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Aroon indicator suggests buying opportunity in Indian Bank

We recommend buying Indian Bank around Rs 88 levels with a stop loss of Rs 75 for higher targets of Rs 107.

January 04, 2021 / 08:10 AM IST
Representative image | Source: Pixabay

Representative image | Source: Pixabay

 
 
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Aroon indicator was developed by Tushar Chande in 1995. Aroon is an indicator system that determines whether a stock is trending and how strong the trend is. 'Aroon' means Dawn's Early Light in Sanskrit. Tushar chose this name as the indicators are designed to reveal the beginning of a new trend.

Aroon indicator is similar to other momentum oscillators in terms of being used to time the market entry into a trend. In simple language, the indicator consists of the "Aroon up" line, which measures the strength of the uptrend, and the "Aroon down" line, which measures the strength of the downtrend.

Like most momentum oscillators, Aroon appears on a chart in a separate window below the price chart. It is plotted against a middle line of 50 that differentiates the strength of the trend.—Aroon-Up and Aroon-Down are complementary indicators that measure the elapsed time between new 25-day highs and lows, respectively.

They are shown together so chartists can easily identify the stronger of the two and determine the trend bias. The Aroon Up and the Aroon Down lines fluctuate between zero and 100, with values close to 100 indicating a strong trend and values near zero indicating a weak trend. The lower the Aroon Up, the weaker the uptrend and the stronger the downtrend, and vice versa.

Why you should Buy Indian Bank

Close

The main assumption underlying this indicator is that a stock's price will close regularly at new highs during an uptrend, and regularly make new lows in a downtrend. The indicator focuses on the last 25 periods but is scaled to zero and 100. Therefore, an Aroon Up reading above 50 means the price made a new high within the last 12.5 periods. A reading near 100 means a high was seen very recently.

Indian Bank has recently given breakout by trading above resistance line placed around Rs 72 levels. Thereafter, the price is rising continuously. At the same time, trend identifying indicator, Aroon has given buy signal as Aroon-Up is trading above Aroon-Down.  Aroon-Up is trading above 50- mark, suggesting the uptrend to continue. Recent price movement is supported by moving averages also, as the prices are trading above 20 SMA and 50 SMA whereas bullish crossover of them is adding conviction for bullish movement.

Image3212021Figure.1 - Aroon breakout and Buy signal on Indian Bank

Buy Signal

1. Recently AROON gave a breakout and traded above the middle line of 50 levels and hit Rs 92 mark.
2. Prices are trading above Short term moving average 20 SMA which is placed around Rs 67 levels.
3. Prices are trading above mid-term moving average 50 SMA which is placed around Rs 64 levels.

4. Decent volume participation while forming a bullish candle has also given additional confirmation.

Profit Booking

Whenever price candles will be near the resistance line standing around Rs 107, it is a systematic method of booking profits.

Stop Loss

The entire bullish view negates on breaching of the last week’s low, for Indian Bank it is standing around Rs 75 mark.

Conclusion

We recommend buying Indian Bank around Rs 88 levels with a stop loss of Rs 75 for higher targets of Rs 107 and Rs 130 levels as indicated in the above chart.

Disclosure: Narnolia Financial Advisors Ltd. is a SEBI registered Research Analyst. The Company/Analyst (s) does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Shabbir Kayyumi is the Head of Technical & Derivative Research at Narnolia Financial Advisors. He has rich experience in Technical Analysis across Equities, Commodities, Global Indices and Global Currencies. His strength lies in Elliott wave and Neo Wave theory while he is equally proficient in Candlestick patterns, Fibonacci, price projection, classical Dow Theory, and inter market analysis for interpreting market trends.
first published: Jan 4, 2021 08:10 am

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