Alkem Laboratories feature as Bollinger Band Squeeze pick

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

The stock had given a downward sloping channel breakout as on January 1, 2020 and thereafter, marked the sequence of higher tops and higher bottoms. Considering the weekly time frame, the stock is trading in contracting consolidation since the last three weeks and formed indecisive candles as traders turned indecisive at higher levels. However, as of now, the price action has narrowed substantially on a daily scale and the stock is likely to give a consolidation breakout in the coming days.

The major trend of the stock is bullish as it is trading above its long and short-term moving averages, i.e. 20-day, 50-day, 100-day and 200-day EMAs and these moving averages are exactly in an ascending order, which suggests that the trend is strong. But the leading indicator, daily RSI hovers in the neutral region without any bias and the daily ADX is also declining since the last seven trading sessions. This indicates the lack of a clear 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 2,700-Rs 2,720 level. A sustainable move above the level of Rs 2,720 is likely to open up gates for a further rally towards Rs 2,900, followed by Rs 3,000. While on the downside, the stock has a strong support in the zone of Rs 2,435-Rs 2,420 level, as it is the confluence of 50-day EMA level and 38.2 per cent Fibonacci retracement level of its prior upward move (Rs 1,958-Rs 2,716.90).