Last Updated on Aug 24, 2022 by
This article is authored by Kunal Rambhia, a fund manager at The Streets, a private fund. He has been in the equity market since 2010, in various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW and is a visiting faculty in multiple colleges.
Markets are going strong, and confidence is building up positively. Many discussed counters of the past delivered good returns. Still, very attractive bets are available near extreme lows, offering a wonderful risk-reward ratio and giving fantastic buying opportunities from the positional perspective. One of such counters is The New India Assurance. Herein, I share my technical analysis view on the said counter.
Table of Contents
Time Cycle
Since its listing (2018), the counter remained in a clear decline mode and had approximately 121 bars from the peak to the final bottom. Since 2020, the counter remained in a sideways consolidation and made an almost similar bottom recently in 121 bars. Last week was a decent bounce, which confirms the probable bottom for the counter and also confirms the likely 121 bars cycle on the weekly timeframe. Other observations (which we will discuss in the article later) along with the 121 bars cycle highlight 121 positive bars soon for the counter.
Fibonacci and Wave: Monthly
From the peak of the counter, the decline was 261.8% of the first decline (considering the Fibonacci extension). This entire decline was 5 wave structure, and wave 5 looks like truncation (due to the extended wave 3). An advance from the present zone is likely (assuming no new bottom from the extreme low made so far).
Price action and Volume: Weekly
The decline since listing and bounce from the low of 2020 made the first bottom. May 2021 was the peak, and the prices again declined to make another bottom in the vicinity of the previous bottom. Assuming the previous and the recent bottom is held on, the entire formation looks like a Double Bottom formation possibility. This observation is supported by massive volume activity on the candle, forming the second bottom of the chart. Decent accumulation is seen on the chart near the previous bottom, which offers the best risk-reward for the positional traders and may also confirm the pattern pretty early.
Price Pattern: Weekly
Near the second bottom of the chart, using trendlines to identify support and resistance, a falling wedge formation is seen (within yellow lines). A falling wedge is a bullish formation and of great importance, if found near lows. Inside the falling wedge, a white line is made to highlight short-term support (which if forming expanding formations). On line breakout, one can initiate longs with the help of chart pattern support.
RSI: Weekly
A steady decline in RSI (alongside price sideways consolidation) took it to an almost oversold zone. The present uptick in price with the volume pushed RSI out of the oversold zone. This is the first sign of the counter gaining strength. Earlier, when a similar formation had happened (in September 2019), the price rallied from 94 to almost 180 levels. Alongside other observations, RSI support will add to strength.
MACD: Weekly
MACD is a lagging indicator. It confirms the reversal trade in multiple ways, the first being a crossover. A crossover is considered to be the earlier possible sign. After almost a year, MACD is crossing over and offering the first sign of bottoming out the counter. On other confirmations, one can certainly consider the counter for buying.
Super trend: Daily
The Supertrend breakdown on the daily chart on 29th October 2021 near 150 zones supported a pretty long decline on the counter. Since then, the counter tried attempting breakout 3 – 4 times but clearly remained below Supertrend. For the first time since then, there was a decisive volumised breakout of Supertrend a couple of days back. It is certainly worth considering alongside other observations.
ADX-DMI: Daily
ADX DMI confirms the strength alongside the direction. Positive DMI is dominating, and ADX has peaked from the extreme lows of 10, confirming that the uptick is gaining strength. Through the daily chart, one can certainly consider this for early signals of higher timeframes.
Putting it all together
Time cycle of 121 weeks, the Fibonacci extension of 261.8% on the downside with 5 down waves and truncated 5th wave possibility, almost double bottom on the weekly chart with supportive volumes, makes The New India Assurance one of the best positional plays and offers the best risk reward ratio. Besides falling wedge formation on the second bottom of the double bottom, RSI is coming out from oversold and MACD Crossover (almost after a year), Supertrend breakout on the daily chart and ADX – DMI duo confirmation on the daily chart suggests the same.
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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