The broader markets are looking poised for a correction after the bearish divergence at the very top in the index is reaping the expected results. While weakness in the Indian markets continued in today’s session with the Nifty 50 falling 0.96% to 17,706 by 9:51 AM IST, many stocks are giving signs of a topping out.
One such large-cap is Larsen & Toubro (NS:) which is an engineering and construction company with a market capitalization of INR 2,75,066 crores. The share price of L&T has risen with the market’s rally in the last couple of months. The rise in L&T shares has been quite sharp and without any correction. From the June 2022 low of INR 1,456.35 to the September 2022 high of INR 1,995, there hasn’t been a single retracement during this good 37% move. This is good because large caps generally do not rally at this pace in a mere 3 months.
Image Description: Daily chart of L&T showing a trendline breakdown
Image Source: Investing.com
Now, as the rally was quite smooth, a rising trendline joining the lows could easily be formed on the daily chart. This trendline has kept the stock from falling during the rally and supported the prices from lower levels. However, today is the first time that this trendline has finally been broken, and that too quite convincingly.
This trendline break is the first signal for a trend reversal and bears might now have a chance to pare their losses. More interestingly, the top of the current rally is almost near a major resistance that has already thrown the stock to lower levels in the past. As can be seen from the chart above, the psychological level of around INR 2,000 has been a strong selling zone for the stock for quite some time. So this proven level has a higher chance of working again, leading to a correction.
Now how far the stock could retrace from the current levels? Well, there are no strong support levels till the nearest level of around INR 1,860. This is the same level that marked the peak of a rally in L&T shares in April 2022. Currently, the stock is trading 1.6% down at INR 1,926, which might not level much of a scope till the next support levels. However, the major crux of the analysis is the trend reversal that is taking place in the stock. On the upside, unless the level of INR 2,000 gets convincingly taken out, the current trend seems to be more favorable for the bears.
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