Know why one needs to exercise caution in BHEL despite witnessing outperformance

PSU stocks have garnered limelight for the last few weeks and BHEL is one of those stocks, which has outperformed Nifty in the last one month or so.  

The stock has gained nearly 18 per cent month till date. However, this Navratna company has been one of the major underperformers since the global financial crisis as the stock, in the year 2008, made a high of Rs 348.17 and went onto touch the low of Rs 18.40 in 2020.  

Given the fact that the stock has started to outperform in the recent past on the back of a huge volume spike certainly indicates interest for this stock; however, it has reached a very crucial juncture. This juncture is known as a ‘change in polarity’. The principle of change in polarity states that once breached, a support level becomes resistance and vice-versa i.e. the resistance level becomes support.   

In the beginning of the year i.e. in February 2020, we had seen that the stock had breached its important support level of Rs 41.30-Rs 42.50 and thereafter, made multiple attempts to close above the 42.50 on a weekly basis but all in vain. As the attempt which was made in the month of July 2020 and August-September 2020 saw stock making a reversal candle and the reversal candlestick pattern was confirmed very next week with the formation of a bearish engulfing pattern. At present, the stock is trading around the polarity zone. Hence, it is time to exercise some caution as a breather could be seen in the near term.