Last Updated on Jul 13, 2022 by Aradhana Gotur

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.

The market has shown some stable behaviour recently, and many stocks bounced decently from their extreme lows. During this entire corrective phase of the market, Foreign institutional investors (FIIs) constantly sold, and retailers continuously bought the correction. Our finance minister also appreciated this positional approach of retailers towards the market and deserves applause. The effect of the same can be seen in the stock performance on a longer-term basis. Herein I share my technical observation on HDFC AMC

Weekly: Time Cycle

Since listing during 2018, the counter rallied in different phases, showing approximately 40 weekly candles cycle. The phase between February 2020 and September 2021 turned out to be 81 candles cycle (double of 40 periods cycle). Before three weeks, when the counter reached the support trendlines (Yellow trendline support since inception and white trendline by connecting lows of July 2019 and March 2020), the cycle of 40 periods turned due and coincided with the support trendline. The sizable reversal was seen during the last week, confirming support holding well. 

Weekly: Trendline

Since September 2019, the counter has been moving in sideways a broader consolidation channel and bouncing well from the support trendline. This formation is offering the best risk-reward for the positional trade (investment), with the stop below the trendline support and the target being the higher trendline resistance. 

Weekly: Fibonacci Retracement

Since its inception, when the price rallied from 1,250 to the zone of 3,400, it made multiple tops near the 3,400 zone. Considering the same, if we plot retracement on that advance, its 78.6% retracement comes to 1,700, which is perfectly coinciding with two trendlines highlighted in yellow and white colour. The 1,700 zone can be considered the best demand zone for the counter, even from a long-term perspective. 

Weekly: Fibonacci Extension

The Fibonacci Extension helps to find the target. The tool is applied on the lower top and lower bottom to calculate the target on the lower side and vice versa for the bullish side. Here, the two levels are used to get a lower target when the prices declined from the extreme highs and made an intermediate bottom somewhere during March 2020. The recent bottom of the counter perfectly hit the low of 100% of the same extension and bounced. The zone of 1,700 is again proved the perfect support (demand) zone. 

Weekly: RSI and Bollinger Bands

For the first time ever since listing, the weekly RSI of the counter entered the oversold trajectory during May 2022 and bounced. Bollinger Band outside and inside plotting is also triggering mean reversing trade. The stock beyond 2,000 (which is mid of the Bollinger band) can trigger a new buy trade. RSI is also at 44 and inching upward, confirming gathering strength in the trend. Alongside other observations, this seems to support the criteria to initiate bullish trade. 

Weekly: MACD

MACD is considered a lagging indicator as it is based on moving averages. There are multiple ways of reading MACD. Declining prices and equal bottoms on MACD are creating bullish divergence on the chart. MACD crossover is the second confirmation for the likely bullish trade going forward. Kindly note that due to the lagging nature of the indicator, even the EXIT based on this indicator may remain late. But certainly, it is worth following the indicator if one wants to go positional on the counter. 

Weekly: Ratio chart of HDFC AMC and Nippon India

It always makes sense to look at the relative strength of the counter with peers to find a better deal if available in the same sector. The ratio chart serves the purpose. Here is the ratio chart of HDFC AMC and Nippon India. The ratio chart is right onto the support and trying to bounce from the support zone. Also, due to consolidation, RSI is showing good strength getting accumulated, which highlights the possibility of outperformance of HDFC AMC. If it triggers well, then the resistance on the chart is very far away from the present zone, and outperformance can last longer. 

Putting it all together

Almost due 40 weeks cycle, multiple trendlines support, almost parallel channel support, 78.6% retracement, and Fibonacci Extension of 100% (all observations making 1,700 as the best demand zone), make HDFC AMC an attractive positional bet. Besides, the RSI rallying from an extremely oversold zone, Bollinger Band crossover due, MACD crossover with bullish divergence and Support as well as bullish RSI divergence on the ratio chart also signal the same. 

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 on the counter. Prefer to take the advice of your financial advisor before initiating any position.  

Kunal Rambhia
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