An 'Inverse H&S' in the Making; Investors Keeping a Close Watch!

  • Stock Market Analysis

After Friday’s trend-reversal rally, the Indian market is trading weak in today’s session. However, most of the weakness is coming from the global market turmoil and there are not many local factors to worry about. In the midst of fears over a global recession, there is a new concern on the surface: the probable failure of Credit Suisse (SIX: CSGN ) and Deutsche Bank (ETR: DBKGn ) which could trigger a 2008 global financial crisis-like situation (if these banks go down). 

Nonetheless, keeping global concerns aside many stocks on the NSE are raking up decent gains for investors. One such stock is FDC Limited (NS: FDC ), a pharmaceutical company with a market capitalization of INR 4,378 crores. The company is engaged in the manufacturing of specialized formulations, and oral rehydration salts (ORS). Its brands include Zifi, Electral, Enerzal, Vitcofol, Pyrimon, Zocon, Zoxan, Zathrin, Zipod, Zefu, Cotaryl and Mycoderm.

Today, the share price of FDC surged 4.74% to INR 276.75 by 10:39 AM IST which is a massive outperformance compared to the broader markets. This is the third straight session that the stock is trading in the green as investors are finding some comfort in the pharma space over the last few sessions.

Image Description: Daily chart of FDC with volume bars at the bottom

Image Source: Investing.com

But the most interesting thing about FDC shares is that the stock is making an inverse Head and Shoulders pattern on the daily chart. This is a reversal pattern and is known to reverse a prior downtrend to an impending uptrend. It is a mirror image of a more famous Head & Shoulders which is a top reversal pattern. These patterns take time to form on the charts hence their reliability is higher than other reversal signals such as a single candlestick pattern.

Currently, the stock is in the completion phase of the right shoulder, which is the last part of the pattern and today’s rally has further inched it closer to the neckline breakout level of INR 288. This is the final signal that investors need to watch out for before making any investment decision as sometimes the stock also happens to fail to reach the neckline and therefore a pre-mature entry becomes troublesome for them.

Also, investors need to check the volume levels on the breakout day. A thumb rule is, the higher the volume the better the reliability of the impending move. Therefore, a volume expansion on the breakout of any pattern or resistance is of high importance. Above INR 288, the stock could travel all the way to around INR 350.

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  • ashish sharma @ashish sharma
    awesome
    Like 1
  • TRADING DOCTOR @TRADING DOCTOR
    there is a muscle imbalance in the shoulders...😃🙂
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      So, you want the stock to go to the gym? :)
      Like 2
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  • TRADING DOCTOR @TRADING DOCTOR
    muscle imbalance hai shoulders mein..😃
    Like 0
  • TRADING DOCTOR @TRADING DOCTOR
    muscle imbalance hai shoulders mein..😃
    Like 0

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