Blog posts of '2024' 'June'

Stock name: Tata Elxsi Ltd.

Pattern: Head and shoulders pattern

Time frame: Weekly

Observation:

After COVID-19, the stock showed a strong upward trend but recently stabilized into a head and shoulders pattern on its weekly chart. In April 2024, it broke out of this pattern and has since been moving downward with a low RSI. Technical analysis indicates that if the stock maintains its current momentum, it may continue to decline.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Stock name: CSB Bank Ltd.

Pattern: Double top pattern and retest

Time frame: Weekly

Observation:

The stock experienced an upward trend starting in June 2022. Later on the stock has stabilised and formed a double top pattern from November 2023 to May 2024. In May 2024, it broke out of this pattern with above-average trading volume. Currently, it is retesting the breakout level, but its RSI is very low. Technical analysis suggests that if the stock completes the retest and resumes its downward momentum, it may decline further.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

News for the day:

• Kotak Mahindra Bank received RBI approval to sell a 70% stake in its general insurance arm to Zurich Insurance Company. Zurich had announced plans in November to acquire a 51% stake initially, followed by an additional 19% within three years for Rs 5,560 crore. All necessary regulatory approvals are now in place. Following the news, Kotak Mahindra Bank's shares rose 4.89% to Rs 1,718.75 on the BSE. The Competition Commission of India (CCI) also approved the acquisition earlier this month.
  
  
• The government is seeking a new chief for Indian Oil Corporation (IOC) as current chairman SM Vaidya's term ends soon. Despite the petroleum ministry's recommendation, the prime minister's office rejected an extension for Vaidya. The selection process, led by a committee, began on election verdict day, raising speculation. The job criteria exclude Vaidya, who is 61, but the committee may relax requirements for exceptional candidates.
  
  
• Godrej Properties sold a 5% stake in Godrej Green Homes to Godrej Fund Management and Investment Advisors for Rs 46.70 crore. This related party transaction, conducted at arm's length with fair valuation, ensures the sale price is equivalent to that for a non-related party. The announcement led to a 3.4% increase in Godrej Properties' shares, closing at Rs 2,666.95.

Stock name: PCBL Ltd.

Pattern: Head and shoulders pattern

Time frame: Daily

Observation:

The stock experienced an upward trend after COVID but recently it has stabilized, forming a head and shoulders pattern on its daily chart. On June 4, 2024, amidst a significant market downturn, the stock broke out of this pattern. Currently, its RSI levels are in the oversold zone, which may suggest a potential retest of the breakout. According to technical analysis, if the stock sustains the breakout momentum, it may continue to decline.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Stock name: Dr. Lal Path Labs Ltd.

Pattern: Double bottom pattern

Time frame: Weekly

Observation:

Since September 2021, the stock has been on a downward trend but has stabilized, forming a double bottom pattern on its weekly chart. Despite this, it has not yet broken out from the pattern. Recently, a bullish MACD indicator and favourable RSI levels have emerged. According to technical analysis, if the stock breaks out with strong momentum, it may move upwards.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

News for the day:

• Tata Motors' board has approved the creation of a wholly-owned subsidiary named TML Commercial Vehicles Ltd (TMLCVL) to manage its commercial vehicles business. This move is part of a broader strategy announced in March to demerge its commercial and passenger vehicle segments into two separate listed entities. The new entity will focus on the CV business and related investments, while the passenger vehicle segment, including electric vehicles and Jaguar Land Rover, will be managed by a different entity. Tata Motors has also announced a merger of Tata Motor Finance with Tata Capital, approved by their respective boards.
  
  
• Kalyan Jewellers India will acquire the remaining 15% stake in Candere from founder Rupesh Jain for Rs. 42 crore, making Candere a wholly-owned subsidiary. This move supports Candere's shift from e-commerce to omni-channel commerce. Initially acquiring a majority stake in 2017, Kalyan Jewellers aims to expand Candere's retail presence, with 11 new showrooms launched last fiscal year. The acquisition is part of Kalyan's strategy to grow in the lightweight, fashion-forward jewellery segment.
  
  
• Welspun Corp's associate company, East Pipes Integrated Company for Industry (EPIC), has signed contracts worth SAR 1.65 billion (approximately Rs 3,670 crore) with Saudi Arabian Oil Co. (Aramco) for the supply of steel pipes. These 19-month contracts will impact Welspun's financials from Q4 of FY 2024-25 to Q4 of FY 2025-26. EPIC is a leading Saudi manufacturer of Helical Submerged Arc Welded (HSAW) pipes.

Stock name: Alkem Laboratories Ltd.

Pattern: Double top pattern

Time frame: Daily

Observation:

The stock has risen since its listing. However it has formed a double top pattern on the daily chart from December 2023 to June 2024. Despite being above the neckline, it has been declining due to a bearish MACD signal. The RSI level is also very low. Technical analysis suggests that if the stock breaks below the neckline, it may see further downward movement.

Stock name: CIE Automotive India Ltd.

Pattern: Inverse head and shoulders pattern and retest

Time frame: Daily

Observation:

Since July 2023, the stock has shown a mix of sideways and downward movement. Recently, it formed an inverse head and shoulders pattern on the daily chart, breaking out on May 21, 2024, with high volume and a bullish MACD signal. Currently, the stock is retesting the breakout level, which has cooled the RSI to a favourable level. According to technical analysis, if the stock rebounds from this retest, it might move further upward.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

News for the day:

• Mukesh Ambani's exclusive 5G deal in Ghana faces backlash from the National Democratic Congress (NDC). They argue that the $125 million, 10-year contract with Next Gen Infraco, which partners with Ambani's Radisys Corp., undervalues the 5G spectrum and deprives the debt-ridden nation of potential revenue. Critics claim a formal bidding process could have generated up to $500 million, highlighting the urgent need for foreign exchange and non-tax revenue.
  
  
• Uno Minda, a major auto parts supplier, has significantly outpaced industry growth, with its revenue increasing by 25.2% in FY24 and stock rising 37% recently. This success is driven by its lighting and light metal technology divisions, which contribute nearly 50% of revenue, and a strong focus on premium offerings and the electric vehicle (EV) segment. The company's kit value has seen substantial growth, particularly in premium bikes and SUVs. Uno Minda secured significant EV orders worth ₹3,755 crore in FY24 and plans to invest heavily in capacity expansion, maintaining a high valuation due to promising growth prospects.
  
  
• Adani Group and ICICI Bank have launched co-branded credit cards offering airport-linked benefits. Integrated with the Adani One app, these cards provide Adani Reward Points, lounge access, free air tickets, and duty-free shopping discounts. This venture marks Adani's entry into the financial sector, aiming to enhance customer travel experiences.

Stock name: Coal India Ltd.

Pattern: Rounding bottom pattern

Time frame: Monthly

Observation:

The stock has formed a rounding bottom pattern on its monthly chart from 2015 to 2024. A breakout from this pattern occurred in April 2024, followed by continued upward movement in the subsequent month. Currently, the RSI indicates that the stock is in the overbought zone, which could lead to a retest. However, technical analysis suggests that if the stock maintains its current momentum, it might move further upwards.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Stock name: Engineers India Ltd.

Pattern: Cup and handle pattern and retest

Time frame: Daily

Observation:

The stock has maintained an upward trend since April 2023. It formed a cup and handle pattern on its daily chart between April and May 2024. On May 14, 2024, the stock broke out from this pattern with a bullish MACD indicator and above-average trading volume. Following the breakout, the stock saw a slight upward move but immediately retested the breakout level, cooling off the RSI to favourable levels. According to technical analysis, if the stock rebounds from the current retest, it may continue to move upward.

You may add this to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

News for the day:

• Tata Motors will demerge its commercial (CV) and passenger vehicle (PV) segments into separate listed entities to better capitalize on global opportunities. The CV entity aims to become more agile, while the PV entity will focus on EVs, Jaguar Land Rover, and related investments. The demerger is expected to enhance growth prospects and operational focus. Both segments anticipate continued strong performance, with a particular emphasis on expanding the EV market.
  
  
• Bharti Airtel chairman Sunil Mittal emphasized that Vodafone Idea (Vi) must settle past dues with Indus Towers to access new services like 5G. Airtel, holding a 48% stake in Indus, insists Vi must clear its ₹10,000 crore debt. While Indus may show flexibility if substantial payments and a repayment schedule are provided, Vi's ability to expand its 4G and roll out 5G depends on these payments. Recently, Vi raised ₹18,000 crore and plans further fundraising to upgrade its network and stop subscriber losses.
  
  
• OPEC+ has extended its substantial oil production cuts until 2025 to stabilize the market amidst slow demand growth, high interest rates, and increasing U.S. oil production. The group will maintain its current reduction of 5.86 million barrels per day (bpd). Mandatory cuts of 3.66 million bpd, initially set to expire at the end of 2024, will now last until the end of 2025, while voluntary cuts of 2.2 million bpd will extend until September 2024 and then phase out. This move aims to support oil prices by tightly managing supply during uncertain economic conditions.

Introduction: 

In the vast landscape of technical analysis, patterns emerge as valuable tools for traders seeking to understand market movements and make informed decisions. Among these patterns, the cup and handle pattern stands out as a reliable indicator of potential bullish trends.

Imagine spotting a pattern that not only signals a potential buying opportunity but also provides insight into the psychology of market participants. That's precisely what the cup and handle pattern offers.

In this comprehensive blog, we will delve into the intricacies of the cup and handle pattern: what it is, how to identify it, and most importantly, how one can use it to their advantage in the dynamic world of stock trading.

Valid Pattern and its Relevance:

The Cup with Handle is a popular bullish continuation pattern that traders often use to identify potential buying opportunities. Developed by William O'Neil and introduced in his 1988 book, How to Make Money in Stocks, this pattern consists of two main parts—the cup and the handle.

The cup forms after a price advance and resembles a bowl or rounding bottom. Once the cup is formed, a trading range develops on the right-hand side, shaping the handle.

In simple terms, imagine a cup followed by a smaller cup-like formation called the handle.

This pattern indicates a consolidation period, and a breakout from the handle's trading range typically signals a continuation of the prior price advance.

Let's delve deeper into this powerful pattern and explore how you can use it to your advantage in the world of trading.

The above example is for educational purposes only. 

The Cup with Handle pattern is a powerful tool for traders, signaling a bullish continuation in a stock's trend. Let's break down this pattern using some key points:

Trend: Before spotting the Cup with Handle pattern, look for an existing trend. Ideally, this trend should be a few months old. If it's too mature (say, more than a year), it means that there could be less potential upside.

Cup: The cup should resemble a "U" shape, like a bowl or rounding bottom. A "V" shape would be too sharp. The perfect pattern would have equal highs on both sides of the cup, but this isn't always the case.

Cup Depth: The depth of the cup ideally retraces 1/3 or less of the previous advance. However, with volatile markets, the retracement could range from 1/3 to 1/2. In extreme situations, it could even be 2/3, in line with Dow Theory.

Handle: After the cup forms, there's a pullback forming the handle. Sometimes it looks like the cloth of the flag or pennant sloping downward. The handle usually doesn't retrace more than 1/3 of the cup's advance.

Duration: The cup can form over one to six months, sometimes longer on weekly charts. The handle typically completed within one to four weeks.

Volume: Volume should decrease as prices decline and remain lower than average in the base of the bowl; it should then increase when the stock begins to make its move higher, back up to test the previous high.

Target: You can estimate the projected advance after the breakout by measuring the distance from the lowest point of the cup till the breakout point (neckline).

By understanding these simple rules, you can identify and trade the Cup with Handle pattern with confidence.

Conclusion:

Mastering the Cup with Handle pattern can significantly enhance your trading strategy. By identifying this bullish continuation pattern, traders can anticipate potential breakouts and capitalize on profitable opportunities. Remember to combine this pattern with other technical analysis tools for confirmation and always manage your risk.

With practice and patience, you'll be able to spot this pattern with ease and incorporate it into your trading routine. Stay disciplined, so that your “cup” can overflow with successful trades but just remember to “handle” your emotions as well.