What is trend line breakout?
Trend lines are an important tool in technical analysis for both trend identification and confirmation. One of the basic tenets put forth by Charles Dow in the Dow Theory is that stock prices move in a trend and trends are often measured and identified by "trend lines".
These trend lines also help us to identify potential areas of increased supply and demand, which can cause the market to move down or up. Trend lines can help traders identify buying and selling opportunities within a strong trend.
Resistance Trend line
Figure.1. Resistance Trend line Breakout
Why to buy Punjab National Bank?
Buy signal
Recently, the downward sloping trend line connecting Rs 38-37-36 is breached from below and has given trend line breakout on the daily chart. At the same time, prices registered a higher high after breaching the trend line and started retracing towards the trend line. The magnetic force of the trend line pulled prices towards it, forming a setup called "pull back buy setup of trend line" or "kissing the trend line". However, this breakout is also supported by volumes and a possibility of sustainability is quite high and acceleration will come on a daily close above Rs 37 mark. It has also managed to close above 20-daily simple moving average, which is also supportive of prices. Going by the rationale, one can buy this stock for higher targets.
Figure.2 Trend line Breakout and Buy signal on PNB
Profit booking
As per one of the methods of trend line breakout, one can use the previous swing pivot for profit booking. These levels are standing around Rs 50 and should provide immediate resistance on the higher side, moving further Rs 57 will attract more profit-booking. So one can consider profit-booking near Rs 50 and higher side towards the Rs 57-mark.
Stop loss
The entire bullish view negates on a breach of an immediate swing low and in teh case of PNB, we will consider Rs 31 as a stop loss level on a closing basis.
Conclusion
We recommend buying Punjab National Bank around Rs 36.50 with a stop loss of Rs 31 for higher targets of Rs 50/Rs 57 as indicated in the above chart.
(Shabbir Kayyumi is the Head of 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.
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