ICICIdirect recommends buying Reliance Industries in the range of Rs 1,113-1,093 for target of Rs 1,325 with stop loss of Rs 1,040 on a closing basis.
Commenting on the rationale, the stock broker said," The share price of Reliance Industries had been in sideways consolidation mode for nearly three years, oscillating between the broad range of Rs 930 to Rs 670 from July 2011 till April 2014. The stock grossly underperformed the benchmarks during this phase and remained confined within the aforementioned trading range.
The price rally in March 2014 saw the stock post a faster retracement of its last falling segment for the first time in five years as it completely retraced its four month decline from November 2013 high of Rs 926 to February 2014 low of Rs 793 in just a month. As per classical western Technical Analysis, the faster pace of rally against a slower decline is the first sign of a turnaround as it indicates rising clout of bulls in the present scenario.
The March 2014 rally also saw the stock register a monthly close above Rs 930, thereby registering a breakout from the three year consolidation range of Rs 930-670. In the process, the stock also pierced through a long term falling trend line drawn by connecting major swing highs since June 2009.
The price breakout above the dual resistance thus signalled a change of guard from medium-term trend perspective. After the strong rally in March 2014, the stock took a breather in April and consolidated the gains while maintaining a positive bias. Interestingly, the stock took support precisely near Rs 930 during the April consolidation, thereby highlighting the significance of Change of Polarity principle, as per which a significant resistance once breached, reverses its role and acts as a support for future price movement.
Among momentum oscillators, the 14 week RSI has broken out past its three year consolidation between the neutral readings of 40 and 65 in the current up move and signals continuance of bullish momentum from a medium-term perspective. The weekly MACD indicator is also sailing above its trigger line highlighting the underlying strength in the trend.
The target price for the current up move is projected at Rs 1335 being the 161.8% price extension of the preceding major rally from May 2012 low of Rs 668 to January 2013 high of Rs 949 as measured from February 2014 swing low of Rs 793. Therefore, the stock offers a good reward/risk set up for medium-term players to ride the uptrend.''
Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.
