State Bank of India is trading in an upmove while forming Inverse Head & Shoulders pattern and this pattern will be completed on a close above Rs 206 mark.
Why to buy State Bank of India (SBI)?
In technical analysis, an Inverse Head and Shoulders pattern describes a chart formation that projects a bearish-to-bullish trend reversal. An Inverse Head and Shoulders reversal pattern forms after a downtrend and its completion marks a trend reversal to uptrend. In the standard Inverse Head and Shoulders pattern, we connect the high after the left shoulder with the high created after the head. A trend line is drawn by connecting these highest points of the two peaks, which is called as "Neckline". This trend line is the most important component of the Inverse H & S pattern.
State Bank of India is trading in an upmove while forming Inverse Head & Shoulders pattern and this pattern will complete on a close above Rs 206. This stock is trading near the strong resistance line standing around Rs 202, which has been tested multiple times and also suggests that a strong bullish bias will continue after a breakout.
The recent Inverse Head & Shoulders classical pattern will give a breakout by trading only above Rs 202 mark and suggests buying in the stock for higher targets of Rs 228. Volume will also add further insight while trading these patterns. Decent volume participation while giving breakout will also give support to Inverse H & S pattern.
Figure.1. Inverse Head & Shoulders pattern and buy signal on SBI
Buy signal1. A decisive close above the neckline (Rs 205) of the Inverse Head & Shoulders pattern will give a pattern breakout.
2. Prices are already trading above the short-term moving average 20-DMA that define bullish short-term trend.
3. Mid-term moving average 50-DMA trend augurs well for the bulls as prices are trading above it.
4. Decent volume participation while pattern breakout will give an additional confirmation.
Target, as per Inverse Head & Shoulders pattern, is calculated by adding the height of the head (H) to the neckline which comes to Rs 228, however, one can book profits near the previous swing high of Rs 225.
The entire bullish view will negate on breach of the right shoulder on the closing basis and one should exit long position. In the case of SBI, it is placed around Rs 187.
We recommend buying State Bank of India above Rs 202 with a stop loss of Rs 187 for higher targets of Rs 228 as indicated in the above chart.
(Shabbir Kayyumi, Head - Technical Research at Narnolia Financial Advisors Ltd.)Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.