The long time favourite stocks of FMCG that are present in almost everyone’s portfolio are looking to start their correction process. If we view ITC on monthly charts then it might be continuing its downtrend in the long term time frame (read more in depth below). Some other stocks in the sector are in a very good uptrend and might still continue their trend after a correction (or will this correction lead to the start of a downtrend?!).
Let us have a look at the charts of a few stocks.
1. ITC
From the past three months, the price was resisting around ₹205 and was not breaking up or down. But in the current month of September, it is looking like it’s going down and it has a very high possibility that the stock may continue its downside journey until it touches the range of ₹100-₹60.
A Bullish Crab Harmonic Pattern is in the formation on the monthly time frame that has a PRZ of ₹100-60 and view negates if it closes below ₹60. Also if we put a Fibonacci retracement from its lows in October 2008 to it’s All-Time High then the level of 88.6% i.e. ₹81 also coincides with the PRZ.
The level of ₹81 is also a resistance turned support zone.
If we go down to the weekly time frame then we can see a rounding formation and this adds to the bearishness of the stock.
The confluence of all these levels might pull down ITC.
PRZ may be a good buying opportunity but that will obviously demand a completely new analysis once the price reaches that level.
Click on chart to enlarge view.
Bullish Crab Harmonic Pattern can be seen in ITC with PRZ ₹100-60.
2. McDowell or United Spirits Ltd.
The First pattern that caught my eye as I looked at the chart is the Double Top pattern. Trendline drawn from the lows of March 2012 has been breached during the crash in March 2020 and the price has since then given a pullback and now the same trend line is getting broken down again. But the price has taken support at the level of 438 twice. If this level is breached with monthly price closing below it then we can see a good downside move and price might not show any respect to the level of 354 (double top neckline) as this level has already been tested many times.
Click on chart to enlarge view.
Double top pattern on monthly chart in McDowells
There is one more pattern that is adding to the bearishness of the chart that is the Bullish Butterfly Harmonic pattern (blue colour pattern). The PRZ is ₹280-230 and view negates below ₹180 on a monthly closing basis. If we draw Fibonacci retracement from the lows of Feb 2012 to the highs of all-time high then we can see that 78.6% level i.e. ₹250 confluences with the PRZ. This forms another harmonic pattern i.e. Bullish Gartley Pattern (pink colour pattern) with PRZ at ₹340-240. The confluence of two patterns in the same zone makes the zone a good buying level.
Click on chart to enlarge view.
Bullish Butterfly and Gartley Harmonic Pattern in McDowells on the monthly chart
3. Marico Ltd.
Marico recovered beautifully from the March 2020 lows and was aiming for all-time high. But now it looks like that it will take time to achieve that aim. Marico is in the process of forming a Perfect Bullish Butterfly Harmonic Pattern. The PRZ is ₹166-136 and view negates below ₹125 on a monthly closing basis. This could be a good level to buy in the future if the price falls to these levels but we will definitely re-analyse when the time comes.
Click on chart to enlarge view.
Perfect Bullish Butterfly in Marico Ltd on monthly chart is expected to form.
Conclusion
All the PRZ levels are expected levels and it is not necessary that price will come to these levels. But in my experience over the years these levels have acted as magnets and pulled the price towards themselves before starting a new trend. Let me tell you about the psychology that might be working behind in dragging these prices down to such levels
Retail traders are known for starting panic selling of their holdings in times of stress and if they see the price falling then naturally panic will take over their logical thinking and will start exiting their positions. FIIs will see this as a bargain price and a perfect opportunity to buy stocks at much lower levels and now retailers won’t be interested in buying because of the earlier loss they have experienced. Retailers, as usual, will enter late, only once the hype gets created in the market again.
We can never be sure of the future outcome but at least we can try to keep ourselves prepared for the known outcome by learning from the past.
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