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.
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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