Chennai Petroleum Corp. Ltd -- CHENNPETRO.in
The long-term weekly chart of this stock offers some good classical ingredients in it: it hints at a potential bottom in place and a probable trend reversal going ahead from here.
The stock peaked near 480 in late 2017 and, ever since, has been in a secular corrective downtrend, which accelerated in the first quarter of 2020. The final decline saw the stock losing over Rs. 440, or ~90% of its value over the next 31 months of the corrective decline.
Few classical signs emerged, which points towards a likely formation of a bottom and a potential confirmation of a reversal of the downtrend. The formation of the low point in the range of 47-49 levels marked a classic Double Bottom. These levels were seen in October 2013; testing these levels again marked a double bottom for the stock.
Since then, the stock has gained significantly from its lowest point. In the process, it has marked a distinctly lower bottom while inching higher. It has also attempted to penetrate the falling trend line resistance; this trend line begins from near the high point and has resisted every single time the price tested it, barring a few temporary violations. Penetration of this pattern resistance and moving past this trend line confirm the reversal of the trend as of now.
From the volume analysis point of view, the volumes have stayed healthy and much higher-than-average during the phase after the stock took support at a double bottom. Increased volume activity near the low point and near the support also hints at a potential bottom in place. The volume confirmation is also evident in the On-Balance Volume (OBV), which has risen sharply during this phase.
If the price pattern resolves in the intended direction, there is a possibility of the price testing 160-162 levels from the present price of 107 that cannot be ruled out over the coming months. This translates into appreciation of ~51% from the current price if held from a medium-term perspective.
Any move that takes the stock below 88 would negate this view.
Milan Vaishnav, CMT, MSTA
Consulting Technical Analyst
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