ICICIdirect.com report on Oil and Natural Gas Corporation (ONGC)
The broader market has remained range bound in the last couple of months while stocks from various sectors observed shifting of funds. Selling pressure was clearly evident among cement and capital goods stocks while technology and energy stocks kept the index above 6100. In the energy space, fresh buying momentum is clearly evident among heavyweights like Reliance and ONGC. We believe ONGC is likely to continue it’s up move towards Rs 330 levels in the days to come
In July and August, ONGC witnessed sharp downsides from Rs 340 to Rs 235. The selling pressure has prompted significant short addition in the stock. Since then, it has failed to sustain above its crucial resistance of Rs 295. However, recently it managed to test and surpass Rs 295 along with a significant decline in open interest indicating initial signs of short covering
As mentioned above, ONGC has continued to garner open interest since June and by December 2013, the open interest had surged more than 75 percent. Since the inception of the January series, closure of these short positions is clearly evident. Almost 25 percent open interest has been closed along with a stock up move from Rs 275 to 295 indicating short covering. We believe the current trend of short covering may continue in ONGC
In the options space as well, ONGC 290 and 300 Call strikes are heavily written and the highest Call base is present at 300 Call strike. In the last couple of sessions, ONGC 300 Call strike saw almost 32 percent closure. The activity also indicates scepticism amid Call writers and apprehensions for sharp upsides in the stock. Hence, sustainability above Rs 295 may lead to closure of short bias in these Call strikes, which would bode well for further upside in the stock
The crucial 200 DMA for the stock is also placed at Rs 295 making it an important resistance level. We believe a move above this level would trigger closure of short positions and may also prompt cash based buying in the stock
RecommendationBuy ONGC in cash in the range of Rs 283-288Target Price: Rs 331Stop loss: Rs 260 on closing basisTime Frame: Three months
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