RSI pull back buy set up suggests buying opportunity in CDSL

RSI stands for Relative Strength Index. It is a momentous oscillator used to identify trend reversal. RSI was invented by Welles Wilder Jr. The default look-back period for RSI is 14, however, this can be lowered to increase sensitivity or raised to decrease sensitivity. RSI calculates strength of stock trend and helps to predict their reversals.

Why to Buy ‘Central Depository Services (India) Limited (CDSL)’?

There are a lot of trading strategies using RSI; below mentioned is one of the most popular among trading community which involves buy after completing retracement for higher movement; however support of another momentum oscillator stochastic can give additional support.

In last some days, RSI had given a breakout by trading above 50 levels from below and made a high of 85 then after it is trading lower or retracing towards center line placed at 50 levels, this behavior is called as ‘RSI PBB’ setup. RSI PBB is pull back buy setup which indicates, once RSI turns its tail upside after taking support from zone of 45-55 levels, target is previous swing high of RSI which was 85 or previous swing high of prices. Currently the CDSL is going through this setup and we expect higher price movement towards Rs 560 levels in coming days.

Buy Signal

1. Recent RSI gave a breakout and published swing top around 85 levels.
2. After marking high of 85, RSI is retracing towards mid-line standing around 50 marks.
3. Strong bullish candle formation near buying zone has given us confirmation of retracement complete and original trend begin.
4. Mid- term moving average 50 DMA placed around 504 levels defines mid-term trend is very well augur with bulls as prices are sustained and trading above it.
5. Decent volume participation while forming bullish candle will also give additional confirmation.

Profit Booking:-

Whenever price candle will be near previous swing high which is near Rs 560-570 levels.

Stop Loss:-

Entire bullish view negates on breaching of a crucial support and one should exit from long position. In case of CDSL it is standing around Rs 490 marks closing basis.

Conclusion
We recommend buying Central Depository Services (India) Limited (CDSL) around Rs 505-510 levels with a stop loss of Rs 490 on a closing basis for higher targets of Rs 560 and Rs 570 levels as indicated in above chart.

The author is Head - Technical Research, Narnolia Financial Advisors Ltd.

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