BHEL: Is The Counter Poised For A New Rally?

Last Updated on Mar 8, 2023 by

A strong and sizeable reversal was seen in the market this week. The long-term trend remained intact. Many counters bounced from the lows and showed good recovery and decent formations underway. One such counter is Bharat Heavy Electricals Ltd (BHEL). Herein I share all my observations on the charts.

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Table of Contents

Monthly: Trends

Since inception, we have seen the counter running into a particular trend for a couple of years. The initial phase was sideways, followed by an uptrend, followed by a downtrend, and now we are witnessing a positive trend. As per history, the trend continues for a couple of years. The recent trend started at year-end and can continue for a little longer.

Weekly: Price and volume action

The broader consolidation of the price action started in 2016. The extreme low was seen in 2020, and since then, the price has entered a positive formation. If you look at the whole formation, it looks like a perfect inverse head and shoulder formation. The formation is also supported by the volume action.

The breakout was witnessed in 2022, the recent correction exactly halted at the neckline, which was a breakout. A sharp bullish engulfing candle formation is seen. The whole retesting of the neckline seems to be forming a falling wedge, which we will discuss going forward. On the follow-through buying, it can be a perfect bargain buying opportunity with a massive upside target.

Weekly: RSI

While the price is making higher tops and higher bottoms alongside supportive volumes, Relative Strength Indicator (RSI), which is a momentum indicator, is also gaining good strength and rising higher. Recently, though it came down with the price, the trend remains intact, which confirms good strength in the counter.

Weekly: MACD

Moving Average Convergence Divergence (MACD) is a lagging indicator. The positive crossover on MACD was seen during mid-2022, and a trend has emerged since then. MACD decisively crossed the zero line and confirmed the trend on the counter. In the recent correction also, MACD remained above the zero line, confirming a strong trend without any worry. One can certainly consider the correction as a buying opportunity.

Weekly: Ichimoku

Ichimoku is an equilibrium indicator and helps to get a lot of price-related information. We can see that Tenkan – Kijun crossover is still bullish. The future cloud is clearly bullish and thick enough to confirm its strength. The present price is well above the cloud, confirming a bullish trend. Chikou Span is also above cloud as well as price. All observations confirm the trend in the counter being bullish and intact.

Weekly: Supertrend

As a trending indicator, a supertrend works well as support/resistance. The supertrend has offered fantastic support to the ongoing correction, and the price halted supertrend support well and bounced, which confirms that the opened trend is intact and can continue going forward.

Weekly: Bollinger Band

I consider the Bollinger Band as a trading indicator. Simple crossover works well for momentum traders. The midline of Bollinger is placed near 76.75, which can be considered the immediate breakout zone for the momentum trade, placing the target at the high end of Bollinger.

Weekly: Stochastic

Stochastic is a clear momentum indicator and works amazingly for swing traders. As we can see, it is coming out from an oversold area. This confirms that the counter has started gaining momentum. Along with other observations, this can be of great help in understanding immediate strength.

Weekly: 60 EMA

The moving average is an indicator which can help us to understand the trend. It should be selected based on trial and error. Here on the weekly chart, we can see that 60 periods of EMA are working amazingly well as support and resistance to the counter. Recently also, the price has taken the perfect support on the same moving average and bounced. One can take up trade near support to go long and ride the rally.

Daily: Price action + RSI + MACD

On an extremely low timeframe, we can see a falling wedge formation on the price action. RSI bounced massively from the extreme oversold zone, and MACD has also confirmed a crossover from extreme lows. Both indicators, along with three white soldier candlestick formations, confirm the possibility of better days soon.

Ratio Chart: BHEL Vs Nifty PSE Index

Here I plot the ratio chart of the BHEL and CNX PSE Index. We can see the significant underperformance of BHEL over index in the past. But since 3 yrs, the chart is gone into sideways consolidation and gained momentum. The resistance line is identified and highlighted in the yellow trend line, above which the ratio chart can enter an uptrend. The first sign can be on channel breakout, which is highlighted in a white line. Looking at other observations, it seems that the counter may outperform in the mid-term, and the ratio chart may first hit the resistance line.

Putting it all together

Looking at the monthly trend, price action and volume activity and many indicators on the weekly chart and falling wedge formation with RSI and MACD on the daily chart, I feel that the counter is poised for a new rally from the present zone and one can consider the same for short term, mid-term as well as long term trade.
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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Kunal Rambhia

Kunal is a fund manager at The Streets, a private fund. He has been in the equity market since 2010, performing various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW. Kunal is also a visiting faculty in multiple colleges.