HDFC Bank forms Morning Doji Star pattern

The stock of HDFC Bank Ltd., after registering all-time high of Rs. 2503.30 in the month of July 2019, entered into a downtrend and recorded a series of lower high-low. As on August 05, 2019, the stock had formed a swing low of Rs. 2162.50 and thereafter, the stock prices had rebounded to touch the level of Rs. 2289. However, the stock failed to hold on to higher levels and all its attempts to return to the previous trend failed. But the bears were not able to push prices much lower and stock registered an almost identical bottom as on August 23, 2019. This resulted in the formation of Adam and Adam double-bottom pattern.

Additionally, the stock had formed a Morning Doji Star candlestick pattern on Monday, suggesting that the bulls were in the dominant position near the short-term support zone. Morning Doji Star is a complex pattern made of three candles, the first candle is bearish in nature, the second is indecisive and the third candle is bullish in nature. It is a reversal candlestick pattern which is bullish in nature and appears at the end of a downtrend.

On Monday, the stock has managed to close above its weekly pivot and short-term moving average, i.e. 13-day EMA and 20-day EMA. Among the momentum indicators, the 14-period daily RSI is currently quoting at 50.12 and it is trading above its 9-day average. The stochastic oscillator is also suggesting some bullish strength as %K is above the %D. Moreover, a positive divergence was also spotted at the daily time frame on the RSI, which indicates limited downside. A positive divergence occurs when the price is making a lower low, while the RSI forms a higher low.

Going ahead, it’s important for the stock to sustain and close above the neckline of the Adam and Adam double bottom pattern which is placed in the region of Rs. 2275-2290. A sustainable move above the level of Rs. 2275-2290 is likely to open up gates for a further rally towards levels of Rs. 2350. While on the downside, the last week’s low of 2139.60 would act as a crucial support level.

On Monday, the stock of HDFC Bank closed at Rs. 2255.95 per share, up by 4.29 per cent on BSE. The stock had opened at Rs. 2204.90 per share and hit an intraday high of Rs. 2265 and a low of Rs. 2167.50 per share.