Analyzing India

A Classical Bottom Formation in Place for This Stock


Chennai Petroleum Corp. Ltd --

The long-term weekly chart of this stock offers some good classical ingredients in it: it hints at a potential bottom in place and a probable trend reversal going ahead from here.

The stock peaked near 480 in late 2017 and, ever since, has been in a secular corrective downtrend, which accelerated in the first quarter of 2020. The final decline saw the stock losing over Rs. 440, or ~90% of its value over the next 31 months of the corrective decline.

Few classical signs emerged, which points towards a likely formation of a bottom and a potential confirmation of a reversal of the downtrend. The formation of the low point in the range of 47-49 levels marked a classic Double Bottom. These levels were seen in October 2013; testing these levels again marked a double bottom for the stock.

Since then, the stock has gained significantly from its lowest point. In the process, it has marked a distinctly lower bottom while inching higher. It has also attempted to penetrate the falling trend line resistance; this trend line begins from near the high point and has resisted every single time the price tested it, barring a few temporary violations. Penetration of this pattern resistance and moving past this trend line confirm the reversal of the trend as of now.

From the volume analysis point of view, the volumes have stayed healthy and much higher-than-average during the phase after the stock took support at a double bottom. Increased volume activity near the low point and near the support also hints at a potential bottom in place. The volume confirmation is also evident in the On-Balance Volume (OBV), which has risen sharply during this phase.

If the price pattern resolves in the intended direction, there is a possibility of the price testing 160-162 levels from the present price of 107 that cannot be ruled out over the coming months. This translates into appreciation of ~51% from the current price if held from a medium-term perspective.

Any move that takes the stock below 88 would negate this view.

Milan Vaishnav, CMT, MSTA

Consulting Technical Analyst

Disclosures and Disclaimer: (Pursuant to SEBI (Research Analysts) Regulations, 2014)

The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient.

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The Research Analyst has not managed or co-managed the issues of any of the companies discussed and has not received any such remuneration from such activities from the companies discussed.

The Research Analyst has not received any remuneration from the Merchant Banking activities.

The Research Analyst has adopted an independent approach without any conflict from anyone. The Research Analyst has not received any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report.

Compensation of the Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

The Research Analyst is not engaged in market making activity for the companies mentioned in the report.

The Research Analyst submits that no material disciplinary action has been taken on him by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country, or other jurisdiction, where such distribution, publication, availability, or use would be contrary to law, regulation or which would subject the Research Analyst to any registration or licensing requirement within such jurisdiction.

Milan Vaishnav
About the author: , CMT, MSTA is a qualified Independent Technical Research Analyst at his Research Firm, Gemstone Equity Research & Advisory Services in Vadodara, India. As a Consulting Technical Research Analyst and with his experience in the Indian Capital Markets of over 15 years, he has been delivering premium India-focused Independent Technical Research to the Clients. He presently contributes on a daily basis to ET Markets and The Economic Times of India. He also authors one of the India's most accurate "Daily / Weekly Market Outlook" -- A Daily / Weekly Newsletter,  currently in its 15th year of publication. Milan's primary responsibilities include consulting in Portfolio/Funds Management and Advisory Services. His work also involves advising these Clients with dynamic Investment and Trading Strategies across multiple asset-classes while keeping their activities aligned with the given mandate. Learn More
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