Granules India form shooting star pattern; indicate a possible trend reversal

The stock of Granules India Limited has formed a gravestone Doji candlestick pattern as on March 23, 2020, and thereafter, marked the sequence of higher tops and higher bottoms. The stock has witnessed over 235 per cent upside momentum from the low of Rs 114.10, which was registered on March 23, 2020. 

However, the stock has formed a ‘shooting star’ candlestick pattern on the weekly timeframe, which suggests a possible trend reversal. The shooting star candlestick formation is viewed as a bearish reversal candlestick pattern, which typically occurs at the top of an uptrend. The long upper shadow of the shooting star implies that the market is being tested to find out where the resistance and supply were located.

Among the momentum indicators, the 14-period daily RSI has cooled off after touching the zone of 80 and at present, its reading is 58.84. The RSI is trading below its 9-day average and it is in the falling mode, which indicates a further downside momentum. The stochastic oscillator is also suggesting some bearish momentum as per cent K is below the per cent D. 

Moreover, a negative divergence was also spotted at the daily and the weekly timeframe on the 14-period RSI. A negative divergence occurs when the price is making a higher high, while the RSI forms a lower high.

Going ahead, if the stock slips below the level of Rs 341.35 and trades convincingly below this level, then there is a high probability that Thursday’s high point of Rs 383.90 would become a temporary top for the stock.