Banking stocks: chart check: private sector banking stocks gave a break above the rectangular pattern; time to buy?

HDFC Bank Ltd, part of the private banking space, hasn’t done much so far in 2022, but recent price action suggests the bulls are trying to take control. The stock is still down more than 17% from its October 2021 high of Rs 1,724.

The private sector bank with a market cap of over Rs 8 lakh cr is up over 12% from its 52-week low of Rs 1,271 recorded on June 17, 2022. It is up over 8% in a month.

The recent price action has helped the stock break out of a rectangular pattern on the daily charts for the first time since April 2021, which is a bullish sign.

The supertred indicator triggered a buy on July 6, 2022 on the daily charts. The action moved into a narrow 150 point band where 1420 acted as rigid resistance while on the downside 1280-1300 acted as support.

The stock broke out of this pattern earlier in August and is holding above the support line, which is a positive sign.

A rectangle is a continuation pattern. When a parallel pattern is formed horizontally, it is called a rectangle. A breakout is recorded when prices break out of the rectangle. A breakout occurs in the direction of the existing trend.

On the price front, the stock is trading well above the short and long-term moving averages placed around 5,10,30,50,100 and 200-DMA.

With a decline of more than 20% from the peak, the stock has reached the role reversal level. It has formed a base at the support level that leans towards the balance between buyers and sellers.

“The stock has formed several bullish candles like the twizzer bottom, the hammer and the bullish engulfing pattern. This denotes the presence of buyers at the key support level,” said Kapil Shah, Technical Analyst, Emkay Global Financial Services Limited and Trainer at FinLearn Academy.

“On the weekly chart, Stock has broken through the declining channel. It denotes positive movement. The stock has formed a rectangle on the daily chart, implying a strong foundation. He gave a breakout followed by a retest,” he said.

Technically, this is called a polarity shift. On the daily chart, the title gives new signs of bullish continuation.

“Based on the rationale, the stock looks positive. It can be accumulated in the range of 1447 to 1420 with a stop loss of 1390 on a close basis. On the higher side, the stock has potential up to the 1550 level over the next month,” Shah recommends.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

Karen J. Nelson