Minting in mining
The previous rise of Sesa Sterlite from Rs119.30 to Rs207.20 was a five-wave rise following which the stock had formed an expanded flat pattern in the wave 2 down. Now wave III of 3 up seems to have begun. It has provided a break-out from the inverse head-and-shoulders pattern, which is a bullish reversal pattern. The Bollinger Bands that were narrowing have now started to expand and that indicates the trend has resumed. The stock has taken good support at the 40-week exponential moving average which is a good sign in the medium to long term. The momentum indicator, Know Sure Thing (KST), has come in buy mode on both the daily and the weekly chart which is like a cherry on the cake.
The equality target for wave 3 up comes at Rs300. The 138.2% retracement of wave 1 comes to Rs346 levels whereas the neckline support is pegged at Rs214 levels and till the stock is trading above this level bulls have nothing to worry. The previous swing’s high of Rs207 is very crucial as that’s the high of wave 1. So if the stock overlaps Rs207 levels then the probability of wave 3 up shall reduce as the prices in wave 3 don’t penetrate into the wave 1 region. Hence, 206 levels should be an ideal stop loss for the trade.
Investment strategy
Buy Sesa Sterlite at the current market price Rs228 for a target of Rs300 with stop loss at Rs346 and Rs206.
Risk:Reward ratio 1 = 1: 3.27
Risk: Reward ratio 2 = 1: 5.36
Risk (Rs): 228 - 206 = 22
Reward (Rs) 1: 300 – 228 = 72
Reward (Rs) 2: 346 -228 = 118
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