17 September 2009

Reliance : Follow up

The day started with a big bang with nifty touching 5000 after a long time. Though the joy was momentous and soon markets gave up all its gains and closed almost flat. Bulls must have been cursing Reliance for turning the sentiment sour for selling off almost 5% and knocking off around 25 points from the Nifty. What happened today is the big question and even bigger is what will be the impact of today's selling.

I am sure most of the trading softwares must have signaled a "Sell" after looking at today's price and volume action. And its quite evident the stock will be under pressure for quite some time. News is that Reliance management has planned a sale of Treasury Stocks to raise capital. Now why they want to raise so much capital all of a sudden is anyone's guess. It could be that they feel after such a rally the prices have overshot the fair value and its a good time to sell some stocks. Another rumor doing the round is that they need to pay huge amount of settlement in the RIL-RNRL case! Whatever be the issue, we will come to know that within few days.

I had posted something about reliance few days back suggesting that it could be on the verge of a breakout. Breakout it did with decent volumes but after few days of rally it started showing signs of fatigue and today it made a sharp correction. We have seen prices testing support levels often after breakout but it is a sign of a weak breakout and surely one can expect the target to be much lower than calculated. Lets see if it takes support at the trend line drawn in the chart, failing to hold it would suggest a more severe correction and certainly invalidating the break out.

So the best way to tackle it would be play a wait and watch game, if it seems to be holding the support mentioned it should be a good buy and all rumors should be laid to rest. It it keeps falling surely something fishy is going on and it would be advisable to get out of your holdings if you are a short term player.


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