‘Rounding Bottom’ at 52-Week Lows Depicts 50% Upside!
As mentioned many times in my write-ups, before trying to catch a bottom, there should be a reversal sign visible on the chart which could be an Inverse H&S pattern, a candlesticks pattern such as a bullish engulfing, or any indicator signaling a reversal. A rounding bottom is one such chart pattern that is known to reverse a prior downtrend to an uptrend.
A stock that is exactly forming this pattern is Zensar Technologies Limited (NS: ZENT ). If you look at the long-term chart of the stock, you would notice how ferocious its fall had been. The stock which once traded at around INR 540 at the beginning of the year fell to a low of INR 208 in October 2022. That’s a massive capital erosion of 61% in less than a year. Such a strong downtrend is not easily reversed.
Image Description: Daily chart of Zensar Technologies with volume bars at the bottom
Image Source: Investing.com
Whenever I look for a reversal in such stocks which are in a strong bear grip, a gradual bottoming-out formation gets more preference than abrupt bottoms. When the stock starts to curb its fall it essentially means that the demand has started to kick in around these lower levels which results in a sideways trend, as the supply is also equally high. The longer this sideways trend goes, the better the base formation becomes. This base can also be deemed as an accumulation phase which is where astute investors generally start to pile up their holdings.
Once the selling pressure starts to abate, the stock gradually moves higher and eventually finishes the base formation. This entire price action can be in the form of a box-like shape also known as a rectangle pattern or one with a rounded base. The latter is called a rounding bottom.
During a rounding bottom pattern, the volume levels also tend to replicate the price pattern. In other words, if you look at the volume bars, more or less you would notice a rounding bottom formation there as well, as shown in the chart. Once the stock starts to surge higher, the base formation gets completed and a strong reversal is marked on the charts.
In the case of Zensar Technologies, there had been a prolonged downtrend prior to the base, therefore the potential of a reversal from here is also quite high. A rally till INR 350 is not a tough task after such a beautiful bottom formation. But obviously, as the stock had been falling for over a year, these levels are not expected to come in the short term.
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Aayush ji I trust the fundamentals of the company are equally good and won't be any issuesLike 2
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Exide views plsLike
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Hi Murali, I'm bullish on Exide.Like
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good insight. useful for knowledgeLike 1
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great information... thank you..Like 1
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Thanks Khan sahab!Like 1
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Sirji big big thank u for such a detailed analysis...Solute to your chart analysis nd price action knowledgeLike 3
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Just trying my best :)Like 2
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sir Bank Nifty analysisLike
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Guruji, tussi great ho :DLike 3
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Bilkul mere readers ki tarah :)Like 1
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mari jaawaLike 1
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Haha!Like
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Will it touch 18950 in coming expiryLike
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Will it touch 18950 in coming expiryLike
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sir please explain balrampur chini chartLike
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