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Rectangle pattern breakout suggests buying opportunity in IRCTC: Shabbir Kayyumi

A rectangle is a chart pattern formed when price is bound by parallel support and resistance levels. This pattern is where supply and demand are in approximate balance for an extended period of time.

December 06, 2020 / 10:20 PM IST
 
 
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The rectangle is a classical technical analysis pattern described by horizontal lines showing significant support and resistance.

Rather than modern technical analysis, which relies on indicators, such as moving average convergence divergence (MACD) or Relative strength Index (RSI), many technical analysts assumed that price patterns repeat themselves over time and are more reliable.

Why to buy Indian Railway Catering and Tourism Corporation (IRCTC)?

A rectangle is a chart pattern formed when price is bound by parallel support and resistance levels. This pattern is where supply and demand are in approximate balance for an extended period of time. In any case, it is a pattern which shows traders' indecision, one in which the bulls and bears are approximately equally powerful.

Rectangles are sometimes referred to as: -

Close
• Trading ranges
• Consolidation zones
• Congestion areas

• Sideways movement

Buy Signal:

1. Recently this stock has given breakout by trading above Rs 1500 marks. It was trading in a tight zone of Rs 1475-1275 since long and bullish price action with strong volume suggests buying opportunity in this stock.

2. After marking low of Rs 850, IRCTC has bounced and consolidating in the rectangular pattern forming tight consolidation zone.

3. At the same time mid-term moving average 50 SMA placed around Rs 1350 levels suggest that mid-term trend augur well for the bulls.

4. Short- term moving average 20 SMA placed around Rs 1370 levels suggests bullish movement to unfold as long as prices are trading above it.

5. Decent volume participation while forming bullish candle will also give additional confirmation.

Figure .1. Rectangle Pattern and Buy signal on IRCTC

Profit Booking:

As pre the pattern formation immediate targets are near Rs 1750.

Stop Loss:

Entire bullish view negates on breaching of the mid-point of the rectangle. In the case of IRCTC it is standing around Rs 1375 marks on the closing basis.

Conclusion:

We recommend buying IRCTC around Rs 1475 levels with a stop loss of Rs1375 on a closing basis for higher targets of Rs1750 levels.

The Author is Head of Technical Research at Narnolia Financial Advisors.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Shabbir Kayyumi is the Head of Technical & Derivative Research at Narnolia Financial Advisors. He has rich experience in Technical Analysis across Equities, Commodities, Global Indices and Global Currencies. His strength lies in Elliott wave and Neo Wave theory while he is equally proficient in Candlestick patterns, Fibonacci, price projection, classical Dow Theory, and inter market analysis for interpreting market trends.
first published: Dec 6, 2020 02:35 pm

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