Mindtree forms bearish engulfing candle; signals a possible trend reversal

The stock of Mindtree Limited has given a downward sloping trendline breakout as on the weekend of July 31, 2020, and thereafter, witnessed nearly 54 per cent upward momentum. However, on the weekly timeframe, the stock has formed a bearish engulfing candlestick pattern, which suggests a possible trend reversal.

The bearish engulfing candlestick pattern is considered to be a bearish reversal pattern and usually occurs at the top of an uptrend.

Along with this bearish formation, the stock has also managed to close below its weekly pivot and short-term moving averages, i.e. the 13-day EMA and 20-day EMA level. Among the momentum indicators, the 14-period weekly RSI has cooled-off after touching the zone of 85-86 and at present, its reading is 65.78. The RSI is trading below its 9-week average and it is in a falling mode, which indicates a further downside momentum. The weekly stochastic is also suggesting downside momentum as the fast stochastic is trading below its slow stochastic line.

Interestingly, there has been a negative divergence between the weekly stochastic and the stock price movement suggesting a limited upside. A negative divergence occurs when the price is making a higher high, while the indicator forms a lower high. The Ichimoku chart on a daily timeframe is giving a negative view as it closed below the KS and TS lines. 

Going ahead, if the stock sustains below Friday’s session low of Rs 1,262.30 and trades convincingly below this level, then there is a high probability that Wednesday’s high point of Rs 1,605.85 may become a temporary top for the stock.

On Friday, the stock of Mindtree closed at Rs 1,329.15 per share, dipped by 6.72 per cent. The stock opened at Rs 1,424.80 per share and hit an intraday high of Rs 1,443.70 and a low of Rs 1,262.30 per share on NSE.