Vedanta Resources (VED), the diversified metals and mining company, disappointed investor in November after reporting a 17 per cent drop in first-half revenues on the back of falling commodity prices. The stock fell sharply on 15th November and the slide in the share price has continued ever since.
Like other mining stocks, Vedanta’s value has been affected by the global slowdown, the stock is in a long term downtrend and the latest breakout does not bode well for the future. There is potential for further losses in the medium term.
This year and up to October 2013 the stock was trading sideways with support just above 1,000p. The support line drawn from the lows in March and July this year is in fact the neckline of a head and shoulders pattern [S,H,S]. We know it’s a neckline because the pattern was confirmed when the stock broke below the support line in November. The completion of the head and shoulders marks the start of a new leg down, possibly an impulse wave in five waves [i,ii,iii,iv,v].
As you can see this impulse wave is not yet complete. Firstly, the decline must be in five waves but so far prices are in the third wave. Secondly, the target given by measuring the width of the head and shoulders is near 650p which is also a level near the lower line of a down channel. This suggests that the stock will move to 650p in the medium term. A possible scenario in the short term is a rally to 900p to complete wave iv followed by a decline to 650p to complete wave v.
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