Friday, October 9, 2009

United Phosphorus: Trend Under Cloud Cover !!

Just few days back on October 05, 2009 I had posted my stock view on United Phosphorus. The stock charts then had showed an emergence of a bullish reversal indicator in a Morning Doji Star pattern. The expectation was that the near term bearish trend prevailing from mid September has come to a halt & a likely trend reversal would set in after witnessing a unique Morning Doji Star Pattern on the charts. The stock did show signs of strength post such signals and witnessed higher levels of about Rs.176-178 in the follow-up session.

Charts Courtesy:

However, on October 7 and 8 we witnessed yet another reversal pattern in a Dark-Cloud Cover format, this one being the bearish signalling pattern. Today (October 9), the follow-up session of spotting this bearish trend reversal patter in dark-cloud cover, a long red candle stick occurred which pierced the low of the dark-cloud cover pattern, confirming that there is some sort of reversal in the stock's trend.

Dark-Cloud Cover

A Dark-cloud Cover is a Bearish reversal pattern witnessed after an uptrend. First day of this pattern is characterized by a long white candle in the direction of the uptrend. The second day typically opens gap-up above the close of the first day only to end (close) lower, piercing right below the middle of the first day's real body.

The greater the degree of penetration of the closing on the second day into the real body of first day, the more effective could be the bearish signal as may be given by the pattern. A better confirmation of this bearish pattern can be received on the next follow-up session which leads to the stock price to close below the standing position of the two decisive days of the dark-cloud cover pattern as shown in the above chart. It reaffirms the fact that no uptrend has ceased to exist. The highs established during the two days of emergence of dark-cloud cover pattern acts as a Resistance zone over a future period.

United Phosphorus (Short-term Trend)

The stock has developed a crucial resistance around Rs.176-178 with a top with dark-cloud cover pattern on October 7 and 8. A support exists at Rs.154-156 levels near the bottom of recently witnessed Morning Doji Star pattern. A break below this support zone could open the flood gates for bears to further dragging down the stock at lower levels. Traders should observe thorough due-diligence to trade within the Rs.155-180 zone, as there is lack of clear trend with crucial support & resistance placed at the extremes of this range.

United Phosphorus (Medium-term Trend)

Indeed, if this Dark-cloud cover pattern were to effectively materialize over a period of time, there could be more down side to the stock in the coming times. If the stock breaks crucial Rs.154-156 support, a down side risk towards Rs.135-145 can not be ruled out over a Medium-term horizon in next few months. However, the trend may again turn positive if the stock manages to close above Rs.180 resistance zone.

Tweezers Top Resistance

In a classical Dark-cloud cover pattern, usually the second day opens above the highs of the first day. But in this specific instance of United Phosphorus there is a slight variation in the pattern where the second day simply opens above the first day's close (not highs), and could not surpass the highs established on first day but simply managed to match it. Some Analysts may prefer to call this pattern as 'Tweezers Top & Dark-cloud Cover' as the highs of both the sessions are almost matching. Unless the highs of this tweezer tops are not crossed-over, the momentum in the counter may remain negative until some new trend reversal pattern emerges. The highs of the tweezer top could act as significant Resistance in future.

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Faisal Humayun said...

Hi Viral,

It wold be great if you can provide some insights on the markets at present. I personally expected correction at 4950-5000 levels. But that does not seem to be happening.

What do Nifty technicals suggest?

Thanks in Advance for your advice.

Vikas said...

Hi Viral

Any Diwali shopping list recommended by you?



PLz answer FAisal..same query..!