When traders notice negative reversal, there will be a change in the strategy. Traders will assume a short position to capitalize the potential downtrend.
Yesterday, three bank stocks formed bearish technical pattern known as the Negative Reversal Pattern. The stocks in the banking sector are popular among investors. Therefore, any changes in patterns in these stock charts are in investors’ attentions.
The stock has been very volatile stock over the year. After a long consolidation phase from January to June, the stock broke out from the tight range. The stock had touched 52-week low at Rs. 156 in March, and since then it started showing some recovery. But the gains solidified only in July. Meanwhile, the golden-cross pattern formation witnessed in August confirmed the bullish trend. The stock continued to trade higher and tried to move closer to new year highs in August.The stock hit 52-week high at Rs. 338.9 in October 05, 2016. But after that the stock faltered. But it has maintained above its 50-DMA and 200-DMA levels. However, recently the bank disappointed the markets with weak Q2 numbers. The stock has fallen in last two sessions. Meanwhile, the Relative Strength Index (RSI) is at higher level. Hence, the negative reversal is confirmed. So, the next support is 50-DMA level.
The stock has been very volatile over the year. However, after touching 52-week low at Rs. 148.25 in February, the stock has seen some recovery. But the stock could hold the 50-DMA level only in June, accompanied with increased volumes. That was followed by golden cross pattern in August, where the stock traded above its 50-DMA and 200-DMA level.It is visible that the stock’s upward momentum was hindered after the stock hit its 52-week high at Rs. 271.6 in September. The stock has made several attempts to rise but is facing resistance at Rs. 264.9 level. Meanwhile, it has got support at its 50-DMA level. However, the stock dropped sharply on last two days. Meanwhile, the RSI is at higher level. And hence, the negative reversal is confirmed.
The stock daily chart is very interesting. The stock has witnessed a strong bull run from the beginning of the financial year 2016-17. But the rally was paused when the stock touched 52-week high at Rs. 1,449 on September 02, 2016. But since then the stock has been losing buyers’ interest and has been tumbling over last month. Moreover, the stock is trading at its 50-DMA level, which is its short-term support level. It is visible that the stock is facing resistance since the start of this week. It has been declining since last three sessions. Meanwhile, the RSI is at higher level. And hence, the negative reversal is confirmed.When traders notice negative reversal, there will be a change in the strategy. Traders will assume a short position to capitalize the potential downward movement in the stock price. That means they may want to sell that stock.Any indicator or pattern cannot be used independently. Remember, technical analysis is based on confirmation. Investors can land into trouble if they don’t use other indicators to confirm the trend. Therefore, investors should use RSI to confirm negative reversal.
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