Buy EIH, target Rs 194: Dharmesh Shah

By Dharmesh Shah

ICICIdirect.com Research

The Nifty50 during the previous week traded with positive bias and has maintained higher high and higher low in the weekly chart. In the process, it registered a resolute breakout above the falling channel containing the entire corrective price action since mid-February 2018 signalling a reversal of the corrective trend and resumption of the positive momentum.

The current pullback is larger in magnitude compared to the previous two pullback signalling sign of improving market structure.

We expect the index to head towards 10,480 regions which were the high of mid-March 2018. We expect focus will now shift to stock specific action as we enter into Q4 earning season; however, broader markets to extend relative outperformance while index remains in consolidation mode.

In the past two weeks, the index has rallied almost 475 points from the March low (9,952), leading the stochastic oscillator to trade in the overbought zone (currently at 90), indicating that the possibility of a breather at higher levels cannot be ruled out.

Thus, a close below Wednesday’s low of 10,355 would lead to pause in an ongoing uptrend. This may lead the index to enter a consolidation phase to cool off overbought conditions.

However, overall bias in the index remains positive hence, any breather towards 10,200 should be used as an incremental buying opportunity.

EIH Limited: BUY | CMP: Rs 165| Target: Rs 194| Stop loss: Rs 145 | Upside 17%| Time frame: 6 months

The share price of EIH has been forming a higher peak higher trough on the long-term chart. In January 2018, the stock recorded a breakout from upward sloping resistance trend line backed by heavy volumes and recorded an all-time high of Rs 232.

Since then, the stock has undergone a secondary phase of correction. Currently, it has approached its key value area of Rs 155 and formed a higher high after 10 weeks correction, assisting the weekly stochastic oscillator to work off the overbought conditions.

Thus, we believe the stock has undergone a healthy corrective phase paving the way for the next leg of the up move towards Rs 192.

Over the past 10 weeks, the stock has retraced 88 percent of the earlier three week’s sharp up move (Rs 146–232). A shallow price correction with elongated time wise consolidation highlights the strong price structure.

We believe the recent throwback has approached its maturity and is likely to resume its uptrend as it is the confluence of:

a) The stock has been sustaining well above the gap area of Rs 155-156 on January 8, 2018

b) The 52 week’s EMA is also placed around Rs 150

The overall price structure makes us believe the stock has confirmed the three year long consolidation breakout by retesting it and is now well positioned to accelerate the momentum, thereby providing opportunity to create fresh long position in the range of Rs 158-162 from a medium-term perspective for target of Rs 194 being 50 percent retracement level of the last leg of decline (Rs 232–156).

Disclaimer: The author is Head Technical, AVP at ICICI Direct.com Research. The views and investment tips expressed by investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.