We recommend a sell in the stock of Bharat Forge from a short-term perspective. It is apparent from the charts of the stock that following a medium-term downtrend from its May 2012 peak of Rs 347, the stock took support at around Rs 275 last month. This support level also coincides with the 61.8 per cent fibonacci retracement level of the stock's prior up move. After testing the support at Rs 275, the stock bounced up.
The stock's reversal is backed by a positive divergence in daily relative strength index and daily price rate of change indicator. Moreover, the stock breached its immediate resistance as well as 21-day moving average at around Rs 290 by gaining almost 3 per cent on Saturday. Both daily and weekly relative strength indices are moving higher in the neutral region towards the bullish zone. The daily price rate of change indicator has entered the negative territory implying buying interest. The daily moving average convergence divergence indicator has signalled a sell.
We are bearish on the stock from a short-term perspective. We expect the stock’s down move to continue and reach our price target of Rs 250 or Rs 225 in the November month. Traders can consider buying the stock around 250 while maintaining stop-loss at Rs 230 levels.