Last Updated on Feb 8, 2023 by Anjali Chourasiya
The past couple of weeks were full of volatility and chaos. Budget, followed by Adani Saga, turned extremely chaotic and painful too. Most of the counters saw heavy profit booking/selling. This week also saw some decent recovery. It seems the best time to accumulate super strong counters, which are available near good support. One such counter is Asian Paints. Let’s go through all charts to understand formations well.
Table of Contents
Monthly: Trendline
What a strong counter. Not even been a single lower bottom in the last 12 yrs, and has just respected the same trend line since 2010. Every time when it reaches the trend line, it bounces successfully. Presently it again retested the same trend line after 1 yr, and the ongoing candle has started turning bullish. There is a bright possibility of Asian paints again holding the same trend line and resuming the ongoing 12 yrs old trend.
Monthly: RSI
As we can see in this zoomed chart, the price is holding the trend line support well. Relative Strength Indicator (RSI), which is a momentum indicator, is in decline mode. RSI is making the lower bottoms when the price is making higher bottoms, forming a bullish hidden divergence. If support is held well, it can bounce in a decent way.
Weekly: Price and volume action
Volume plays a very important role in understanding price action. During the uptrend, along with the price rise, even volume increased in a big way. During the sideways consolidation of price action, the volume has almost dried up and come down to half. This gives confidence that the price has not come down as a downtrend, and one can certainly consider this correction as buying opportunity.
Weekly: MACD
Moving Average Convergence Divergence (MACD) is a trend-following indicator and gives trend confirmation on emergence. There are multiple ways of looking at this indicator. But in the present formation, observation is way different from all traditional ways. Simply, MACD is at an oversold zone which is not seen in the last 8 yrs. Secondly, it has reached the same level as where it bounced in the recent past. Looking at all formations of MACD, the bounce seems evidenced, especially when the last candle turned bullish.
Weekly: Bollinger Bands
John Bollinger considers this indicator as a whole indicator for all types of trades. There are multiple ways of using this indicator. One of the ways to use it is to find mean reversion opportunities. When the price is plotted out of the band, followed by inside plotting, it opens doors for mean reversion till midline. Just the same set-up is on present formation amid volatility. Short-term trade can be taken with mid-line as a target.
Daily: RSI
On the daily chart, the price is clearly in a downtrend. But the formation looks like a falling wedge, which has an underlying bullish tone. RSI has reversed from the extreme low zone, which is not seen in the last many months, making it the best “reversal trade” counter for the short term. The first immediate target is the resistance line. On the breakout, we can expect the rally to get extended going forward.
Daily: MACD
On the daily chart, has price seems to be reversing from extreme lows; we can even see MACD about to give crossover, which can be taken as the first sign of a turnaround. One can take up trade from a short-term mindset and also keep an eye on MACD crossing above the zero line to take clues on mid-term trends.
Ratio chart: Asian paints Vs Berger paints
This is the ratio chart of Asian paints and Berger paints. After 2006, it is the recent time of last 2 yrs, where the ratio chart has hit extreme lows. From the extreme lows, the action is forming a rising expanding wedge. This formation may continue expanding and evolving upside, which will confirm the likely outperformance of Asian paints over Berger paints.
Putting it all together
Looking at a more than 12 yrs old trend line on the monthly chart, bullish hidden RSI divergence, and extremely oversold MACD on the weekly chart with a supportive volume profile is making the counter a perfect bargain buy candidate. The mean reversion possibility on Bollinger Bands, falling wedge with reversal of oversold RSI and MACD crossover on the daily chart, suggests the same.
The ratio chart of Asian paints Vs Berger paints highlights the possibility of the counter continuing to outperform going forward. One can see this counter from short-term, mid-term as well as long-term perspectives.
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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