A falling Wedge is a good reversal pattern that is known to reverse the prior downtrend toward an uptrend. This pattern looks much similar to a triangle pattern, however, there is a subtle difference. In a wedge pattern, both the trendlines point in the same direction which is never the case with a triangle.
In a falling wedge, the upper and lower trendlines point towards the south containing the price action within them. Upon a breakout above the upper trendline, traders can think of going long with minimal risk. This exact scenario happened with the share price of Sumitomo Chemical India Ltd (NS: SUMH ) on Monday.
Talking about the company first, it is a chemical manufacturer with a market capitalization of INR 20,080 crores. The company posted a 15.02% YoY jump in FY23 revenue to INR 3,555.82 crores and an 18.5% increase in net income to INR 502.21 crores in the same period. In the March 2023 quarter, FIIs racked up their stake to 2.4%, from 1.7% a year ago.
Image description: Daily chart of Sumitomo Chemical India with volume bars at the bottom
Image Source: Investing.com
On the daily chart, the stock had been falling in a downward trajectory for some time and the price action was contained within the two trendlines, which took the shape of a falling wedge. Today, the stock jumped 3.29% to INR 415.55 and closed above the upper trendline of the pattern, translating into a confirmed breakout.
Another interesting thing to note, the stock formed a very smooth rounding bottom pattern before heading toward the breakout, which is an even better sign for the impending uptrend.
Traders can now expect a trend reversal in this counter and the next level which should be eyed is around INR 450. However, keeping the risk in check must also be there and no positions should be taken without an exit level in mind. Traders can look for a level below the rounding bottom to exit in case the stock takes a U-turn.
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