IEX: Will the Counter Get Bull Energy?

Last Updated on Nov 29, 2022 by Anshiya Tabassum

Indices have started performing well, and now it seems like the time for mid-cap counters will be here soon. The focus for the next couple of weeks will be on finding stock-specific moves with good potential for upside from a short-term to mid-term perspective. Herein, I share my views on the Indian Energy Exchange (IEX), the counter which has not really performed in the recent past but now shows good signs of reversal. Let’s dive deep into the charts with different time frames and understand the structure.

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Table of Contents

Monthly: Time cycle

Since the listing date, the counter has shown a typical 52 bars cycle on the weekly chart. The last cycle was down and seemed to be getting over for a couple of weeks. After the bottom was made, 5 candles turned out to be positive. The downside seems limited based on the cycle structure.

Weekly: Fibonacci

After a massive positive rally from 2020 to 2022 (from Rs. 40 to Rs. 305), the counter saw a sizeable decline. On the Fibonacci front, the counter exactly halted at the golden ratio of 61.8% of the retracement. This zone coincides with the starting point of the massive incline (highlighted on the chart with a white area). Change in polarity with 61.8% retracement is offering the best support zone and highlighting the good demand zone.

Weekly: RSI

A Relative Strength Indicator (RSI) is a momentum indicator. It also serves the purpose of a leading indicator. We can see that the RSI is extremely lower. The zone from where the RSI is reversing, that zone is not achieved ever in the past. It is clearly seen that the price is making lower tops and lower bottoms formation, and at the same time, RSI stopped falling and showed a good reversal with base formation. Not exactly, but it seems to be forming a bullish divergence on the chart, making it worth noticing.

Weekly: MACD

MACD is a lagging indicator and confirms the trend after emergence. There are many ways to look at MACD, couple of them are getting triggered in the chart. Those interesting observations which are worth noticing are highlighted –

We can see that MACD is also reversing from the zone, which has never been seen before.
Price is making lower bottoms, but MACD has started making higher bottoms, confirming bullish divergence.
MACD crossover is noticed from extreme lows, which is the first bullish sign. A crossover of the zero lines may follow.

All observations on MACD are really attractive and worth considering for positional trades.

Weekly: Supertrend

Supertrend is a lagging (trend following) indicator and works well for directional trades. Supertrend (certainly parameters are tinted inside) is just perfectly offering support/resistance to the price action on the weekly chart. Once the price crosses the super trend on the higher side (approx. zone being 158), one can expect the trend reversal.

Weekly: Ichimoku

Ichimoku indicator is an equilibrium indicator and one of the bests in positional trades. Here on the weekly chart, the interesting observation to note is the support and resistance offered by Tenkan Sen and Kijun Sen. Even the smallest data line Tenkan Sen is offering the perfect resistance to price action since April 2022. For the first time since then, the price crossed the line on the higher side and closed decisively above the same. This is the first positive sign after many months, and it seems like many others will follow soon.

Daily: Ichimoku

Almost after 6 months, the price is penetrating into the Kumo Cloud. The future cloud is also turning thin, which shows the bright possibility of a breakout going forward. The daily chart shows price penetration above the cloud can be considered the perfect reversal sign.

Daily: Price action, RSI and MACD

After a prolonged downtrend on the daily chart, the stock seems to be forming a decent base. The entire formation looks like a falling wedge. Near the end of the formation, the price entered sideways consolidation and started to make higher tops, higher bottoms, and volumes. RSI is forming bullish divergence, and so is MACD, forming bullish divergence and MACD crossover along with zero line crossover. All observations are attractive and highlight the emergence of a new trend.

Ratio chart: IEX Vs BSE

After a sizeable downtrend on the ratio chart, it seems to be taking support on a longer trend line of 3-yrs. A decisive bounce is also noticed from the extreme lows, validating the support zone. This confirms the outperformance of IEX over BSE over the short term.

Ratio chart: IEX Vs MCX

Multiple interesting observations are on the chart. Price declined and halted at the trend line, which was acting as a resistance zone but now offering support due to a change in polarity. Secondly, 61.8% of the massive incline of 2020-22 also coincides with the same support zone. This shows the bright possibility of the counter starting to outperform MCX (Multi Commodity Exchange of India) over the mid to long term.

Putting it all together

After observing 52 bars weekly cycle, 61.8% retracement of the entire rally till 2022, extreme lower zone of RSI & MACD with bullish divergence, and the first crossover of Tenkan Sen after several months (certainly pending crossover of Super trend) are all confirming bullish behavior going forward. The falling wedge breakout on the daily chart, along with RSI and MACD divergence and Ichimoku Kumo Cloud penetration, confirms the same. The ratio chart of IEX over BSE and MCX also confirms the likely outperformance of the counter. One can consider the chart from a mid to long-term perspective too.

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.

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Kunal Rambhia

Kunal is 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.