Last Updated on Feb 16, 2023 by
Indices remained sideways for the whole week, and we saw stock-specific moves. During budget, we witnessed extreme selling in the insurance counters. But after evaluating price action, I personally feel that counters are offering a superb risk-reward ratio for positional players. One such counter is HDFC Life Insurance Company Ltd. Herein I share my technical views on the same.
Table of Contents
Monthly: Time cycle
On the monthly chart, we can see that HDFC Life is following the cycle of 75 bars. Almost every time, the price changed the direction at the end of 75 for a cycle. Only during the beginning, the counter had 47 bars cycle, which is 61.8% of the regular cycle. This cycle seems to be working well for the counter. The present cycle had the 75th bar last week. This is one of the good observations to keep in mind while evaluating other observations.
Monthly: Price action
Since listing, most of the life insurance companies have had sideways behavior. The extreme highs and lows were noted on the chart, and it is very clearly seen that the price comes back to the mean revision zone. HDFC Life also kept hovering near the mean reversion zone (50% of the whole move) most of the time. The recent decline took the prices lower, but again the decisive reversal is seen on the chart. This reversal coincides with the 75-period cycle discussed in the previous chart.
Index creation
Herein I have created an equal-weighted index by adding ICICI Prudential Life Insurance Company Ltd, HDFC Life, SBI Life Insurance Company Ltd and ICICI Lombard General Insurance Company Ltd. The whole sector, as I mentioned earlier too, is just in a sideways consolidation since inception and is presently on support, which is near the mean zone. HDFC Life is just performing in line with most of the major insurance players.
Weekly: Price and volume action
On the weekly chart, we can see that HDFC Life has a strong level of 500 to watch out for. Earlier, this zone was working as a resistance zone, and now, the same zone is working as a support zone on the chart. The interesting thing to notice is whenever the price deviates too much from this zone, extreme volumes turn up, and the price gets back to the same zone again. This change in polarity can help us to take up short-term, mid-term, and even swing trade on the counter.
Weekly: Price and volume action
The most interesting observation to notice here is that the price is taking superb support of this diagonal trend line since inception. This is the fourth time the price has taken support of the trend line and bounced decisively from the lows. The candle looks like a bullish harami/piercing with supportive volumes too. This seems the perfect opportunity to accumulate the counter.
Weekly: RSI
On the weekly chart again, if we focus only on the recent formation, the price made lower bottom right now and recovered sharply. At the same time, Relative Strength Indicator (RSI), which is a momentum indicator, reversed the upside by making a higher bottom. This confirms a bullish RSI divergence with good volume support. The whole observation confirms accumulation opportunity right near support.
Weekly: MACD
Moving Average Convergence Divergence (MACD) is a trending indicator. There are multiple ways of using this indicator. On this indicator, we can see bullish divergence, MACD crossover, and also 09 crossovers. The most recent correction actually pushed MACD a little lower than the zero line, but the trend of the indicator is still stable, and the zero line seems to be offering support to the counter. Any bounce from here will resume the trend of the counter.
Ratio Chart: HDFC Life Vs Created Index
Here I have compared HDFC Life’s performance with an equal-weighted created index comprised of ICICI Pru, HDFC Life, SBI Life, and ICICI Lombard. We can see that the ratio chart is constantly taking support of the extreme low since 2018. The ratio chart takes bounces from the same zone, and it has presently repeated the same observation. As per the formation, HDFC Life may bounce stronger among the whole basket.
Putting it all together
Looking at 75 bars cycle on the monthly timeframe chart, with mean-reverting price action on the stock along with the mean reversion approach of the whole index, and change in polarity on the weekly chart, is making the counter a perfect positional bet. The diagonal trend line support on the weekly chart with bullish RSI divergence and all signal confirmations on MACD also suggest the same.
The stock vs index ratio chart also confirms the likely outperformance of HDFC Life among the basket. One can have a positional approach on the counter and even take a swing trade opportunity.
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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