Wednesday, July 21, 2010

JINDAL STEEL & POWER - Confluence of bearish patterns

A technician has to be cautious about longs when we see bearish patterns and double alert when there is a confluence of bearish formations. The example below would illustrate my point:

This is Daily Chart of JINDAL STEEL & POWER which is listed on NSE. As we can see the stock was having a swift up trend but the trend line got broken and stock has gone into consolidation mode, moving in a range. This is a rectangle pattern which is both a “Reversal” as well as “Continuation” pattern i.e. prices may break down and reverse the uptrend OR if the break out to the upside, the previous trend of higher prices would continue.

Rectangle also indicates prices moving in a defined support and resistance level and moving below or above that with volumes drying up and indecision increasing as pattern develops further.
Now this stock has more interesting things to note – There was a gap down day just in the middle of the rectangle which hasn’t been filled yet.

Also we see a bearish Head & Shoulders formation inside the Rectangle; the H&S is yet to break down though. Rs 600 has been like a Steel support for the stock and if it closes below this level for 2-3 sessions it would be a breakdown from both Head & Shoulders as well as Rectangle pattern.
If the breakdown below Rs 600 materializes, downside target can be below Rs 480-500 for this stock after that.

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