Last Updated on Feb 28, 2023 by Gayathri Ravi
Markets continued to remain weak, and correction got extended. But as I always say, during the correction, we get the best opportunity to accumulate quality counters near supports, and we get the most favourable risk-reward too. One such counter is Pidilite Industries. Let’s dive deep into the higher timeframe charts and understand the formations better.
Table of Contents
Monthly: Price action
What a stupendous rally!
An interesting part to note is that post-2008 correction, there is no lower bottom compared to the previous bottom. Price continued its uptick and also held trend line support (highlighted in yellow colour) since 2014. Presently it has again tested the same trend line. An interesting part to observe is that the volumes are very less in the correction phase, confirming a good buying opportunity as there was a lack of participation in correction.
Weekly: RSI
The weekly chart shows better formation on recent happenings. Price has reached the support zone and consolidating near the same zone for 3-4 weeks, and now we are also heading for month end. Where the price is making higher bottoms, Relative Strength Indicator (RSI) is making lower bottoms, confirming “Hidden Bullish RSI divergence”. As per the set-up, one can take advantage of recent price corrections and accumulate stock.
Weekly: Price and Fibonacci
The price is clearly holding a trend line since 2019. An interesting part to observe here is that trend line support is just coinciding with 78.6% of the last advance. 2190-2200 zone can be considered as an inflexion point, and the said zone may offer very strong support to the counter.
Weekly: Exponential Moving Average
Moving averages need to place on the logic of trial and error. Very clearly, the price crossed 120 weeks’ Exponential Moving Average (EMA) in 2009 and has remained above that since then. In fact, the price precisely took the support of the same moving average 5 times in the past. Presently it has reached the same moving average again. Well, one can’t afford to ignore the counter.
Weekly: Ichimoku
Ichimoku is an equilibrium indicator. Since 2017 (In fact, even before 2017), the price has remained in an uptrend, which is even confirmed by Ichimoku. Multiple times price has taken support of the Kumo cloud. Though the present price has breached the cloud (which happened even in the past), the future cloud remains bullish. Tenkan Kijun is flat, and Chikou Span is well above the cloud, highlighting the possibility of sideways consolidation, if not immediate recovery.
Daily: Price action + RSI + MACD
A clear downtrend can be seen on the daily chart. The price has reached the previous low on the daily chart and seems to be taking a pause. At the same zone, RSI is making the higher bottom, and so is the case with Moving Average Convergence Divergence (MACD) too. Both indicators confirm “bullish divergence”. Along with other higher timeframe observations, this can be taken as an early sign of bottoming out.
Ratio Chart: Pidilite Industries Vs Nifty
This is the ratio chart of Pidilite Industries and Nifty. Pidilite Industries has very clearly outperformed Nifty since 2013-2014. Recently the ratio chart has formed a base, and that has been tested 3 times so far and bounced nicely (keeping the trend intact). The present set-up is again highlighting the likely outperformance of Pidilite Industries in the time to come.
Putting it all together
Looking at monthly price action using a multi-year-old trend line, Fibonacci support of 78.6% alongside trend line support on weekly, and hidden RSI bullish divergence, Pidilite Industries seems to be a perfect bargain buying opportunity from a long-term perspective. The 120 weeks’ EMA, Ichimoku on weekly, bullish RSI and MACD divergence on the daily chart suggest the same.
The ratio chart of the stock with Nifty also suggests a possible outperformance of the counter from the present zone. One can keep an eye on reversal signs and think of positional bet on the discussed counter.
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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