Ashok Leyland forms doji candle; bulls may take a breather

The stock of Ashok Leyland Limited formed a reversal spinning top candlestick pattern as on March 27, 2020, and thereafter, marking the sequence of higher tops and higher bottoms. The stock has witnessed over 169 per cent upside from the low of Rs 33.70, which was registered on March 24, 2020.  

However, on the weekly timeframe, the stock has formed a Doji candlestick pattern, which indicates bulls may take a breather. The Doji is a single candlestick pattern that indicates weakness and a potential trend reversal. A doji is usually a relatively short candlestick with no real body or very little real body. In terms of market psychology, a Doji indicates that there is indecision and uncertainty in the market with neither buyers nor sellers able or willing to move the price to significant levels.

Along with this bearish formation, the stock has also managed to close below its short-term 8-day EMA level. Among the momentum indicators, the 14-period daily RSI has cooled off after touching the zone of 74-75 and at present, its reading is 62.14. The RSI is trading below its 9-day average and is in a falling mode, which indicates further downside momentum.

Moreover, there has been a negative divergence between the daily stochastic and the stock price movement, which is suggesting a limited upside. A negative divergence occurs when the price is making a higher high, while the indicator forms a lower high.

Going ahead, if the stock slips below the level of Rs 88.60 and trades convincingly below this level, then there is a high probability that the Thursday’s high point of Rs 97.80 would become a temporary top for the stock.

On Friday, the stock of Ashok Leyland closed at Rs. 90.80 per share, dipped by 4.22 per cent. The stock opened at Rs. 95.45 per share and hit an intraday high of Rs. 96.10 and a low of Rs. 88.60 per share on NSE.