Mphasis features as Bollinger Band Squeeze pick

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

The stock has formed a strong base in the zone of Rs 630-Rs 760 and thereafter, witnessed almost 93 per cent upward momentum in 23 weeks. As on the weekend of October 16, 2020, the stock has formed a spinning bottom candlestick pattern and thereafter, witnessed a minor correction. During this corrective phase, the volume was mostly below the 50-week average volume, which suggests its routine decline after a robust move. The correction is halted near the 23.6 per cent retracement level of its prior upward move (Rs 630-Rs 1,464.80).

Considering the weekly timeframe, the stock is trading in a small range for the last five weeks. However, as of now, the price action has narrowed substantially and the stock is likely to give a consolidation breakout in the coming days.

Currently, the major trend of the stock is bullish, as it is trading above its medium and long-term moving averages, that is, 50-day EMA, 100-day EMA, and 200-day EMA. However, the leading indicator i.e. the 14-period daily RSI hovers in a neutral region since the last 36 trading sessions. The average directional index (ADX), which shows the strength of the trend, is below the mark of 10. This clearly indicates that there is an absence of strength in the stock. Other indicators are also mirroring the same image.

Talking purely about the trading levels, the zone of Rs 1,300-Rs 1,280 level is a crucial support area and the level of Rs 1,380-Rs 1,400 is a resistance zone. A sustainable move on either side would lead to a trending move.