Technical Bits: Tata Elxsi features as Bollinger Band Squeeze pick

Tata Elxsi Limited was picked 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 given a breakdown of Descending Triangle pattern as on July 15, 2019 and thereafter marked the sequence of lower tops and lower bottoms till its 52-week low level. Considering the weekly timeframe from the last three weeks, the stock is trading in contracting consolidation and formed three indecisive candles. However, as of now, the price action has narrowed substantially and the stock is likely to give consolidation breakout in the coming days.

The short and long-term trend is bearish, as the stock is trading below its 20-day EMA, 50-day EMA, 100-day EMA and 200-day EMA. Among the momentum indicators, the 14-period RSI is currently quoting at 38.92 and it is trading above its 9-day average. The daily MACD stays bullish as it is trading above its zero line since the last 13 trading sessions. Moreover, a positive divergence was also spotted at the daily time frame on the RSI. Positive divergence occurs when the price is making a lower low, while the RSI forms a higher low.

A consolidation breakout or breakdown below some important support/resistance level with supportive volumes will lead to a major advance or decline. For the short-term, the zone of Rs 640-Rs 650 will act as crucial resistance for the stock. A follow-through move above this level would lead to an extension of the pull-back toward Rs 680, followed by Rs 710. While, on the downside, the zone of Rs 600-Rs 590 will act as immediate support for the stock. Any failure to hold this support would lead to further correction up to the level of Rs 550.