ICICIdirect recommends buying Styrolution ABS (India) in the range of Rs 470-450 for target of Rs 545 with stop loss below Rs 417 on a closing basis.
Commenting on the rationale, the stock broker said, "The share price of Styrolution ABS entered a corrective mode after hitting an all-time high of Rs 890 in March 2012. The preceding major rally from late 2008 to early 2012 saw the stock amass 11 fold gains, rallying from a low of Rs 70 to a life-time high of Rs 890 in a span of less than four years, highlighting a strong bull trend.
The corrective decline from the all-time highs lasted over 17 months and saw the stock retrace its multifold rally by 61.8% at the August-September 2013 lows around Rs 327. This also coincided with the base of the previous major consolidation during August 2010 to April early 2011, which is also placed around Rs 330-340 levels. After anchoring the corrective decline precisely at the confluence of golden Fibonacci ratio of 61.8% (Rs 340) and previous major base of Rs 330-340 region, the stock witnessed a steady base formation in the broad range of Rs 327-440 levels for the last eight months between August 2013 to March 2014. This base formation above the key support area is likely to act as a launch pad for the next upward leg.
The price action in the last couple of weeks has seen the stock register a strong breakout above the upper band of last eight month's consolidation range above Rs 440, thereby indicating a firm resolve by bulls to take charge of the short-term trend. It signals an end of the corrective phase and start of a fresh uptrend.
The behaviour of volumes during the corrective decline and subsequent consolidation phase also corroborates the strength in the underlying trend. The price correction was on the back of negligible volumes while the consolidation phase over last eight months witnessed a steady volume expansion indicating accumulation by stronger hands near an important support area. The average weekly volumes in the last four weeks (51,000 shares) leading up to the price breakout were more than double the 24 week average volume (25,000 shares) indicating larger participation in the direction of the trend.
The measuring implication of the range breakout i.e. the width of the consolidation range (Rs 440-327=113) added to the breakout point of Rs 440 suggests upside towards Rs 553 (440+113) levels over the medium-term. This price target also coincides with May 2013 swing high placed at Rs 550 and 38.2% retracement of the entire corrective decline (Rs 890 to Rs 327) placed around Rs 545 levels.
Among oscillators, the monthly 14 period RSI has generated a positive crossover above its nine period average whereas the weekly MACD (E-12/26/9) has ventured into the positive territory above the trigger line indicating strength in the price breakout.''
ICICIdirect believes the stock has concluded a healthy base formation near an important support area and is ripe for a fresh upward leg. Therefore, it offers good buying opportunity with favourable reward/risk set up for mediumterm players. As the overall average volumes in the stock are on the lower side, it is advisable to accumulate the stock in a staggered manner in the recommended range.
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