Stock that rises 76 per cent in 23 trading sessions, what should be its next course of action?

From the low of Rs 1,468, the stock of Tata Elxsi Limited has gained nearly 76 per cent in just 23 trading sessions. However, on Thursday, the stock has formed a bearish engulfing candlestick pattern on the daily chart, which suggests a pause in the uptrend. This pattern is considered to be a bearish reversal pattern and usually occurs at the top of an uptrend. 

Among the momentum indicators, the 14-period daily RSI has cooled off after touching the zone of 83-87 and at present, its reading is 69.61. The RSI is trading below its 9-day average and it is in a falling mode, which indicates a further downside momentum. The fast stochastic line is also trading below its slow stochastic line since the last five trading sessions.   

Moreover, a negative divergence is also spotted at the daily timeframe on the 14-period RSI. A negative divergence occurs when the price is making a higher high, while the RSI forms a lower high.  

Going ahead, the 8-day EMA is likely to act as immediate support for the stock, which is currently quoting at Rs 2,485 level. While on the upside, Thursday’s high of Rs 2,849 will be a major hurdle for the stock.  

On Thursday, the stock of Tata Elxsi closed at Rs 2,577.60 per share, dipped by 7.53 per cent. The stock opened at Rs 2,829 per share and hit an intraday high of Rs 2,849 and a low of Rs 2,529.95 per share on NSE.