The breakout has opened room for the stock to head above 1500 levels in the next 3-4 months, suggest experts.
The stock rose from Rs 1081 as on 17th November 2023 to Rs 1307 recorded on 19 December 2023 which translates into an upside of over 20% in a month. The stock hit a record high of Rs 1337 on 19 December.
The stock faced resistance above 1200 levels in September 2023 and it failed to hold on to the momentum. It witnessed a price correction which took the stock towards 870 levels in October 2023.
The ship-building stock found support above 870 levels in October 2023 and then bounced back which took shape of a rounding bottom pattern on the daily charts. The neckline of the pattern was placed at 1250 levels.
“A new bullish leg in Cochin Shipyard is visible as the stock prices form a saucer pattern. The saucer pattern, also known as a rounding bottom, is a technical analysis pattern resembling a “U” on a price chart. It signifies a gradual transition from a downtrend to an uptrend in an asset’s price,” Lovelesh Sharma, Founder at MarketFeds Analytics LLP, said.
“This pattern suggests a reversal of the previous downward trend and typically indicates bullish sentiment in the market. Traders often look for increased volume and a breakout above the saucer’s rim to confirm the pattern before making trading decisions,” he said.In terms of price action, the stock is trading below the 5 and 10-DMA but above 20,30,50,100 and 200-DMA on the daily charts.
The recent price action pushed the stock into an overbought zone which suggests that some consolidation could be on the cards.
The daily Relative Strength Index (RSI) is at 70.2. RSI above 70 is considered overbought. This implies that the stock may show pullback. The daily MACD is above its center and signal Line, this is a bullish indicator.
The stock has undergone this overdue consolidation since early September 23 and is coming out with a visible breakout.
“The volume participation in the latter stages of the pattern has seen a jump while, at the same time, the price is now sustaining the breakout point or, as technical analysis says, the point of polarity,” highlights Sharma.
This makes the reward risk favorable for short-term/Pattern traders. Traders often use ADX to determine the strength of a trend and its potential for continuation or reversal. When combined with other indicators, ADX helps traders decide about entering or exiting trades.
For instance, a rising ADX might indicate a strengthening trend. ADX is positive on a rolling basis and currently at 38.54, indicating price strength may continue in the mid to short term.
“RSI on the weekly chart has crossed above 70 levels, indicating good momentum as the RSI might stay in overbought or oversold territory for extended periods during strong trends. At the same time, volume at the breakout point confirms the current price action,” says Sharma.
“In the short to mid-term, we expect Cochin Shipyard to continue the uptrend. It is currently trading at 1274 – 1270. A dip towards 1200 can be used. A close below 1215 will negate this view. Upside projection based on the pattern comes at 1560 – 1670, making the reward risk 6:1,” he recommends.
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(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)