Analyzing India

Interesting Trade Set-up; Breakout expected


NIFTY Infrastructure Index ($CNXINFRA) has seen considerable improvement in its performance over past couple of weeks. After relatively under-performing for the most part of 2018, this Sector Index has shown strong improvement in its Relative Momentum when bench-marked against the broader Index NIFTY500 ($CNX500). It is seen continuing with its improvement in coming weeks.

Within this NIFTY Infrastructure Index ($CNXINFRA), there are couple of interesting trade set-ups that catch our attention. One such set-up is observed in Larsen & Toubro Ltd (LT.IN)

The stock has spent the entire 2018 in a sideways move. It has traded in a Rectangle Formation in a trading range that has remained quite well defined for over past 11 months. Couple of signals have emerged through which we possibilities of a breakout from the current trading zone cannot be ruled out. More so when the NIFTY Infrastructure Index ($CNXINFRA) has started to improve its relative performance against the broader  markets. LT remains a important component of NIFTY Infrastructure Index and it is placed in the Leading Quadrant on the RRG when bench-marked against the Nifty Infrastructure Index ($CNXINFRA)

The RS Line against Nifty Infra Index has remained in upward rising channel and has presently broken out of that as well. Against the broader NIFTY500 Index ($CNX500), the RS Line has broken out of a formation giving a strong move. Both of the RS Lines presently remain above its 50-Week MA which can be seen as a confirmation of the present set up.

The PPO has turned positive. The Weekly Relative Strength Index (RSI) is 55.8869 and it is also seen breaking out of a pattern while marking a bullish divergence against the price. Full Stochastic has just bounced back from the oversold area.

The Bollinger bands are presently wider-than-normal on both Daily and Weekly time frame Charts. This may cause some consolidation to occur over very short term. But if we draw a conclusive view based on the weight of technical evidences present on the Charts, a clean breakout can be expected. The stock enjoys strong support in the 1300-1365 area. 

While anticipating the breakout, much has been relied upon the breakout in the RS Lines, its moving above the 50-Week MA, PPO turning positive and the On-Balance Volume testing its high on the higher time frame charts. In event of a breakout, the stock has the upward potential of returning around ~16% from the current levels. Any move below 1275 will be negative for the stock.

Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst

Disclosure pursuant to Clause 19 of SEBI (Research Analysts) Regulations 2014: Analyst, Family Members or his Associates holds no financial interest below 1% or higher than 1% and has not received any compensation from the Companies discussed.

Milan Vaishnav
About the author: , CMT, MSTA is an Independent Technical Research Analyst at his Research Firm, Gemstone Equity Research & Advisory Services in Vadodara, India. With his experience in the Indian Capital Markets of over 15 years, he has been delivering premium India-focused Independent Technical Research and presently contributes on a daily basis to ET Markets and The Economic Times of India. He also authors India-focused "Daily / Weekly Market Outlook" - A Daily / Weekly Newsletter, currently in its 15th year of publication. Learn More
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