CMP Rs190, Target Rs260, Upside 25.8%
Long Term View- Pantaloon Retail has gone through severe price erosion in the year 2011, where the correction has unfolded into price decline of nearly 76% from its 2010 peak of Rs528. Initially Rs230-240 acted as strong support zone in the first few months of 2011, but below this level, the prices tumbled to test almost its 2009 trough of Rs125.
After such a drastic price decline, a possibility of sharp pullback always remains on cards as stock is trading near the long term support line extended from trough of year 2003. A small pullback after initial down trust from support trend line acts as a trend reversal signal which is also accompanied with a bullish pattern of ‘falling wedge’. As long as the stock continues to hold its ground above Rs165, the breakout remains valid and near term resistance can be seen at bearish resistance line which is placed at Rs329. The Monthly RSI has managed to bounce back from an oversold terrain of 30 and a positive crossover from 9 EMA signifies strength in the up move. It may be too early to come to a conclusion that reversal has ability to take RSI back into overbought zone. However, even a rebound in RSI towards the bear market resistance levels of 50 would be suffice for a rally in the stock towards Rs260. Adding to it, a 38.2% retracement for the entire decline from the intermediate peak of October 2010, can also be used to provide a bear market resistance at Rs275.
Near term View- The weekly chart also depicts strength in the counter after two weeks of convincing close above the resistance of ‘falling trend line’ of Rs171. A 20 WSMA has been acting as strong support for the counter unlike earlier attempts where momentum failed around the same. Adding to it, a bullish crossover on weekly MACD confirms the positive trend with breakout above the 38.2% Fibonacci resistance zone. The near term hurdle for the stock is seen at Rs260, which is simply the previous support trend line, once that is taken out, stock could be heading towards Rs330.
Justifying a Buy after a 20% rally in Nifty index is a tough task, but mid caps have the tendency to catch up with the lead index in quick succession. We rely on our judgment based on pattern confirmation, breakouts and positive signals from indicators and expect good outperformance from the stock in the coming months.
We recommend accumulating Pantaloon Retail in the range of Rs180-190 with closing stop loss of Rs165 for a Target of Rs260.