Natco Pharma features as Bollinger Band Squeeze pick

The stock of Natco Pharma Limited was picked by our Bollinger Band squeeze scanner, which suggests that the stock is near a consolidation breakout. Bollinger Band squeeze occurs when volatility falls to low levels and the band narrows. A volatility contraction or narrowing of the bands can foreshadow a significant advance or decline.

After registering a high of Rs 996, the stock has witnessed a correction. The correction was halted near the 50 per cent Fibonacci retracement level of its prior upward move (Rs 731-Rs 996) and coincides with the 50-day EMA level. However, for the last seven weeks, the stock is oscillating in a small range, which resulted in the formation of a symmetrical triangle pattern. However, as of now, the price action has narrowed substantially and it has reached near the apex point of the triangle, which indicates that the stock is likely to give a breakout in the coming days.

Majorly, the stock is displaying a bullish trend as it is trading above its short and long-term moving averages, that is, 20-day EMA, 50-day EMA, 100-day EMA, and 200-day EMA. The leading indicator i.e. the 14-period daily RSI hovers in a neutral region since the last 30 trading sessions. The average directional index (ADX), which shows the strength of the trend, is below the level of 10. This clearly indicates that there is an absence of strength in the stock. Other indicators are also mirroring the same image.

Talking purely about the trading levels, the zone of Rs 888-Rs 865 level is a crucial support area for the stock as it is the confluence of the lower trendline of the symmetrical triangle and 50-day EMA. On the upside, the level of Rs 933-Rs 946 is a resistance zone. A sustainable move on either side would lead to a trending move.