It certainly pays to keep things simple. While technically analyzing a stock, you don’t always need to have your chart look like a rainbow, comprising multiple colors, and with a plethora of indicators and oscillators plotted on it. Most of the time, a simple chart throws in a lot more information than something that looks too complex. It is often said, and it is true as well, that over-analysis kills!

It is a basic tenet of technical analysis that the longer the time that a pattern takes to evolve on a chart, the more reliable and potent that pattern becomes. This holds true for any technical pattern regardless of whether it is a continuation pattern or trend reversal pattern. There is some generalization involved; for example, one would see rounding tops being more distinctly found in large-cap stocks or rounding bottoms being found more commonly in smaller stocks, but most of the patterns are found across the universe.

The interesting part is that this rectangle pattern has taken a year to develop. If we look at a higher time frame (Weekly) charts, a similar pattern appears. This makes this pattern fractal in nature. This is evidenced by the weekly chart below.

A similar rectangle pattern appears making the one that appears on the daily chart fractal in nature. Besides this, all other indicators support the attempted breakout. The OBV on both the timeframes has marked a high indicating participation of volumes in the breakout. The RS line against the broader markets remains in a strong uptrend and remains above the 50-period MA.

The stock remains in the leading quadrant of the RRG; on the weekly timeframe, it is inside the improving quadrant indicating that a phase of its relative outperformance against the broader markets has likely begun.

The week has not ended yet but in all likelihood, this breakout may remain valid and in place. If this happens, then going by the price measurement implications, the stock may go on to test 775 to 800 levels if held for at least a medium-term horizon resulting in a price appreciation of ~15% from the current levels.

Foram Chheda, CMT

The equity markets have been jittery over the past few weeks; the front-line Index NIFTY50 failed to sustain a breakout after moving past the previous lifetime high. After marking an incremental high, the index slipped below the breakout point. However, the broader markets stayed highly stock-specific; many stocks that had grossly underperformed the markets, in general, are showing signs of some structural reversal of the trend. This insurance aggregator is showing some classical signs of reversal of the downtrend and is in process of confirming its bottom in place.

PB Fintech Ltd (POLICYBZR) has a relatively short listing history. The stock made its high on its listing day near 1470 in November 2021; it had a terrible performance since then. By November of this year, the stock had ended up losing over 76% of its value. However, following the marking of lows between 356-375 during October-November of this year, the stock has made a strong attempt to reverse its downtrend.

Strong classical signs have emerged on the charts indicating a bottom in place for this stock.

While the stock was moving sideways in the 356-375 zone, an exponential increase in volumes was seen in November. Volumes analysis would mean that any exponential increase in volume may hint at a potential bottom for the stock and may mark a point of reversal. The confirmation of this indication came from a sharp rise in the On-Balance Volume (OBV) during the same period; this confirmed that there was a strong accumulation of the stock at the lower levels.

The Relative Strength improved as well; the RS line (compared with the broad market index NIFTY500) reversed its downtrend and started inching higher eventually crossing above the 50-period MA.

While the stock was still marking incremental lower lows, the RSI had already sharted showing strong positive divergence against the price by marking higher bottoms.

If the current technical structure resolves on the expected lines, the stock may confirm a reversal of the trend; subsequently, it has the potential to test 550 levels and that would mean a price appreciation of 15% from the current levels. Any move below the 470 level would invalidate this technical setup.

Foram Chheda, CMT