ICICIdirect recommends buying Jammu & Kashmir Bank (J&K Bank) in the range of Rs 1,375-1,358 for target of Rs 1,555 with stop loss of Rs 1,295 on a closing basis.

Commenting on the rationale, the stock broker said, 'The stock hit an all-time high of Rs 1,515 in January 2013 and, thereafter, entered a consolidation phase to work off the overbought conditions developed during the preceding strong rally from Rs 742 to Rs 1515 between August 2012 and January 2013.

The consolidation phase lasted almost 12 months as the stock spent the entire year 2013 between the broad range of Rs 1,000 to Rs 1,340. An important observation on the price chart is that this consolidation took the form of a Triangle pattern as highlighted in the adjoining weekly bar chart. A triangle pattern usually occurs as a continuation pattern within a primary uptrend, marking a breather taken by the bulls to gather steam for the next up-move.

At the base of the Triangle pattern (1,000) the stock retraced its preceding rally (Rs 742 to Rs 1515) by 61.8%. While the up move from Rs 742 to Rs 1,515 consumed just five months, the stock spent almost a year in the consolidation phase while price wise retracing only 61.8% of the preceding rally. Extended time correction and limited price correction forms an essential criterion in highlighting a healthy corrective price action.

The stock registered a strong breakout past the Triangular consolidation pattern during late December 2013 and formed one of the strongest bull candles on the weekly chart in over two years to signal an end of the consolidation phase and start of a fresh uptrend. A gradual correction during January-February 2014 has seen the stock price revisit its breakout area of Rs 1330. After a brief consolidation at the breakout area of Rs 1,330, the stock appears set to resume its upward journey and, therefore, provides a good entry opportunity from a medium-term perspective.

We expect the stock to head towards the target of Rs 1550 in the medium-term, thereby providing a decent reward/risk setup. The 123.6% retracement of the December 2013 - January 2014 corrective decline (Rs 1499 to Rs 1256) projects an upside potential of Rs 1,550 over a medium-term horizon.

Among oscillators, the short-term weekly stochastic (5/3/3) has generated a positive crossover after holding its intermediate support of 40 while the 14 week RSI has also held above its bull market support of 50 and generated a positive crossover above its nine period averages in this week’s trade indicating build-up of upward momentum.'

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