Technical Bits: DHFL features in Bollinger Band Squeeze pick

Dewan Housing Finance Corporation Limited (DHFL) 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 band can foreshadow a significant advance or decline.

The stock had formed bearish engulfing candle as on weekend of September 7, 2018 and thereafter, the stock has been falling consistently along with higher volumes and marking a series of lower lows. Considering the weekly time frame, the stock formed an inverted hammer pattern near 52-week low and, thereafter, witnessed a bounce back along with low volume. 

At present, the stock is hovering around the support zone defined by upward sloping trendline on the daily scale. Meanwhile, the medium and long-term trend is still negative, as the stock is trading below its 20-day EMA, 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 the daily time frame quoted around 10.98, which suggests no strength in any directional momentum.

In the near term, the zone of Rs. 158 to Rs. 162 is likely to act as an immediate resistance as the 50-day EMA is placed in this region. A decisive close above this level would lead to an extension of the pull-back toward Rs. 215, which is 100-day EMA level. While any move below the level of Rs. 120 would be negative for the stock as it would result in a breach of upward sloping trendline formed by connection swing lows from February 4, 2019.