Does bearish engulfing on daily chart of Tata Elxsi suggest pause in uptrend?

The stock of Tata Elxsi Limited had given a breakout of the horizontal trendline on December 23, 2020. Thereafter, the stock has gained almost 77.32 per cent in just 27 trading sessions.   

The stock had formed a shooting star candlestick pattern as on the weekend of February 05, 2021 and thereafter, witnessed a throwback of nearly 16.68 per cent. The throwback was halted near the 50-day EMA level. On March 04, 2020, the stock has formed a bullish engulfing candlestick pattern and initiated its northward journey. From the low of Rs 2,541.10, the stock has gained nearly 22.74 per cent.   

However, on Monday, the stock has formed a bearish engulfing candlestick pattern on the daily chart, which indicates a pause in the uptrend. The bearish engulfing candlestick pattern is considered to be a bearish reversal pattern, which usually occurs at the top of an uptrend.   

Further, the stock has closed below its short-term 5-day EMA level. The 5-day EMA has started to edge lower, which is a bearish sign and along with this, it’s also providing support for the stock since March 31, 2021. In addition, the angle of short-term 13-day and 20-day EMA has slowed down considerably.   

The momentum indicators and oscillators are also supporting the bearish chart formation. The RSI and stochastic have given a bearish crossover on the daily chart, which is a bearish sign. The commodity channel index (CCI) has also given a bearish crossover. Interestingly, in recent times, the stock has registered three higher tops, but the majority of the momentum indicators have marked lower tops.    

These above-mentioned facts create doubt about the continuity of the current uptrend while the possibility of short-term correction cannot be ruled out. In case, the stock sustains below Monday’s session low of Rs 2,896 and trades convincingly below this level then, there is a high probability of Friday’s high point of Rs 3,119 becoming a temporary top for the stock.  

On Monday, the stock of Tata Elxsi closed at Rs 2,916.75 per share, dipped by 5.96 per cent. The stock opened at Rs 3,107.05 per share and hit an intraday high of Rs 3,115 and a low of Rs 2,896 per share on NSE.