Last Updated on Dec 21, 2022 by Anjali Chourasiya
After the massive rally in the market, a bit of weakness has been seen in recent times. The focus should be on finding the opportunities on the counters which have recently started the new rally. The counters, which have rallied too much, are probably coming to retest the breakout zone. One search counter is the Indian Overseas Bank (IOB), which has shown extraordinary strength recently and can be accumulated near the breakout zone. Let’s dive deep into the charts and see all the formations.
Table of Contents
Monthly: Cycles
Since inception, the counter seems to follow an approximately 75 to 77-period cycle. The down really was really huge and was the combination of two cycles. After making the extreme bottom during 20, the counter started its uptick again and has made a swing high during the present week. One can certainly look at the counter from the long-term perspective as it confirms its uptrend.
Monthly: Price action and volumes
What we can see in recent times is the maximum volume on the monthly chart compared to the past 22 yrs. The recent uptick in the price action has used volumes on the uptick compared to the downtick, which is perfectly supporting the uptrend and confirms the accumulation on the counter.
Weekly: Price action and volumes
After the massive consolidation of almost 6 yrs, the price is coming out of the consolidation by forming inverse head and shoulder formation. This bullish inverse head and shoulder formation is also supported by good volumes, and the price has decisively broken the neckline. Even if we look at the price action, the higher top and the higher bottom confirmations are right above the neckline. The positional target can be the thrust between the neckline and head, approximately 20 points from 30, making it near 50.
Weekly: RSI
A Relative Strength Indicator (RSI) is a momentum indicator and confirms the strength of the price action. Present RSI is trading at the 87+ zone, the highest ever recorded in the last 20 yrs. A similar kind of zone was noticed during 2002, after which the price started a new bullish journey. Let’s keep our fingers crossed for such a massive rally to emerge again due to the present formation and the thrust, which is seen in the price action.
Weekly: MACD
Moving Average Convergence Divergence (MACD) is a lagging indicator and confirms the emergence of a trend. There are multiple ways of looking at the indicator, one being the MACD crossover, the second being the MACD crossover of the zero line. Here on the chart, we can see that the MACD crossover came very much on time near the low, and it is also crossing the zero line decisively. Both these signs confirm the emergence of a new trend.
Weekly: Ichimoku
Ichimoku is an amazing indicator which can be used for the short term to the long term. Kijun sen and Tenkan Sen crossover is in place, the future Cloud is also bullish, the price has decisively crossed Cloud in the present time, and the Chikou span is also above all resistances. A similar kind of strength was noticed in 2014, but volumes were missing. This time the set-up is just bullish, and volumes are certainly supporting the same. All these observations make the counter very attractive from short-term to medium-term to long-term perspectives. One should adopt a buy on dip strategy.
Weekly: Supertrend
Supertrend is a trend-following indicator and is simple to understand. The major bullish as well as bearish rallies are captured using supertrend crossover. After a pretty long period of time, the supertrend crossover is confirmed with volume activity. It seems to be the beginning of a new rally.
Weekly: Fibonacci
Fibonacci is one of the best tools to identify support, resistance as well as targets. This works really well when the price is making higher tops in higher bottoms. As we can see, the price has made the first higher top compared to the previous stop. It makes perfect sense to apply an extension based on Fibonacci. The expected targets based on this tool are 161.8%, 261.8% and 423.6%, which are plotted on the chart. The reliability of this tool is really high 🙂
Weekly: Bollinger Bands
Bollinger Bands can be used for trading and identifying the best positional trades. We can see that Bollinger Bands remained almost squeezed for many years due to low volatility. Finally, the prices have crossed the higher band decisively, highlighting the possibility of a new bullish rally from here on. Remember, the bands are widening, which means the volatility will certainly increase. So, one can consider buying on dips strategy for the positional approach with the trailing stop loss as the midline of Bollinger.
Ratio chart: IOB Vs Nifty PSU Bank Index
As we can see on the ratio chart, the trend is certainly negative. But if we connect the bottoms, it seems that the prices make a curved formation. The most recent uptick from their support trend line is really encouraging and highlights the possibility of the outperformance of IOB over the Nifty PSU Bank Index.
Putting it all together
After looking at the 72-75 period cycle on the monthly chart, RSI, MACD, Super trend, Ichimoku, super trend, it seems a perfect counter for the long term. The price formation with volume action on weekly charts and the ratio chart of IOB with the Nifty PSU Bank Index suggest the same. One can consider buying on a dip strategy with proper risk management in place.
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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