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Story in a charts: Cup & Handle pattern suggests buying opportunity in India Cements

Entire bullish view negates on breaching of Handle on closing basis and one should exit from long position.

March 29, 2020 / 03:11 PM IST
India is the second largest cement producer in the world

India is the second largest cement producer in the world

 
 
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Shabbir Kayyumi

The Cup & Handle pattern is believed to be one of the most reliable and popular patterns among traders community.

In technical analysis, a Cup & Handle pattern describes a specific chart formation that projects a bearish-to-bullish trend reversal. A Cup & Handle reversal pattern forms after a downtrend, and its completion marks a trend reversal to uptrend.

In the standard Cup & Handle pattern, we connect the high after Cup with the high created after the handle. 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 C & H pattern.

Why Buy India Cements?

Close

C & H pattern is an integral part of technical analysis, but successful traders combine these techniques with technical indicators and other forms of technical analysis to maximise their odds of success.

India Cements has a strong resistance line standing around Rs 102 levels indicating strong bullish breakout only above these levels. The recent formation of Cup and Handle pattern will give a breakout on a close above Rs 102 mark which suggests buying in the stock for higher targets of Rs 122. Volume can also add further insight while trading these patterns. Decent volume participation while giving breakout is also giving support to C & H pattern.

Image22932020Figure.1. Cup & Handle pattern and Buy signal on INDIACEM


Buy Signal:-
1. A close above neckline (Rs 102) of Cup & Handle pattern is indicating a trend reversal.
2. Short- term moving average 20 DMA (Rs 99.50), which defines short-term trend, is providing support to buyers as prices are sustained and trading above it.
3. Mid- term moving average 50 DMA (Rs 96.15), which defines mid-term trend, augurs well with the 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 Cup & Handle pattern is calculated by adding the height of Cup to the neckline which comes to Rs 122, however one can book profits near previous swing high which is around Rs 120.

Stop Loss

Entire bullish view negates on breaching of Handle on a closing basis and one should exit from a long position. In the case of India Cements, it is placed around Rs 89 levels.

Conclusion

We recommend buying The India Cements above Rs 102 with a stop loss of Rs 89 for higher targets of Rs 122 as indicated in the 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.
Moneycontrol Contributor
first published: Mar 29, 2020 03:11 pm

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