A ‘Triple Top’ Pattern is Making this Bank a Perfect Short Candidate!

  • Stock Market Analysis

The broader markets are almost trading flat for the day with minor up and down moves. The banking sector is looking weak for the day with the Bank Nifty falling 0.4% to 37,770.3 by 9:33 AM IST. The biggest drag on the index is the State Bank of India (NS: SBI ) which holds a decent weightage of around 9.58%.

The State Bank of India, which is the largest public sector bank in the country, having a market capitalization of INR 4,73,941 crores making it the 7th largest listed company on the NSE is giving a tough time to investors in the early session. The share price of SBI fell by around 2.7% to INR 516.2 on the back of a volume of 8.03 million, which is a decent volume considering a few minutes of trading.

Investors didn’t seem to be impressed with the bank’s results that came on the weekend. The bank reported a consolidated net profit of INR 6,068.08 crores in Q1 FY23 which is noticeably down from the previous quarter’s net profit of INR 9,113.53 crores, while YoY comparison also shows a dip from INR 7,528.25 crores in Q1 FY22. The bank’s gross NPAs have also increased from INR 1,12,023.37 crores in Q4 FY22 to INR 1,13,271.72 crores in Q1 FY23.

Weekly chart of State Bank of India

Image Description: Weekly chart of State Bank of India
Image Source: Investing.com

While the results have been not-so-good, the chart of the SBI is also showing weakness. On the daily chart, the shares of SBI have formed a triple top pattern which is an uncommon yet very prominent top reversal pattern. In this, the stock forms three consecutive peaks, roughly around the same levels, and can also be termed as an extended version of a double top pattern wherein two peaks are formed.

The implication of these patterns is quite bearish, especially if they form at the very top of the chart. In the case of SBI, the pattern has been formed around the all-time high levels which depict a significant downside potential for the stock. Although the pattern is yet to complete, aggressive traders generally like to enter with a very close stop loss and an increased profit potential.

As the stock has confirmed the third top, with a correction of around 5.3% from the peak, the stock might easily be heading towards the medium-term support of INR 425 - INR 430. In fact, after breaking these levels, the triple top pattern would mark its completion. However, initiating a short position after a breach of these levels would also result in missing out on a potential fall of around ~INR 90. Therefore, making a short position from the very top is what some traders prefer to better their risk-to-reward ratio. Conservative investors like to wait for the support levels to be taken out before initiating a short position. Either way, the implications are the same, a reversal of an uptrend to a downtrend. 

If the stock breaks its current high of INR 546.4, marked on 3 August 2022, then the uptrend in the stock would continue. 

 

Disclaimer - The above article is not a recommendation to buy/sell/hold any security.  

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  • Chethan Prakash @Chethan Prakash
    Now when markets r up snd sbi is also up , does ur prediction change to BUY from SELL , or will it remain same ?
    Like 0
  • Chethan Prakash @Chethan Prakash
    Medium term support at 425-430 ? Or 525 - 530 ?
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Hi Chetan, it's 425 - 430, marked on the chart as well (green zone).
      Like 1
    • Chethan Prakash @Chethan Prakash
      Thank u sir 🙏
      Like 0
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  • Rakesh Prasad @Rakesh Prasad
    Buying opportunity at price Rs 435.
    Like 1
  • kca chand @kca chand
    good as many times
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Thank you.
      Like 0
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  • chuky eightfourseven @chuky eightfourseven
    THNX BRO 4 INFORMATION. NOW SURF EXCEL WAALI SHORT SELL HOGI NA.
    Like 1
  • Chetan Hanjankar @Chetan Hanjankar
    but sbi is outperform of the banknifty index
    Like 0
  • NILESH POSAM @NILESH POSAM
    volume ?
    Like 0

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