SpiceJet forms bearish island reversal pattern

The stock of SpiceJet Limited has given a downward sloping trendline breakout as on November 11, 2020, and thereafter, witnessed over 100 per cent upside in just 21 trading sessions. However, on Monday, the stock has formed a bearish island reversal pattern on the daily chart. This is not a perfect textbook type of bearish island reversal pattern but still, resembles it to a great extent. 

The bearish island reversal pattern is viewed as a bearish reversal pattern that typically occurs at the top of an uptrend. The bearish island reversal is a chart pattern that consists of a group of candles that are separated by gaps on either side.  

Along with this bearish formation, the stock has also managed to close below its weekly pivot and short-term moving averages, i.e. 8-day EMA and 13-day EMA level. Among the momentum indicators, the 14-period RSI cooled off after touching the zone of 87-90 and at present, its reading is 58.03. The RSI is trading below its 9-day average and it is in a falling mode, which indicates a further downside momentum. The momentum indicator i.e. the MACD line has crossed under the signal line, which resulted in the histogram turning negative. Moreover, there has been a negative divergence between the daily RSI, daily stochastic, and the stock price movement, which suggests a limited upside.  

Considering the above observations, if the stock slips below its 20-day EMA level and trades convincingly below this level, then there is a high probability that the current rally’s high point of Rs 108 would become a temporary top for the stock.  

On Monday, the stock of SpiceJet Limited closed at Rs 391.50 per share, dipped by 9.99 per cent. The stock opened at Rs 100.75 per share and hit an intraday high of Rs 100.75 and a low of Rs 91.50 per share on NSE.