Recommend buying Canara Bank only above Rs 93.50 levels with a stoploss of Rs 90.50 on a closing basis, says Shabbir Kayyumi of Narnolia Financial Advisors.
The rectangle is a classical technical analysis pattern described by horizontal lines showing significant support and resistance. Unlike evolved technical analysis, which relies on indicators such as moving average convergence divergence (MACD) or Relative Strength Index (RSI), many technical analysts believe that price patterns are more reliable as they repeat themselves over time.
Why buy 'Canara Bank'?
A rectangle is a chart pattern formed when prices are bound by parallel support and resistance levels. This pattern is where supply and demand are in approximate balance for an extended period of time. It is a pattern that shows traders' indecision, one in which the bulls and the bears are equally powerful.
Many of the price patterns are based on geometrical figures, some are ascending, descending and symmetrical triangles, pennants and wedges and rectangles.
• Trading ranges
• Consolidation zones
• Congestion areas
• Sideways movement
Figure .1. Rectangle Pattern and Buy signal on Canara Bank
Buy signal1. Recently, the stock has been trading in a tight zone of Rs 93.50-87.
2. After marking a low of Rs 82, Canara Bank bounced and consolidated in the rectangular pattern.
3. The mid-term moving average 50-SMA placed around Rs 89.20 levels defines mid-term trend is very well augur with bulls as prices are sustained and trading above it.
4. Short- term moving average 20 SMA placed around Rs 90.60 levels suggests bullish movement will unfold as long as prices trade above it.
5. Decent volume participation while forming a bullish candle will also give additional confirmation.
Whenever the price candle is near the previous swing high, which is near Rs 100-104 levels.
The entire bullish view negates on breach of a mid-point of the rectangle and one should exit long position. In the case of Canara Bank, it is standing around Rs 90.50-mark on the closing basis.
We recommend buying Canara Bank only above Rs 93.50 level, with a stoploss of Rs 90.50 on a closing basis for higher targets of Rs 100 and Rs 104 levels as indicated in the above chart.
(Shabbir Kayyumi is the 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.