While looking for trend reversal signals, popular chart patterns such as a triple top, H&S, etc. are some of the most prominent ones. Firstly, the undertone of the broader markets is bearish as can be gauged by a 0.18% cut to 19,400 in the Nifty 50 index, by 12:35 PM IST. Hence, it won't be a bad idea to add some short candidates to the portfolio and one such probable counter is Bharti Airtel Ltd. (NS:BRTI).
It is a telecommunication giant with a market capitalization of INR 5,04,885 crore and trades at a TTM P/E ratio of 60.45. The stock is in a clear bull run and made its all-time high of INR 901.4 in the previous month. However, the bullish momentum seems to be tapering off now and some of the credit could be given to the market-wide correction.
Image Description: Daily chart of Bharti Airtel with volume bars at the bottom
Image Source: Investing.com
But more importantly, the stock has made a triple top chart pattern around its all-time highs which is a very bearish signal. This pattern denotes a probable trend reversal towards the downside and the higher it forms on the chart, the stronger the implications get. Some of you might also consider the current formation as more of a Head & Shoulders which is fine as both these patterns translate into the same result - A probable downtrend.
The support of this pattern was INR 863 which has been finally breached today as the stock slid past it with a 1.04% cut to INR 858. If the stock manages to close below the support level, then the last confirmation of the trend reversal will materialize and consequently, short opportunities could be hunted.
Looking at the dimensions of this triple top, the stock now has the potential to fall further to INR 825. Because the ideal place for stop loss is quite high, hedged strategies might work better from the risk perspective than naked short positions. A bear put spread or a bull put spread are some of the strategies that can be explored.
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