Hero MotoCorp features as Bollinger Band squeeze pick

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

The stock had formed a reversal Hammer like candlestick pattern on the weekend of August 02, 2019 and, thereafter, bounced sharply up to the level of Rs. 3,022.90. Considering the weekly time frame, the stock is trading in a contracting consolidation for the last six 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.

The short and long term trend is bearish, as the stock is trading below its weekly pivot and also below 20-day EMA, 50-day EMA, and 200-day EMA. The leading indicator, RSI, hovers in the neutral region on both the timeframes, that is weekly and daily timeframes, without any bias. The weekly ADX is not improving as +DI is just above the –DI by a narrow margin. This clearly indicates that the markets lack an explicit trend. Other indicators are also mirroring the same image.

Going ahead, it is important for the stock to sustain and close above the resistance zone of Rs. 2,750-2,770 levels. A sustainable move above the level of Rs. 2,770 is anticipated to open windows for further rally towards the levels of Rs. 3,020, followed by Rs. 3,150. While on the downside, the zone of Rs. 2,560-2,510 levels will be immediate support and failure to hold this support would lead to further correction, up to the level of Rs. 2,380.