Indraprastha Gas forms descending hawk pattern

The stock of Indraprastha Gas Limited has formed a reversal bearish engulfing candlestick pattern as on February 07, 2020 and thereafter, witnessed a correction. The correction was nearly 47 per cent from the higher levels. However, the correction is halted near Rs 284.05 level, where it has formed a reversal doji candlestick pattern and thereafter, bounced up to the level of Rs 485. Considering the weekly time frame, the stock has formed descending hawk candlestick pattern on weekly time frame, which suggest weakening of the short-term uptrend and may reverse to the downtrend after the confirmation candle.

The descending hawk candlestick pattern closely resembles the bearish harami or inside day pattern except that, both the bodies are green rather than opposite in colour. The pattern may indicate that there is a weakening of the current uptrend, which increases the likelihood of reversal. However, the confirmation of pattern is required on the third candle. The third candle has to close below the low of the first candle to trigger a sell signal, which is currently placed at Rs 442.50.

The relative strength index (RSI), which is a momentum indicator in the weekly timeframe, turned down from 60-mark and in the bear market we have seen that the RSI does not move above the 60-mark. The weekly stochastic has also given a bearish crossover. Moreover, a negative divergence was also spotted at the daily time frame on 14-period RSI, which suggest limited upside. A negative divergence occurs when the price is making a higher high, while the RSI forms lower high.

Going ahead, it’s important for the stock to sustain and close below the first candle low, which is placed at Rs 442.50. A sustainable move below the level of Rs 442.50 is likely to open up gates for further correction towards the levels of Rs 408. While on the upside, previous week’s high of Rs 485 is likely to act as a short-term resistance.