RSI stands for Relative Strength Index. It is a momentous oscillator used to identify trend reversal. RSI was invented by Welles Wilder Jr. The default look-back period for RSI is 14, however this can be lowered to increase sensitivity or raised to decrease sensitivity. RSI calculates strength of stock trend and helps to predict their reversals.
Why to Buy Oil & Natural Gas Corporation (ONGC)?
There are a lot of trading strategies using RSI; below mentioned is one of the most popular among trading community which involves buy after completing retracement for higher movement.
During the last few days, RSI had given a breakout by trading above 50 levels from below and made a high of 78. Thereafter, it is trading lower or retracing towards centre line placed at 50 levels, this behavior is called as ‘RSI PBB’ setup. RSI PBB is pull back buy setup which indicates, once RSI turns its tail upside after taking support from zone of 45-55 levels, target is previous swing high of RSI which was 78 or previous swing high of prices. Currently, the ONGC is going through this setup and we expect higher price movement towards Rs 110 levels in the coming days.
Figure .1. RSI PBB setup and Buy signal on ONGC
Buy Signal
1. Recent RSI gave a breakout and published swing top around 78 levels.
2. After marking high of 78, RSI is retracing towards mid-line standing around 50 mark.
3. A strong bullish candle formation near buying zone has given us confirmation of retracement complete and original trend begin.
4. Mid-term moving average 50 DMA placed around Rs 81 levels defines mid-term trend is very well augur with bulls as prices are sustained and trading above it.
5. Decent volume participation while forming bullish candle will also give additional confirmation.
Profit Booking
Whenever price candle will be near previous swing high which is near Rs 110-112 levels.
Stop Loss
Entire bullish view negates on breaching of a crucial support and one should exit from long position. In case of ONGC, it is standing around Rs 82-mark on a closing basis.
Conclusion
We recommend buying Oil & Natural Gas Corporation around Rs 90-92 levels with a stop loss of Rs 82 on a closing basis for higher targets of Rs 110 and Rs 112 levels as indicated in above chart.
Disclosure: Narnolia Financial Advisors Ltd. is a SEBI registered Research Analyst having SEBI Registration No. INH300006500. The Company/Analyst (s) does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. Clients of Narnolia Financial Advisors Ltd. may be holding aforesaid stocks. The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report
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