OFS may trigger sell-off in HAL shares; is it time to accumulate or avoid?

Hindustan Aeronautics shares may dip up to 20 per cent upon breaking key support.

Shares of Hindustan Aeronautics breached 4-week low post the Government of India announced an offer for sale (OFS) at Rs 2,475. Despite hitting fresh historic peak of Rs 2,893 in early march this year, the stock has been performing well since the past few sessions.

The stock conquered earlier peak of Rs 2,792 recently, but failed to attract follow-on buying interest. This led the stock price action to slip under Rs 2,800, with sentiment following the OFS announcement; which offered floor price well below the historic peak, dampened the positive trend further.

While the counter is trading over the critical support of Rs 2,353-mark, its 200-day moving average (DMA), losing strength below 100-DMA and 50-DMA has impacted the short-term sentiment.

On Friday, the last day of OFS, the stock managed to close 2.85 per cent higher; but it has not surpassed the 100-DMA, still indicating exhaustion scenario.

The Relative Strength Index (RSI) is at 45 values, slipping towards the oversold territory mark of 30. The negative cross of the indicator is not showing any signs of sharp recovery. Moreover, the Moving Average Convergence Divergence (MACD) has formed a negative crossover, signaling momentum to stay on the lower side.

The medium-term outlook is poised upward, until the support of Rs 2,280 is shielded. Only a breach of this cushion shall trigger a negative bias, as the formation will embrace a “Double Top” pattern, a bearish formation pointing at a gradual decline in the share price.

The formation of “Double Top” and if gets materialized, the weakness may engulf the broad bullish trend for a longer than expected period.  The stock may even slip below Rs 2,000 mark, towards Rs 1,800 levels.

Only a resilient move over Rs 2,800 mark, supported by robust volumes, could push the counter into the next leg of upside. The current scenario shows sideways trend until key support are protected. Trigger over Rs 2,800 may see the stock headed in the direction of Rs 3,200 levels.  CLICK HERE FOR THE CHART