Tata Chemicals forms record session count pattern; bulls may take a breather

The stock of Tata Chemicals Limited has given a downward sloping trendline breakout as of November 19, 2020, and thereafter, witnessed 48 per cent upside from the breakout point of Rs 332.70 level.

During this northward journey, the stock has marked the sequence of higher highs & higher lows for eight consecutive trading sessions, which resulted in the formation of a bullish record session count candlestick pattern thereby, further suggesting that the bulls may take a breather.

This is an extremely rare pattern and usually occurs at the top of an uptrend. Generally, we rely on the typical momentum indicators or oscillators for recognising an overbought and oversold condition of the stock. However, this Japanese candlestick pattern gives us a unique way to recognise the time when the momentum is about to wane out.

The momentum indicators and oscillators are also suggesting the same phenomenon as they are in an extremely overbought region. The leading indicator i.e. the 14-period daily RSI is currently quoting at 94.41, which is the highest level since its listing. Further, the negative divergence is clearly visible between the daily stochastic and the stock price movement, which suggests a limited upside.

Going ahead, immediate support for the stock is in the zone of Rs 450-Rs 442 as it is a confluence of 23.6 per cent Fibonacci retracement level of its prior upward move (Rs 321.10-Rs 495.50) and short-term 5-day EMA level. In case, the stock sustains below these levels, then it may witness some profit booking.