Chart Focus: Ess Dee Aluminium – Buy

Investors with medium-term perspective can consider buying the stock of Ess Dee Aluminium (Rs 148.4), one of the largest domestic aluminium-packaging producers. After encountering a key resistance at Rs 525 in June 2010, the stock started trending downwards. In August 2011, the fall accelerated and the stock experienced steep declines, after breaking through its long-term support level at Rs 350. Since then, the stock has been on an intermediate-term downtrend. However, the presence of the stock's long-term support zone between Rs 110 and Rs 112 arrested its decline in mid-December 2011. Subsequently, the stock reversed its direction, triggered by positive divergence in the daily as well as weekly indicators and oscillators. The stock has been on a short-term uptrend since then. While trending higher, it breached its 21-day and 50-day moving averages. The stock has advanced 14.5 per cent in the previous week. The 14-day relative strength index is featuring in the bullish zone and weekly RSI is recovering from the oversold territory. The daily moving average convergence divergence indicator is moving higher in line with the stock price and is on the brink of entering the positive terrain. The daily price rate of change indicator is hovering in the positive territory implying buying interest.

Considering the stock's reversing upward from the significant long-term support zone and its daily indicators and oscillators displaying positive divergence we take a contrarian stance on Ess Dee Aluminium from a medium-term perspective. We believe that the stock has the potential to trend higher and touch our price target of Rs 180, following a minor pause around Rs 165. Investors with a medium-term perspective can consider buying the stock with stop-loss at Rs 132.

Follow up – Blue Star (Rs 163)

The stock fell 4.6 per cent in the previous week. Nevertheless, we reiterate our medium-term bullish outlook on the stock with the price target and stop-loss mentioned last week.