Inverse Head & Shoulder pattern suggests buying opportunity in HDFC Life

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Why to buy HDFC Life Insurance Company?

In technical analysis, an Inverse Head and Shoulder pattern describes a specific chart formation that projects a bearish-to-bullish trend reversal. An Inverse Head and Shoulder 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 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 Inverse H&S pattern.

HDFC Life Insurance Company is trading in an upmove while forming Inverse Head & Shoulders pattern and this pattern has been completed on a close above Rs 645 mark. This stock is trading near strong resistance line standing around Rs 645 levels which is tested multiple times earlier & it also suggests a strong bullish bias to continue further after a breakout. Recent formation of Inverse Head & Shoulders classical pattern has given a breakout by trading only above Rs 645 mark, suggest buying in the stock for higher targets of Rs 850. 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 HDFC Life Insurance Company

Buy Signal

1. A decisive close above neckline (Rs 645) of Inverse Head & Shoulders pattern, has given a pattern breakout.

2. Prices are already trading above short-term moving average 20 DMA (Rs 611) which will define bullish short-term trend.

3. Mid-term moving average 50 DMA (Rs 590) 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 900, however one can book profits near fibonacci projection levels which is around Rs 850 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 HDFC Life it is placed around Rs 550 levels.

Conclusion

We recommend buying HDFC Life Insurance Company around Rs 650 levels with a stop loss of Rs 550 for higher targets of Rs 850 as indicated in above chart.

Disclosure: Narnolia Financial Advisors Ltd. is a SEBI registered Research Analyst having SEBI Registration No. INH300006500. The Company/Analyst (s) does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past.

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