Last Updated on Aug 24, 2022 by
This article is authored by Kunal Rambhia, a fund manager at The Streets, a private fund. He has been in the equity market since 2010, in various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW and is a visiting faculty in multiple colleges.
As I kept discussing the wonderful bargain buying opportunity offered by the market and likely bottom formation, the market turned kind enough to deliver as thought. But there are many counters, which are starting their journey now and still offering very good positional opportunities. Herein I share my view on one of such counters Bharat Petroleum Corporation Ltd (BPCL) from a positional perspective.
Table of Contents
The Fibonacci cycle is used here. The date selected is from January 1999 to June 2008 (time where it remained sideways) and extended till August 2013 (minor inclined from June 2008 to August 2013) to get the next major turnaround (as per Fibonacci). The next important time to consider is December 2022, when a decisive rally may emerge. December 2022 is 100% time extension level.
Looking at the present symmetrical triangle formation, it seems likely that we can have a sizable breakout in place by then, which may take the stock to a new trajectory. So, a sizable rally can be expected between August 2022 to December 2022 (to complete the formation and get the stock ready for a breakout by then) and eventually enter a new zone on the upside. One should note that predicting a pattern breakout is risky, and one should be flexible in approach.
Monthly: Price action + RSI
Such a massive symmetrical triangle formation has been underway since 2015 (almost 7 yrs long). The best part, which can be seen on RSI alongside the formation is that it is forming hidden bullish divergence. As the price reaches near support of the trendline, RSI reaches near its support and offers a wonderful buying opportunity. Bouncing from the support zone, price is confirming valid divergence once again and once again offering the best risk-reward for longs.
Weekly: Price Action + MACD
The weekly chart shows a clear horizontal support zone on the chart. A falling formation is also seen alongside, which seems more like a falling wedge. It perfectly coincided with the horizontal support zone, and the prices have bounced decently from the same cluster of supports, the inflexion point.
An interesting thing to watch out for is the bullish divergence on MACD, where the indicator made the same bottom, and the price bounced after making a new low. The best part of MACD is that it is a lagging indicator but certainly worth considering for divergences. A wonderful set-up, not to miss out for creating a bullish position.
The weekly price action remains the same as explained in the previous diagram. An interesting thing to watch out here is Bullish RSI divergence. RSI, being a momentum indicator, is worth watching out for divergences. Breakout can be the best time to initiate longs, though aggressive traders take up positions near lows to enjoy a favourable risk-reward ratio too.
Partial Ichimoku can be considered as situation demands. Ichimoku is a lagging indicator and gives all confirmations late. Especially when the trend is turning around, Kumo cloud is pretty late to offer signals. Here I plot only Tenkan & Kijun alongside price action and formations. Kijun Sen is coinciding with the resistance line of the falling wedge. On the pattern breakout, the Kijun Sen breakout will also be confirmed. We can also expect Tenkan – Kijun crossover by then. That situation can be considered as the first sign of reversal on Ichimoku and worth taking up on longer timeframe charts.
Weekly: Ratio chart: BPCL v/s HPCL
Ratio charts are the best tools to find out the relative strength of the counter with its peers. The chart is plotted from 2003 till now. On the 19 years data chart, a trendline is plotted which is offering decent support. In the recent past, the ratio chart took the support of the same trendline and bounced from the same zone. The upward journey of the chart is likely to emerge from the present zone, which is confirming the “likely” outperformance of BPCL compared to HPCL. As the price action and other observations discussed earlier are supporting a likely bullish outcome on BPCL, one can certainly consider the counter for positional approach.
Weekly: Ratio chart: BPCL v/s IOC
Another Ratio chart is of BPCL and IOC. Again, data are plotted from the year 2000 onwards. A decent curve formation is underway for the same and bounce is seen from the same support zone. The outperformance of BPCL over IOC is likely based on this chart.
Daily: Price action
Though a very lower timeframe to consider for discussion, the daily timeframe chart is showing a clear head & shoulder formation on the chart. Price has just reached the breakout zone, which is the neckline of the formation. A short-term bullish position can be initiated based on this breakout.
Prices have entered the cloud and will attempt cloud breakout based on the pattern breakout target, which can be a sign of trend reversal. Tenkan – Kijun bullish crossover is highlighted with a circle. Also, the future cloud is turned bullish (highlighted with a circle). This lagging indicator is suggesting better times ahead for the counter.
Putting it all together
December 2022 is likely the turning month for the counter based on the Monthly Fibonacci cycle, hidden bullish divergence on the monthly chart with a massive symmetrical triangle, weekly support of horizontal support and falling wedge formation alongside bullish divergence on RSI and MACD, the breakout of falling wedge coinciding with Tenkan – Kijun crossover on the weekly chart.
All these formations are confirming a better time for BPCL going forward. The ratio chart of BPCL with HPCL and IOC confirms the likely outperformance of BPCL over HPCL and IOC. The daily chart of BPCL is also confirming bullish inverse head and shoulder formation and Ichimoku trend confirmation soon. Looking at all observations, BPCL can be one of the best trades from a positional perspective.
Statutory Disclosure: Kindly note that this update is only for educational purposes. It is safe to assume that my personal position, my fund’s position, my client’s position and my relative’s position may be open at the counter. Prefer to take the advice of your financial advisor before initiating any position.
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