Last Updated on Feb 2, 2023 by
Markets surprised most traders with a massive decline. The decline coincided with two consecutive expiries, T+1 settlement regime implementation and Adani chaos. While global markets remain resilient and continue to uptick, only Indian markets declined massively due to domestic events. Nonetheless, the mid to long-term trend remains intact, and we continue with a stock-specific approach. This week, I select L&T Finance as the counter, as it seems to bottom out and can be considered during this brutal (no trend) correction.
Table of Contents
Monthly: Cycle
For almost a decade, the counter followed 30 months cycle to change the megatrend. The most recent behaviour of the counter was sideways for 30 months, which ended in September 2022. Uptick seems in progress.
Weekly: Price action
After making the extreme bottom, the counter seems to be in sideways consolidation. It makes a symmetrical triangle. Whenever the counter touched support, extreme volumes were noticed. Price has been respecting the trendlines well for two years. The resistance line can be considered as a breakout for momentum buying, and the support line can be considered a bargain buying line for initiating longs with a positional mindset.
Weekly: Relative Strength Indicator (RSI)
Price is presently within a consolidation, but the interesting part is, from the previous low swing, the price is gaining strength on the upside. This higher top, the higher bottom may continue on resistance breakout. Do note – strength may get added to the counter on the breakout, but till then, one should remain patient and not buy in anticipation of the breakout.
Weekly: MACD
Moving Average Convergence Divergence (MACD) is a lagging indicator and confirms the trend. Though late in signalling the trend, this is highly reliable, especially when the counter enters a massive trend. Here on the weekly chart, MACD crossover got confirmed below the zero line, followed by zero line crossover. Both signals confirm the likely emergence of a new trend. After massive consolidation of 2 yrs, the new trend, upon emergence, can go really sizeable. Watch out for price action, as discussed in the weekly price action section earlier.
Weekly: Ichimoku
Ichimoku is again one of the trend following indicators. This indicator can be used in multiple ways, including a split of indicators. Tenkan – Kijun crossover confirms a short-term positive trend on the weekly chart. Future Kumo cloud bullish crossover is confirmed and widening, which confirms the likely emergence of a strong trend. The price has sustained above the cloud decisively, which is also offering the possibility of a bullish trend. All observations are supportive in nature.
Weekly: Supertrend
Supertrend is a trending indicator and is very simple to follow. This indicator is based on trend and volatility. In the past, crossover signs have delivered good returns, be they bullish or bearish. The present crossover is bullish. Looking at historical performance, I prefer to remain bullish and super trend being a good support zone.
Ratio chart: L&T Finance Vs Chola Finance
The ratio chart is of L&T Finance and Chola Finance. The chart seems in a clear uptrend as per the recent price action. Though right now near the resistance, the trend remains positive. A positive trend on the ratio chart means likely outperformance of L&T finance over Chola Finance in the mid-term.
Putting it all together
After looking at the monthly cycle of 30 periods, price action on the weekly chart (forming a symmetrical triangle), strengthening RSI, MACD crossover and trending above zero line – confirms the likely trend continuation of the bullish trend on L&T Finance. The Supertrend crossover, Ichimoku crossover of Tenkan – Kijun with bullish future cloud and volume actions also suggest the same.
The ratio chart confirms the likely outperformance of L&T Finance over its peers. One can consider this counter from a trading to an investment 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 on the counter. Prefer to take the advice of your financial advisor before initiating any position.
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