Last Updated on Apr 25, 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, performing various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW. Kunal is also a visiting faculty in multiple colleges.

The insurance sector has been a laggard for a long time, and many counters have been at extremely low levels. A couple of counters, which are outperforming the sector, are showing early signs of recovery, and one of them is ICICI Prudential. Herein I share my positional view using technical parameters on ICICI Prudential. As I discussed in my earlier articles, when the stock reverses from the low, the main focus should be on-trend and price action. Let’s go through all technical observations!

Weekly chart – price action using trendlines

Since listing, the counter continued its sideways journey till 2020. After forming an extreme bottom during march 2020, the counter changed direction and entered an uptrend. This broader uptrend seems intact as a parallel line is made by connecting the tops and placed from the previous bottom. The last 2 candles decently respected the trendline support. A healthy bullish candle is truly encouraging 🙂

Weekly chart – price action using curved trendline

On the same chart, one more observation is curved trendline support. The third touchpoint on the trendline is showing violation of the trendline, but if seen carefully, not even a single candle closed below the support trendline, making it more reliable. And it’s been respected again. 

Weekly chart with RSI

Price perfectly took the support of both trendlines (Parallel lines and curved trendlines) and bounced. Alongside these support trendlines, one more trendline (highlighted with blue colour) is highlighting a wonderful hidden bullish divergence. RSI bounced from extremely low levels (oversold zone), making it more reliable. 

Weekly chart with Bollinger Bands

The support provided by trendline just coincided with price plotting from outside the band to inside the band. This triggers the “mean reversion” approach of bands, which sets the minimum short-term target of the midline of the band, which is at 555 zone. This is a short-term trading set-up, but adding conviction of limited downside from hereon. 

Weekly chart – mean zone

Since listing, the price showed extreme fluctuations, swing up and swing downs, making it a bit volatile. This fluctuation made a zone on the chart, which I prefer to define as mean reversion zone. That zone is perfectly equidistant from high as well as low and has offered multiple times support and resistance to price action. Presently, the price seems to have taken perfect bounce from the same zone, which coincides with many other support zones highlighted earlier. 

Ratio chart of ICICI Pru and HDFC Life

This is a ratio chart of ICICI PRU and HDFC Life. It clearly indicates a downward sloping line from 2017 till 2021 getting converted into an uptrend. Off lately, it went into sideways consolidation, making channels and recently showed breakout. 

If the entire formation is seen in a broader aspect, it shows the cup and handle formation underway. So, short term as well as longer-term going forward, ICICI Pru is likely to outperform HDFC Life. (Though positional confirmation is still pending, that will be valid above the cup and handle breakout). 

Putting it all together

Looking at the upward channel on the weekly chart, with curved trendline support and flat line support lighted on the same timeframe chart, with hidden bullish divergence and ‘mean reversion’ set up on Bollinger Bands which is getting coincided alongside support offered by mean reversion area on the chart, it seems that downside on the stock remains limited and one can think of approaching the counter from short/mid/long term perspective. Comparing the same with the nearest peer in the sector based on the ratio chart, it is likely to outperform. 

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. 

Kunal Rambhia

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