ICICIdirect recommends buying State Bank of India (SBI) in the range of Rs 1,662-1,642 for target of Rs 1,880 with stop loss below Rs 1,550 on a closing basis.
Commenting on the rationale, the stock broker said,"The stock was one of the leading heavyweights during the 2009-10 rally on the bourses as it took out its 2008 peak (Rs 2,221) and raced to a new all-time high of Rs 3,459 by November 2010. The ensuing market wide correction saw the stock enter a corrective phase for a prolonged period as PSU banking stocks have remained underperformers over the last three years.
The stock retraced its 2009-10 rally (Rs 847 to Rs 3,459) by 78.6% at the August 2013 low of Rs 1,452. Value buying near the key Fibonacci retracement level of a major bull run saw the stock post a decent bounce back from Rs 1,452 in August 2013 to Rs 1,924 levels in December 2013. The ensuing price decline from December 2013 highs also got arrested precisely near the August 2013 low (Rs 1,452).
The stock absorbed the selling pressure while protecting its August 2013 low as it formed an identical low of Rs 1,455 in February 2014 and attempted a bounce back from a Hammer like candle on the monthly time frame charts. A hammer candle formed after a decline highlights the supportive efforts at lower levels and often triggers a short-term reversal on follow up strength above the candle’s high (Rs 1,540).
The stock strengthened above its February 2013 high of 1540 and witnessed a steady surge in momentum over the last couple of weeks indicating renewed buying at the value area of Rs 1450 odd levels. The two distinct lows formed in August 2013 and February 2014 indicate a potential Double bottom in place at Rs 1,450. A breakout from the double bottom pattern would be confirmed upon a decisive breach of the intermediate high of December 2013 placed at Rs 1,924 levels.
The placement of momentum oscillators on the weekly time frame indicates early signs of a turnaround amid receding downward momentum and bulls gaining traction of the short-term trend. The 14 week RSI exhibited a positive divergence when the price retested its August 2013 low around Rs 1,455 as it formed a higher low while price made an identical low indicating bears losing grip in the current scenario. Meanwhile, the up move in the last week has seen the weekly MACD (E-12/26/9) generate a positive crossover above its nine period average indicating strength in the current up move and augurs well for the stock, going forward.
The weight of the aforementioned technical observations leads us to believe the stock has formed an important base around Rs 1,450 and is likely to challenge its intermediate high of December 2013 at Rs 1,924 in the coming months. Therefore, it provides a good entry opportunity for short-term players to ride the current up leg."
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