Muthoot Finance forms double bottom pattern

The stock of Muthoot Finance has witnessed almost 169 per cent upward move from the low of March 24, 2020. The stock has relatively outperformed the frontline indices in the current leg of the upward rally. Also, the stock relatively outshines Nifty 500 with a decent margin. Relative strength comparison with Nifty 500 and Nifty 50 has reached to new heights.

After registering a high of Rs 1,284 as of June 19, 2020, the stock has witnessed a minor correction. As on June 29, 2020, the stock has formed a swing low of Rs 1,071, where it had formed a reversal Doji candlestick pattern and thereafter, the stock prices rebounded to touch the level of Rs 1,169.60. However, the stock has failed to sustain at a higher level and again witnessed correction but the bears were not able to push the prices much lower and on July 10, 2020, the stock has registered almost identical bottoms. This resulted in the formation of Adam & Adam double bottom pattern.

On Friday, the stock has given a breakout above the neckline of double bottom formation, backed by above 50-day average volumes. Additionally, the stock formed a sizeable bullish candle on the breakout day, which adds further strength to the breakout. 

Currently, the stock is meeting the criteria of Mark Minervini’s trend template. The current stock price is above both 150-day (30-weeks) and 200-day (40-weeks) moving average price lines. Moreover, 30 and 40-weekly averages are trending up and at the same time, they are in the desired sequence.

Talking about the indicators, the leading indicator, 14-period daily RSI has given a downward sloping trendline breakout, which is bullish. Moreover, Martin Pring’s long-term KST set-up has also given a buy signal.

Going ahead, we expect the bias to remain positive as long as the stock sustains above Friday’s low of Rs 1,136.35 level. On the higher side, the prior high of Rs 1,284 level, where the target of the double bottom pattern is placed, would be seen as the next resistance zone for the stock.

On Friday, the stock of Muthoot Finance closed at Rs 1,202.95 per share, up by 6.30 per cent. The stock had opened at Rs 1,139.80 per share and hit an intraday high of Rs 1,225 and a low of Rs 1,136.35 per share on NSE.