After London-based Vedanta Resources, the holding company of Sesa Goa and Sterlite Industries, decided to merge the two companies into a single entity called Sesa Sterlite, the share prices of both of them have corrected in the range of 6-10%, with Sesa Goa taking more beating. Though this restructuring will help Vedanta cut debt and improve cash flows, the market has reacted otherwise because there will be a transfer of most of its debt to Sesa Sterlite and the swap ratio adjustment is not in favor of Sesa Goa. The shareholders of Sterlite will get three shares of Sesa Goa for every five shares held, as per the swap ratio fixed.
In last 1 month, Sesa Goa has underperformed the market by at least 10%. It has also looked weak in the metal space. But since last 2 weeks, it has consolidated in the range of 196-204 and has taken strong support at 100 day moving average. This is also coinciding with the 50% Fibonacci retracement of the up move from the lows of December, 2011 to the highs of February 2012. Also, on the daily charts it is in the process of forming a probable inverse head and shoulders pattern if it breaks 207 with volumes.
Keeping these various technical chart patterns and formation in mind, Sesa Goa trading strategy revolves around breaking the important level of 207 on the upside and 190 on the downside which is the low of current month.
If it breaks 207 on the upside with volumes, one can BUY Sesa Goa with an immediate target of 223 and short term target of 234 with a stop loss of 190. It is to be noted that around 220-225 levels Sesa Goa has to fill a bearish gap which was created in late February 2012 after the announcement of Sterlite – Sesa Goa merger.
If it breaks 190 on the downside, the overall picture would become weaker and one can SELL Sesa Goa with an immediate target of 186 and short term target of 165 with a stop loss of 200.
Now it’s your turn…..
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