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Last Updated : Jan 08, 2013 03:20 PM IST | Source: Moneycontrol.com

Buy Vijaya Bank, UCO Bank: ICICIdirect.com

ICICIdirect.com has come out with its report on PSU banking. The research firm recommends buying Vijaya Bank and UCO Bank from PSU banking space.

 
 
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ICICIdirect.com has come out with its report on PSU banking. The research firm recommends buying Vijaya Bank and UCO Bank from PSU banking space.
 
The PSU banking space has been the toast of the Street over past few months. While large names like SBI, Bank of Baroda and PNB have performed well, we take a look at the price charts of some midcap names that are yet to appear in the limelight and appear to be gearing up for a decent rally ahead of RBI’s policy review due at the end of January 2013. In this report, we has identified two stocks (UCO Bank & Vijaya Bank) that are moving out of hibernation mode and offer good risk-reward setup.
 
Vijaya Bank:
 
Potential Double Bottom at long term support: The most dominating pattern on Vijaya Bank’s price chart is a potential Double bottom pattern formed at crucial support of Rs  45. After a stunning rally during April 2009-October 2010 (23-113), the stock retraced the gains by 76.4% (Fibonacci ratio) and hit the double bottom around Rs  45 during December 2011 and August 2012. A Double bottom formation is a potential bullish reversal pattern. In case of Vijaya Bank, the pattern is expected to reverse the medium-term down trend, which outplayed through 2011 and early part of 2012. The pattern will gain significance as it is formed at the extremely important long term support of Rs  45 being the confluence of 76.4% Fibonacci retracement and long term support trend line, which connects major troughs of October 2001 and April 2009. At the end of December 2012, the stock price posted a breakout on monthly closing charts from Double bottom formation and has sustained above the breakout level of Rs  62 for the past one week.
 
Golden Crossover of 50 & 200 day moving average (DMA): In technical parlance, when a medium-term moving average (50) crosses a longer-term moving average (200) from below, it is termed as a “Golden Cross”. It represents a major shift of direction from bearish to bullish and indicates a bull market on the horizon. Additionally, the long-term moving average (200 DMA) becomes the new support level in the rising market. The stock price sailed above its medium term and long term moving averages and has produced a golden cross over as the medium term 50 DMA (58) has crossed over long term 200 DMA (56) in early December. Following the breakout, we expect Vijaya Bank to head northward and retrace its 2010-11 decline (115-44) at least by 50% thereby projecting upside target of Rs  79.50 over the medium term.
 
Strategy: Buy Vijaya Bank in the range of Rs 62.50-65.20 for a target price of Rs 79.50 with a stop loss below Rs 57 on a closing basis
 
UCO Bank:
 
Rally of 100% in two months followed by 11 months of consolidation: The share price of Uco Bank posted strong gains in the January-February 2012 up move, rallying from a low of Rs  44 to a high of Rs  90 in a span of just two months. After a stunning rally of more than 100% gains in just two months the stock went into a hibernation mode to digest the massive gains. The price movement since March 2012 till date has occurred in the range of Rs  84 to 62 levels.
 
Golden Fibonacci retracement (61.8%) acts as anchor point: While the up move from Rs  44 to Rs  90 came in just two months, the entire corrective phase has lasted over 11 months. In price terms, it has retraced the January-February 2012 rally by only 61.8%. It indicates an overall bullish structure as the time wise correction has been well overextended while price wise correction has been limited to the golden Fibonacci retracement level a classic case of a healthy corrective action as strong bull markets seldom correct more than 61.8%
 
Eleven month range breakout signals resumption of preceding uptrend: The price up move in the week gone by has seen the stock register a strong volume led breakout from the eleven month trading range. An engulfing line bull candle, which towers over the past 11 months swing highs signals a shift of gears from neutral to bullish as bulls move out of hibernation mode and appear set to resume the northward journey. The measuring implication of the range breakout (84-62 = 22) suggests a strong possibility of the share price heading towards target of Rs 106 (84+22 = 106) over the medium term.
 
RSI in bull trend: During the whole consolidation phase since March 2012 till date, the weekly RSI has consolidated between the bullish readings of 40 and 60, which further highlights the underlying positive trend. The recent price surge in prices has seen the RSI register a breakout past its trading range suggesting strength in the current breakout.
 
Strategy: Buy UCO Bank in the range of Rs 84.50-82 for a target price of Rs  106 with a stop loss below Rs  74 on a closing basis


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To read the full report click on the attachment



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First Published on Jan 8, 2013 03:05 pm
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