A Technical Outlook: Escorts Gains Momentum Amid a ‘Bullish Divergence’

  • Stock Market Analysis
  • Editors Pick

The Indian markets have been on a run for three sessions now. Thanks to the positive global cues, our markets have started to attract demand after a significant liquidation in the first half of the month. The benchmark index Nifty 50 index ended today’s session with a gain of 0.85% to 15,832.05 and the Sensex was up 0.82% to 53,161.28 by the closing.

While most of the stocks have ended the day on a positive note as the market breadth was highly supportive, one stock that has caught my attention is Escorts (NS: ESCO ). The share price of Escorts has closed Monday’s trade in the green, gaining 1.63% to INR 1,544.9 after making a Doji candlestick pattern in the previous session.

Comparative chart of Escorts (Blue) and Nifty (Purple)

Image description: YTD comparative chart of Escorts (Blue) and Nifty 50 (Purple) 

Image Source: Investing.com

Escorts shares are down approximately 20% from the 52-week high of INR 1,934, which is relatively an underperformance when compared to the broader market index Nifty as the latter is down only about 14.8% from the 52-week high. Even looking at the performance for the year, as of 27 June 2022, the index is down about 8.77% while Escorts shares are down 19.06%.

However, Escorts shares are not just rallying with the market in current times but also showing pretty strong reversal signals. After falling in sync with the broader markets a few sessions ago, the stock formed a bullish engulfing candlestick pattern on the daily chart which depicted an impending trend reversal. This pattern signals a bullish move and often reverses a downtrend which is being seen in this case. After the pattern, the stock has only been seeing higher highs. 

Weekly chart of Escorts

Image Description: Weekly chart of Escorts with RSI at the bottom, depicting a bullish divergence

Image Source: Investing.com

To complete this reversal signal, Escort shares are also rising on the back of a bullish divergence which is one of the most reliable warnings of a trend reversal. As can be seen from the chart above, the RSI (weekly, 14) hasn’t been able to form a new trough when the stock fell to a new low, clearly indicating a loss of momentum. If the stock reverses from here, the nearest resistance it would be facing is around INR 1,650.

As the stock is underperforming the Nifty 50 index, a correction in the latter would also impact the current momentum of Escort shares. A fall below the recent low of INR 1,468 would negate the current counter-trend rally.

Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

Error: File type not supported

Drop an image here or

100

Related Articles