Shabbir Kayyumi
The Cup & Handle (C&H) pattern is believed to be one of the most reliable and popular patterns among the trader community.
In technical analysis, a C&H pattern describes a specific chart formation that projects a bearish-to-bullish trend reversal. A C&H reversal pattern forms after a downtrend, and its completion marks a trend reversal to an uptrend.
In the standard C&H 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 Neckline. This trend line is the most important component of C&H pattern.
Why Buy Axis Bank?
Axis Bank has a strong resistance line standing around Rs 750 levels indicating strong bullish breakout only above these levels. The recent formation of the C&H pattern will give a breakout on 2 days close above Rs 750 marks which suggests buying in the stock for higher targets of Rs 850.
Volume can also add further insight while trading these patterns. Decent volume participation while giving breakout is also giving support to C&H pattern.
Buy Signal:
1. A close above neckline (Rs 750) of C&H pattern is indicating trend reversal to an uptrend.
2. Short- term moving average 20 DMA (Rs 735) defines short-term trend which is providing support to buyers and prices are sustaining and trading above it at Rs 746 marks.
3. The midterm moving average 50 DMA (Rs 714) defines mid-term trend is very well augured with bulls as prices are sustained and trading above it around Rs 746 marks.
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 Neckline which comes to Rs 850, however one can book profits near previous swing high which is around 820.
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 Axis Bank, it is placed around 708 levels.
Conclusion
We recommend buying Axis Bank above Rs 750 with a stop loss of Rs 708 for higher targets of Rs 850 as indicated in the above chart.
The Author is Head - Technical & Derivative Research, Narnolia Financial Advisors.
Disclaimer: The views and investment tips expressed by investment experts 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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