Biggest losers in PSU pack amid profit-booking: What the charts foretell

A sharp run-up in select PSU counters gave investors plenty leeway to book sharp profits.

Stocks of several public sector companies went into a tailspin on September 12 in the face of headwinds as investors rushed to book profits after a six-month stellar run that stretched the valuations beyond their fundamentals.

Investors and mutual funds came hard on a select few like Engineers India, Power Finance Corp, Bharat Electronics and REC as these scrips plunged 8-9 percent, the worst hit within the PSU space.

Despite sharp cuts in the previous session, these stocks remain 34-113 percent up year-to-date. However, are signs of profit-booking foretelling a steeper correction? Let's look at what technical charts say:

Engineers India

Vidnyan Sawant, AVP - Technical Research, GEPL Capital highlighted that the stock had been trading in a consolidation range over the past month. On the weekly charts, he sees a notable bearish signal in the form of a shooting star candle pattern, accompanied by a significant bearish candle in the counter. This suggests a corrective phase for the stock in the short to medium term.

"On September 12, the stock slipped below an upward-sloping channel pattern. This breakout indicates that profit-taking has occurred at higher price levels, possibly indicating a shift in sentiment among investors," Sawant said. He also pegged key support levels for the stock at Rs 140 and Rs 127, while resistance levels are likely at 157 and 166.

On the other hand, Foram Chheda, technical research analyst and founder of ChartAnalytics, sees the next potential downside target at approximately Rs 138. "The stock hovers near a support level at Rs 145, aligning with prior lows and also the 50-day moving average. A breach of this support could lead to a further decline to Rs 138," Chheda said. She also advised investors to hold, while suggesting traders to consider the September 12 low of Rs 145.5 as a stop loss.

Bharat Electronics

"On the weekly charts, a Bearish Engulfing candle pattern has emerged, which can be indicative of a potential reversal in the stock's upward trend.
On the daily time frame, the stock has formed an Evening Doji Star candle pattern, a pattern that often signals a reversal in momentum. Additionally, the stock has been setting a lower-top-lower-bottom pattern, further suggesting the possibility of a price correction," Sawant said.

Chheda too noted that the stock underwent a sharp decline after hitting an all-time high of Rs 147 recently, accompanied by elevated trading volume, suggesting selling pressure. She sees the potential support zone within the range of Rs 130-132, aligning with multiple pivot points and the 50-day moving average. "It is advisable to maintain holdings unless the price drops below Rs 130, as the stock continues to exhibit an upward trend," Chheda said.

As per Sawant, the key support levels for the stock can be found at Rs 130 and Rs 124, while resistance levels are situated at Rs 145 and Rs 152.

PFC

The stock has been a frontrunner in the broader market and still trades over 100 percent higher on a year-to-date basis. Chheda noted that the stock recently broke above its resistance level of Rs 276, while maintaining its primary uptrend. However, she still calls for caution as the Relative Strength Index (RSI) formed a lower peak, signaling a negative divergence.

"The stock has since seen a decline that could lead to a retest of the breakout level, which may now serve as a support level. Therefore, it is prudent to stay invested and hold the stock, with a stop loss set below Rs 272 levels, to navigate this situation," Chheda said.

Follow our market blog for all the live action

While Sawant seconded Chheda's call for a short-time correction, he feels an examination of the monthly charts reflects that the stock has maintained a positive long-term outlook by consistently forming higher highs and higher lows while sustaining itself at record high levels, which indicates a strong underlying bullish sentiment.

"For potential price levels, it's important to note that Rs 270 and Rs 250 are expected to provide robust support for the stock, while Rs 310 and Rs 325 will serve as critical resistance levels," Sawant added.

REC Ltd

Sawant sees several bearish signs emerging from the stock's technical charts across different time frames. He highlighted the formation of a Shooting Star candle pattern at its record high levels on the monthly charts, which is typically a warning sign of a potential reversal.

Similarly, on the weekly charts, he sees the stock displaying a bearish candle pattern, further supporting the notion of a potential downward move. "On the daily chart as well, the stock is forming an Evening Star candle pattern, which is a robust bearish reversal pattern. This strengthens the case for a bearish outlook in the short term," Sawant said.

"The stock is presently retesting the consolidation pattern's breakout level and may find support in the Rs 234-248 range. It is advisable to hold the stock as long as it holds above 234, and any dip below this level should prompt consideration for divestment," Chheda believes.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.