Technical Analysis

Trading pick of the week: Cholamandalam Investment and Finance Company (₹411.6): Buy

Yoganand D | Updated on January 03, 2021

The stock of Cholamandalam Investment and Finance Company jumped 6 per cent, accompanied by above average volume on Friday, conclusively breaking above a key resistance level of ₹390. This rally has strengthened the primary trend that is up and provides investors with a medium-term perspective, an opportunity to buy the stock at current levels.

The stock had encountered a crucial resistance at ₹350 in February 2020 and fell sharply until it found support at around ₹120 in early April. After testing the key support at ₹120 in late May, the stock reversed direction, triggered by positive divergence on the weekly relative strength index and continued to trend upwards. In mid-June, the stock broke out of the double-bottom pattern neckline at ₹180, which is a bullish reversal pattern, and extended the up-move.

Since May, the stock has been on an intermediate-term uptrend forming higher highs and higher lows. The stock's uptrend accelerated in November that had helped it to conclusively break above the vital long-term barrier at ₹350.

Following a corrective sideways move, the stock appears to have resumed the intermediate-term uptrend in the past week in which it had surged 9 per cent. The stock trades well above the 21- and 50-day moving averages. The daily relative strength index has re-entered the bullish zone recently and the weekly RSI continues to feature in the bullish zone.

Besides, the daily as well as weekly price rate of change indicators hovers in the positive terrain, implying buying interest. Overall, the medium-term outlook is bullish for the stock. It can extend the uptrend and reach the price targets of ₹450 and ₹480 with a minor pause at around ₹450. Investors can buy the stock with a stop-loss at ₹370.

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Published on January 02, 2021
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