ITC Limited: Bollinger Band squeeze pick

ITC 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 formed bearish engulfing candle as on the weekend of September 7, 2018 and thereafter witnessed correction. The correction was arrested near the long-term moving average, i.e 100-day EMA and it coincides with downward sloping trendline support. For the last five weeks, the stock was trading in a contracting consolidation. However, as of now, the price action has narrowed substantially and the stock is likely to give a breakout in the coming days.

At present, the stock is hovering around a key support level as defined by the downward sloping trendline. Meanwhile, the medium-term trend is still negative, as the stock is trading below its 50-day EMA, 100-day EMA, and 200-day EMA. However, the indicators and oscillators are too poor to suggest any momentum. The Average Directional Index (ADX) indicator on weekly time frame quoted around 8.99 and it is in a rising mode, which suggests the stock is likely to give a directional movement in the near term.

In the near term, the zone of Rs. 285 to Rs. 290 is likely to act as an immediate resistance as the downward sloping trendline is placed in this region. A decisive close above this level would lead to an extension of the pull-back toward Rs. 300, followed by Rs. 308. While any move below the level of Rs. 265 would be negative for the stock as it would result in a breach of upward sloping trendline formed by connection swing lows from the month of December 2016.