Ajanta Pharma forms three inside down pattern

The stock of Ajanta Pharma Limited had given a breakout of inverted head and shoulders pattern as on weekend of January 17, 2020 and thereafter, the stock has witnessed almost 35 per cent upward momentum. However, considering the daily time frame, the stock has formed a three inside down candlestick pattern. This pattern represents a confirmation of the bearish harami pattern, which indicates that the forecast is successful.

In this pattern, first candle is a long bullish candle, which closes near its high; the second one is a small bearish candle, which gaps away from the first candle while closing inside it, thus, creating a harami pattern. Third candle exceeds the lows of the first two candles.

With this bearish formation, the stock has also managed to close below its weekly pivot and short-term moving average, i.e. 8-day EMA. The 14-period daily RSI cooled off after touching 85-zone and at present, its reading is 65.23. The RSI is trading below its nine-day average and it is in falling mode, which indicates a further downside momentum. The fast stochastic is also trading below its slow stochastic line. Moreover, a negative divergence was also spotted at the daily time frame on the 14-period RSI. A negative divergence occurs when the price is making a higher high, while the RSI forms lower high.

In the near term, the zone of Rs 1,460-Rs 1,490 is likely to act as a major resistance for the stock. While on the downside, any sustainable move below Monday’s low would result in further correction, up to the level of Rs 1,285, and followed by Rs 1,238.

On Monday, the stock of Ajanta Pharma Limited closed at Rs 1,329.50 per share, down by six per cent. The stock opened at Rs 1,414.40 per share and hit an intraday high of Rs 1,420 and a low of Rs 1,328.20 per share, on NSE.