in January to make lows near Rs 400 in September. In the meanwhile, open interest in the stock almost doubled and was the highest open interest since 2007. This activity clearly indicated accumulation of short positions in the stock. In the recent recovery, PNB witnessed closure of close to 15% positions while the stock surged from Rs 520 to Rs 600. We expect the current trend of short covering to continue in the near term.
Since September 2013, when PNB started its positive momentum, any profit booking was limited to its 61.8% retracement of the up move. The same has been observed four times since then. Currently also, the stock has found buying support near its 61.8% retracement at Rs 595. Moreover, since October 2013, 50 DMA levels have acted as support for PNB as the stock moved from Rs 480 to Rs 600. Any profit booking in the stock was exhausted near its 50 DMA. Hence, any decline in the near term can be utilised for fresh buying.
Near the money Call strike of 620 has the highest open interest since the inception of January series. With gradual upsides, the open interest has slowly shifted upwards to the 640 Call strike. We believe the current trend of short covering may push these Call writers to close their positions, which will bode well with further upsides in the stock.
We saw significantly high delivery based buying in November 2013, after a good consolidation of almost two months. Buying momentum may pick up in the stock.''
