Breakout: A Look at this ‘Bullish Pennant’ Amid 4.5% Rally!

  • Stock Market Analysis
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While today’s session was no less than remorseful for bulls, bears had a good time. Still, there were many stocks that were gaining investors’ attention despite the clouds of gloom clouding Monday’s trade. 

Hotel stocks have delivered good gains in the last few weeks, all thanks to a relatively high sectoral strength. EIH Limited (NS: EIHO ) is one such counter that has proven to be a good bet for long holders and still looking to continue its rally. From the June 2022 low, the share price of EIH surged over 62% till today’s closing price of INR 195.95. However, if investors think that the rally has already been over and there is nothing much left in this stock, they need to look at the daily chart structure of this counter again.

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

Image Source: Investing.com

The stock is forming a bullish pennant which is a bullish continuation chart pattern and helps in the resumption of the prior bullish move. Generally, after a staggering rally, stocks tend to consolidate in a range. This behavior could be compared to a person stopping after a sprint to catch his breath. The premise is, when there is an unexpected surge/fall in the share price, investors tend to take some time to digest the new price levels, and hence for a while, the stock tends to go nowhere. 

Now, after the prior rally, the stock had been consolidating in a narrowing range for a while now which has formed a bullish pennant pattern. The breakout level of this pattern is above the upper trendline resistance of INR 198. Above this level, the stock is expected to come out of its rest period and start its rally again. The target mechanism of this pattern is very simple. The estimated level to which the stock could rally after the breakout is roughly equal to the rally it portrayed before entering the consolidation zone. In other words, this pattern is known to be formed in the middle of the total rally, hence the magnitude of the prior move is estimated again.

In the case of EIH, the previous rally from around INR 159 to INR 205, gives an estimated stretch of INR 46 from the breakout level which is roughly around INR 240 - INR 245. If the stock falls below the rising trendline support of INR 182, then the pattern could fail. 

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  • Kirandeep Choudhry @Kirandeep Choudhry
    Nice One
    Like 0
  • Vikat Waghmare @Vikat Waghmare
    good analysis ayush
    Like 0
  • Vikat Waghmare @Vikat Waghmare
    good analysis ayush
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Thanks Vikat.
      Like 0
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  • Ajay Jagtap @Ajay Jagtap
    your twitter id, if any
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Hi Ajay, pls check my bio on Investing.
      Like 0
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