CESC forms piercing line candlestick pattern

The stock of CESC Limited has given a breakdown of horizontal trendline support as on weekend of February 28, 2020 and thereafter; fell sharply up to the level of Rs 365.25. However, considering the weekly time frame, the stock has formed a piercing line candlestick pattern. The piercing line candlestick pattern is considered to be a bullish reversal pattern and usually occurs at the bottom of a downtrend.

After a span of almost one and a half months, the stock has managed to successfully close above its crucial short-term moving average i.e. eight-day EMA. Also the stock has managed to close above its weekly pivot. From the momentum indicators’ perspective, the 14-period daily RSI is currently quoting at 34.91 and it is trading above its nine-day average. The daily stochastic oscillator is also suggesting some bullish strength as per cent K is above the per cent D. Moreover, the momentum indicator daily MACD line has crossed above the signal line, which resulted in the histogram turning positive.

The buying volumes are higher than the last seven weeks’ fall, which indicates that it is accumulated by smart investors at a lower level. Moreover, there has been a positive divergence between the daily stochastic and the stock price movement, which suggests a limited downside.

Going ahead, if the stock sustains above Friday’s session high of Rs 429.80 and trades convincingly above this level then, there is a high probability of Monday’s low of Rs 365.25, becoming a temporary bottom for the stock.

On Friday, the stock of CESC closed at Rs 420 per share, surging by 6.83 per cent. The stock opened at Rs 393 per share and hit an intraday high of Rs 429.80 and a low of Rs 386.25 per share on NSE.