Stock picks of the day for October 11, 2018

State Bank of India: Buy| CMP: Rs 278| Target: Rs 310| Stop Loss: Rs 255| Return 12%| Time Frame 6 months 

The stock has been consolidating in the broad range of Rs 330-240 in the last 11 months. The recent corrective decline in the last month from the higher band of the consolidation range has led the stock to almost test the lower band of the range, thus providing a fresh entry opportunity with a favourable risk/reward set up.

The share price of State Bank of India has seen a strong uptrend from March 2016 to October 2017 as it rallied from 149 to 351 levels. During the entire up move since March 2016, the stock has been taking support at the rising trend line currently around 255, which also coincides with the 50% retracement of the previous major up move (149 to 351), thus making it a crucial support for the short-term.

We believe the recent corrective decline has achieved maturity and is likely to resume fresh up move and test levels of 310 in the coming months as it is the trend line resistance joining previous major highs.

ITC: Buy| CMP: Rs 270| Target: Rs 298| Stop Loss: Rs 247| Return 10%| Time Frame 6 months

The share price of ITC has been trading in a primary uptrend, and within this primary uptrend, the index has undergone periodic phases of secondary consolidation.

The ongoing corrective phase has helped prices to cool off from the overbought situation. We believe the price is currently placed near its key support zone of 270 which offers a fresh entry opportunity for the next leg of the up move to unfold.

Despite the ongoing corrective phase, the prices continued to form a higher peak and trough on the weekly chart, suggesting a primary uptrend is still intact.

After recording 52-weeks high of Rs 323, prices retraced 78.6% of its upmove since Rs 252–323, placed at Rs 268 levels.

Among the momentum oscillators, the weekly RSI has seen a positive hidden divergence, wherein prices are making higher low whereas RSI has recorded lower low, indicating impending trend reversal, going ahead.

In a nutshell, we believe that the stock has cooled off from the overbought situation and is currently placed at key value area. Therefore, we expect the stock to form a higher base and gradually head towards 299 as it is 61.8% retracement of the last leg of the corrective move (323 – 267), placed at 301.

Aurobindo Pharma: Buy| CMP: Rs 780| Target: Rs 849| Stop Loss: Rs 740| Return 9%| Time Frame 1 months

The stock has seen a change of polarity as previous trendline resistance joining the major high of C.Y 2016 (895) and 2017 (809) has reversed its role and acting as support. The sharp up moves from the support area signals reversal of corrective consolidation and offers a fresh entry opportunity to ride the next up move.

The stock during the previous four weeks corrective decline has formed a base at the 50% retracement of the previous up move (602 to 827) highlighting positive bias.

Time wise the stock has already taken five weeks to retrace just 50% of the previous four weeks up move from 602 to 827. A slower retracement of the previous rally signals a robust price structure.

We expect the stock to resolve higher from here on and head towards 855 levels in the coming months as it is 123.6% external retracement of last major decline (827-699)