ICICIdirect recommends 'Accumulate' Dredging Corporation of India in the range of Rs 233-227 for target of Rs 280 with stop loss of Rs 207 on a closing basis.
Commenting on the technical rationale, the stock broker said, ''The stock witnessed a reversal of fortunes after hitting an all-time low of Rs 150 in late July 2013. The share price more than doubled in just a month rallying from Rs 150 to Rs 325 by August 2013. This frenzied run up signalled a key turnaround from a medium-term trend perspective as the stock completely overhauled its preceding slow and protracted decline of over 17 months (February 2012 to July 2013) in just one month.
After shooting through the roof in August 2013, the share price entered a corrective phase to work off the excesses developed during the two-fold rally. The price, time and volume behaviour during this corrective phase exhibits all the key attributes of healthy correction and highlights the underlying strength in the trend.
Price wise, the correction found a base near the 61.8% retracement of the August 2013 rally (Rs 150 to Rs 325) placed around Rs 215. Over the last two months the stock is seen consolidating in a narrow range around the key Fibonacci retracement support between Rs 208 and 238. In trending markets, the golden Fibonacci ratio (61.8%) acts as a key catalyst often trigger major reversals. Therefore, the narrow consolidation during February-March 2014 is seen as a steady base formation and is likely toact as a launch pad for the next upward leg.
The stock has taken seven months to retrace 61.8% gains of the one-month rally. A long time correction and limited price correction form the basic ingredients of a healthy price correction and highlight the underlying strength in the trend.
The behaviour of volumes during the corrective decline and subsequent consolidation phase also authenticate the strength in the underlying trend. The August 2103 rally was backed by record high volumes while the price correction was on the back of negligible volumes (20 week average of 1 lakh shares). The consolidation phase over last two months has witnessed a steady volume expansion indicating accumulation by stronger hands near an important support area. The average weekly volumes in the last four weeks (4.73 lakh shares) were more than four times the 20 week average volume (1 lakh shares) indicating larger participation in the direction of the trend.
Among oscillators, the 14 period RSI on the daily chart has exhibited multiple positive divergences in the last two months indicative of waning downward ahead of an impending reversal. Meanwhile, the MACD (E-12/26/9) has ventured into positive terrain above its trigger line indicating build-up of momentum on the upside.''
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