Reliance Industries has been trading in the range of 680-900 levels for the last 15 months, after it has broken the previous trading range of 900-1150 levels in the month of June 2011. The stock has witnessed strong buying interest at its 3-year lows of 680 and staged a sharp bounce back towards the upper end of 900 levels. However, the stock failed to breach the resistance and slipped to its 200 Day EMA at 790 levels, due to profit taking at higher levels. We expect the stock to remain in the range of 700-900 levels in the next few months before it breaks the range on the upside. The downside in the stock seems to be limited, as the ongoing share buy-back could support the stock on declines.
The short-term momentum indicators viz. Stochastic and RSI on daily charts suggest the stock likely to remain weak and could slip to its strong support of 750 levels. However, longer-term charts suggest that any decline in the stock price must be utilized for accumulating long positions. The stock could face resistance at its 200 Week EMA at 850-870 levels. On the downside, 680-700 levels could be a strong support zone for the stock. We expect the stock to consolidate in the range of 680-900 levels for the next couple of months. Thus, we suggest an investor to accumulate the stock on any decline to 720-750 levels for upside targets of 850-900 levels in medium term. In the long term (12-18 months), we expect the stock to break-out of its higher range of 900 and is likely to rally towards 1100 levels. Hence, one can accumulate the stock on any declines with a stop loss placed at 670 on a closing basis.
J K Jain is a research analyst at Karvy Broking, Mumbai, India.