Last Updated on Jan 17, 2023 by Anshiya Tabassum
After a broader consolidation, indices have finally shown a good comeback. Though a breakout on indices remains pending, counters have emerged very strong. One such counter is L&T Finance Holding. Let’s go through all observations and understand formations.
Table of Contents
Weekly: Time cycle
During the entire last decade, there are two major cycles identified – 88 weeks and 128 weeks. There is no specific sequence of occurrence, but cycle length seems reliable. Recently, the price underwent sideways consolidation and completed its 128 bars of the cycle. After making the bottom, the price started making higher tops and higher bottoms. There is a bright possibility of the new trend emerging very soon.
Weekly: Price action
The price has been respecting the yellow trend line for more than 10 yr. Recently again, it exactly tested the same trend line and reversed. The last two years’ formation seems like a curve formation. Within the formation, there are enough opportunities available to accumulate the counter.
Weekly: Price action + Volume + RSI
If we look at the candlestick charts, the price seems to form a symmetrical triangle for three years. Near the support trend line of the formation, healthy volumes are also noticed. Last year, the stock seemed to be gaining strength, which can be witnessed by Relative Strength Indicator (RSI), which is forming a higher trend and now entering the overbought area. There is a bright possibility that the counter is giving a breakout of the formation. This can be a good sign to start buying counter with a mid to long-term perspective in mind.
Weekly: Price action + MACD
Moving Average Convergence Divergence (MACD) is a lagging indicator and generally confirms the trend. Due to no boundaries on the indicator, the zero line is given utmost importance. Major trends emerge once the MACD line crosses the zero line on the higher side. Recently, when the 2 yr formation was coming to an end, the MACD line also crossed the zero line on the upside. This gives a ray of hope to bulls for the likely emergence of a major bullish rally.
Weekly: Ichimoku
Ichimoku, an equilibrium indicator, confirms multiple things together. To focus on specific observations, we can see Tenkan Sen and Kijun Sen crossover on the chart to confirm a short to mid-term trend. Also, the price trending above the cloud and the future cloud turning bullish supports mid-term bullishness. Multiple false signals were seen in the past, but the price formation breakout can confirm all Ichimoku observations valid alongside.
Weekly: ATR
ATR stands for Average True Range. While forming the pattern, the ATR will always remain subdued within the consolidation. On a breakout, we can expect the range to expand. We can use ATR as the second confirmation, along with the pattern breakout.
The range on ATR is highlighted with the yellow channel.
Daily: Price action + Volumes
On the daily time frame, I am referring to the simple line chart to understand a clear trend. It is clearly seen that the price was in a downward channel for almost 2 yr between 2018 to 2020. The downward channel is highlighted with yellow color.
Since 2020, the price has entered almost sideways consolidation. During this consolidation, whenever the price reached the support zone on the lower side, extreme volumes were noticed. The high-volume area is highlighted with circles on the chart.
Trend reversal has three phases which are simply textbook replicas – continuation of the trend, followed by sideways consolidation, and then trend reversal on a breakout. Here, we can see two phases are almost done. The possibility of the third phase is really high (based on other discussed observations).
Ratio chart: L&T Finance and Bajaj Finance
Though not an apple v/s apple comparison here, but still would make sense due to the same industry. We can see that the ratio chart is clearly in a downtrend since 2013 (almost 10 yr). First time ever, the chart has shown sideways consolidation and breakout (of 2 main trend lines). This breakout confirms the possibility of L&T Finance’s outperformance over Bajaj Finance for the short to mid-term period.
Ratio chart: L&T Finance Vs Nifty
Clear down the channel for almost 4 yr confirms the underperformance of L&T Finance. 2 yr of sideways consolidation confirms almost equal behavior so far. On this breakout of the white sideways channel, we can expect the outperformance of L&T finance over the major index.
Putting it all together
Looking at a major 128 weeks cycle, with 10 yr old trend line support and with symmetrical triangle formation on the price action of the weekly chart with strong RSI (nearing the overbought zone), this counter seems to be bottoming out soon. The MACD above the zero line, Tenkan Kijun crossover above Kumo cloud, and bullish future cloud suggest the same.
The ratio chart of L&T Finance with Bajaj finance and Nifty also highlights the “possibility” of outperformance of the counter (upon breakout confirmation). Daily chart breakout of sideways consolidation can be the first sign of bottoming out. Worth keeping an eye on this counter to grab short to sizeable mid-term opportunities.
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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