HDFC: Wedge pattern taking shape?

B. Krishnakumar

THE stock market sentiment was subdued last week, with the Sensex being confined to a narrow range. This is an indication of the absolute lack of depth in the stock market. With the impending introduction of rolling settlement in the stocks from the forward group, the market operators appear to be reluctant to take any fresh positions.

Technically, the Sensex still faces a strong resistance at around the 3600-3650 band. A strong upward momentum is required to push it past this key resistance zone. Above this level, the 3750-3800 is another crucial resistance zone.

Until the Sensex breaks above these two resistance levels, the overall trend would continue to remain bearish. And, the risk of a slide down to around 3000 level would be in place unless Sensex manages to clear 4050 level.

As of now, the immediate level to look forward to is 3587. A close past this level would be the first indicator of a short-term uptrend. On the contrary, a decline below 3357 would have bearish implications for the Sensex. Taking into account the recent congestive phase at the market, it would safer for traders to wait for a break-out on either side before taking any trading decision.

In the previous week, we had a look at the triangle pattern. This week, the focus is on the wedge pattern. This pattern is almost similar to the symmetrical triangle pattern. The only difference being that in the wedge pattern, the price action tends to have either and upward or downward slant.

Similar to the triangle pattern, a wedge pattern is also invariable followed by an explosive move in the direction of the break-out. Generally, a wedge sloping upwards would have bearish implication while the ones trending downwards would be followed by an upmove.

A classic wedge pattern was completed in the BSE Sensex chart in mid-February. Similarly, a wedge pattern was also completed in Grasim Industries (see graph) on April 26. As it is common with an upward sloping wedge pattern, a sharp down move followed thereafter in both cases.

An upward sloping wedge pattern appears to taking shape in the weekly chart of HDFC. As and when the pattern is completed, an explosive downward move would materialize. Investors need to keep a close tab on the price movement HDFC. Once the scrip breaks out of the wedge, short positions could be initiated thereafter.

Recommendation follow-up

Last week, we had taken a look at the powerful triangle pattern. As mentioned last week, a triangle pattern is taking shape in the Tata Tea stock. This pattern is yet to be completed. Once the triangle pattern is completed, a break out and a powerful move would follow subsequently.

On the downside, the Tata Tea stock could seek support at around the Rs 204 mark. It faces resistance at the Rs 225-226 level. Investors need to keep a close tab on the price action in the stock. An evidence of the break out from the boundaries of the triangle would warrant initiation of trading positions in the direction of the break-out.

(Note: Recommendations in this column is based entirely on Technical Analysis of the past price behaviour of the scrip concerned. There is a risk of loss in trading.)