Home » Market » Inverse Head and Shoulders pattern in Petronet LNG suggests buying opportunity

Inverse Head and Shoulders pattern in Petronet LNG suggests buying opportunity

 

In technical analysis, an Inverse Head and Shoulders pattern describes a specific chart formation that projects a bearish-to-bullish trend reversal.

An Inverse Head and Shoulders reversal pattern forms after a downtrend, and its completion marks a trend reversal to uptrend. In the standard Inverse Head and Shoulders pattern, we connect the high after the left shoulder with the high created after the head.

A trendline is drawn by connecting these highest points of the two peaks, which is called ‘Neckline’. This trendline is the most important component of Inverse H&S pattern.

Petronet LNG is trading in an upmove while forming Inverse Head & Shoulders pattern and this pattern has been completed on a close above Rs 228 mark. This stock is trading near strong resistance line standing around Rs 228 levels which is tested multiple times earlier & it also suggests a strong bullish bias to continue further after a breakout.

Recent formation of Inverse Head & Shoulders classical pattern has given a breakout by trading only above Rs 228 mark, suggests buying in the stock for higher targets of Rs 275. Volume will also add further insight while trading these patterns. Decent volume participation while giving breakout will also give support to Inverse H&S pattern.

Image2252020Figure.1. Inverse Head & Shoulders pattern and buy signal on Petronet LNG

Buy Signal

1. A decisive close above neckline (Rs 228) of Inverse Head & Shoulders pattern will give a pattern breakout.
2. Prices are already trading above short-term moving average 20 DMA which will define bullish short-term trend.
3. Mid-term moving average 50 day moving average defines mid-term trend is very well augur with bulls as prices are sustained and trading above it.
4. Decent volume participation while pattern breakout will also give additional confirmation.

Profit Booking

Target as per Inverse Head & Shoulders pattern is calculated by adding height of head (H) to neckline which comes to Rs 275, however one can book profits near previous swing high which is around Rs 270 levels.

Stop Loss

Entire bullish view negates on breaching of right shoulder on closing basis and one should exit from long position. In case of Petronet, it is placed around Rs 203 levels.

Conclusion

We recommend buying Petronet LNG above Rs 228 levels with a stop loss of Rs 203 for higher targets of Rs 275 as indicated in above chart.

The author is Head – Technical Research, Narnolia Financial Advisors.