Cummins India features as Bollinger Band squeeze pick

Cummins India Limited has been picked up by our Bollinger Band Squeeze scanner which suggests that the stock is near a consolidation breakout. The Bollinger Band Squeeze occurs when volatility falls to low levels and the Bollinger Bands narrow. A volatility contraction or narrowing of the bands can foreshadow a significant advance or decline.

The stock gave a breakdown of the upward sloping trendline support at Rs. 695 as on weekend of August 02, 2019 and tumbled down to the 52-week low level. Considering the weekly time frame, for the last five weeks, the stock is trading in contracting consolidation. However, as of now, the price action has narrowed substantially and the stock is likely to give consolidation breakout in the coming days.

The short and long-term trend is bearish as the stock is trading below its 20-day EMA, 50-day EMA, 100-day EMA and 200-day EMA. The leading indicator 14-period RSI is currently quoting at 33.67 and it is trading below its 9-day average. The 14-period daily RSI is not able to cross 60 mark since May 31, 2019. The daily stochastic oscillator is also suggesting some bearish momentum as %K is below the %D.

A consolidation breakout or breakdown below some important support/resistance level with supportive volumes will lead to a major advance or decline. For the short-term, Rs. 595 level will be crucial resistance for the stock. A follow-through move above this level would lead to an extension of the pull-back towards Rs. 615, followed by Rs. 630. While on the downside, Rs. 555 level will be an immediate support, failure to hold this support would lead to further correction up to the level of Rs. 510.