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Last Updated : Apr 19, 2020 09:32 AM IST | Source: Moneycontrol.com

Story in a chart: Inverse 'Head and Shoulders' pattern in Exide suggests buying opportunity

The bullish view negates on breaching of right shoulder on closing basis, and one should exit from long position.

Moneycontrol Contributor @moneycontrolcom
 
 
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Shabbir Kayyumi

Why should you buy Exide Industries?

In technical analysis, an Inverse head and shoulders pattern describes a specific chart formation that projects a bearish-to-bullish trend reversal.

Close

An Inverse Head and Shoulders reversal pattern forms after a down trend, and its completion marks a trend reversal to up trend. In the standard Inverse head and shoulders pattern, we connect the high after the left shoulder with the high created after the head.

A trendline 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 Inverse H&S pattern.

Exide Industries is trading in an upmove while forming Inverse Head & Shoulders pattern and this emerging pattern will be completed on a close above Rs 149. This stock is trading near strong resistance line standing around Rs 149 levels which is tested multiple times earlier which also suggest a strong bullish bias to continue further after a breakout.

Recent formation of Inverse Head & Shoulders classical pattern will give a breakout by trading only above Rs 149 levels, suggests buying in the stock for higher targets of Rs 172. 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 Exide


Buy signal

1. A decisive close above neckline (Rs 149) of Inverse Head & Shoulders pattern will give a pattern breakout.
2. Prices are already trading above short- term moving average 20 DMA which will define bullish short-term trend.
3. Mid- term moving average 50 DMA defines mid-term trend is very well augur with bulls as prices are sustained and trading above it.

4. Decent volume participation while pattern breakout will also give additional confirmation.

Profit booking

Target as per Inverse Head & Shoulders pattern is calculated by adding height of head (H) to neckline which comes to Rs 172, however one can book profits near previous swing high which is around Rs 168 levels.

Stop loss

Entire bullish view negates on breaching of right shoulder on closing basis and one should exit from long position. In case of Exide, it is placed around Rs 134 levels.

Conclusion

We recommend buying Exide Industries above Rs 149 levels with a stop loss of Rs 134 for higher target of Rs 172 as indicated in above chart.

(The author is Head - Technical Research at Narnolia Financial Advisors.)

Disclosure: Narnolia Financial Advisors/Analyst (s) does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. Clients of Narnolia Financial Advisors Ltd. may be holding aforesaid stocks. The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

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.

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First Published on Apr 19, 2020 09:32 am
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