-
8/2/2019 Nov-1811-57181111
1/3
September 23, 2011
ICICIdirect.com|Equity Research
echnical breakout
CICI Securities Limited
Breach below 1500 signals breakdown from 18-month old
support line and Head & Shoulders Top pattern
Exhibit 1:Larsen & Toubro Weekly line chart
Source: Spider software, ICICIdirect.com Research
Resilience in turbulent marketsLarsen & Toubro (L&T),
the capital goods behemoth, has been the toast of
the Street for its strong performance vis--vis benchmarks. While
the
stock participated in the 2009-2010 rally along with the Nifty
to test its
own life high, during 2011 the stock has relatively
outperformed. Even as
the Nifty has been making new lows, the stock has so far
protected its
February 2011 lows around 1500 levels.
However, during last week, the price of the stock has cracked
below this
long protected support indicating a change in structure. (Refer
Exhibit 1).
Bearish Head and shoulders TopOn Thursday, L&T gapped down
(potentially break away gap) and closed
below the major support in the 1500-1520 region. This move
completed
the breakdown below the Neckline of the Bearish Head and
shoulders
formation on the weekly charts. If it sustains below 1500 for a
couple of
sessions, that would confirm a break down.
As per Classic western technical theory, a Head and shoulders is
a
Reversal pattern. The pattern gets completed when a breakdown
occurs
below the neckline, which in the case of L&T was placed at
1545 on a
weekly closing basis.
The price implication of this bearish pattern works out to
around | 1265as measured by calculating the distance between Head
and neckline
(1825-1545 = 280 points) from the breakdown level (1545-280 =
1265)
The pattern would become void only if the price closes above |
1550 on a
weekly basis.
Key Technical Data
CMP 1491
Price Target 1200
Stoploss 1550
52 Week High 2212.7
52 Week Low 1461
50 days EMA 1641.5
200 days EMA 1692.85
52 Week EMA 1688.5
The weekly chart reflects the breakdown from 18-month longupport
line placed around 1500
The price has also broken down from the bearish Head and
houlder pattern on the weekly chart
AnalystDharmesh Shah
[email protected]
Nitin [email protected]
Pabitro Mukherjee
[email protected]
Dipesh Dagha
[email protected]
Larsen & Toubro Ltd (LARTOU)
-
8/2/2019 Nov-1811-57181111
2/3
ICICIdirect.com|Equity ResearchPage 2
ICICI Securities Limited
Rising gap of May 2009Most of the stocks along with benchmarks
have made a huge rising gap
as the Indian bourses witnessed their only upper freeze in May
2009 post
the General Election results. Historically, such gaps if tested
act as a
support or resistance for the price action.
L&T also formed a gap in the range of 1000-1100 levels,
which can beseen as a technical support if tested
Momentum follows priceMomentum indicators like the 14 week
Relative strength index (RSI) are
usually used to gauge the acceleration of the trend and
overbought and
oversold positions of the markets.
Our observation is that these oscillators also form and follow
classic
technical patterns as seen in the case of L&T.
The 14 week RSI has formed a bearish Head and Shoulders
(H&S) along
with price validating breakdown of prices.
Conclusion: Taking cues from the abovementioned technical
patterns, weexpect the price of L&T to head lower towards
1250-1170 levels. A change
of view would be warranted only if the stock posts a weekly
closing
above 1550 levels.
Elliott Wave perspectiveIn Technical Analysis, another school of
thought apart from the classic
Dow Theory is the Elliott Wave Principle. Both are based on
study of price
patterns, which depict the psychology of the masses.
Exhibit 2 shows markings on the daily chart of L&T.
From the November 2010 high of 2212, the stock began its decline
and
completed its larger degree first wave (or A if it is a larger
correctivepattern) at the low of 1500 during May 2011.
Since then, the stock climbed to make a high of 1868 during July
2011
completing the larger degree second or B wave of this fall.
Then, a larger degree third wave, which is usually a violent
wave as per
wave patterns, commenced from the July 2011 highs of 1868. Now,
it
seems to be in its internal third impulse.
As per Elliot Wave rules, the third wave is never the shortest
in a five
wave impulse pattern. Therefore, it should at least achieve
price equality
with the first wave.
Since the first wave achieved a magnitude of 712 points
(2212-1500), a
similar calculation from the beginning of wave 3 projects
downside of
1156 (1868-712).
Exhibit 2:Larsen & Toubro Wave Count
Source: Spider software, ICICIdirect.com Research
-
8/2/2019 Nov-1811-57181111
3/3
ICICIdirect.com|Equity ResearchPage 3
ICICI Securities Limited
.
Pankaj Pandey Head Research
[email protected]
ICICIdirect.com Research Desk,ICICI Securities Limited,1st
Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai 400 [email protected]
isclaimerhe report and information contained herein is strictly
confidential and meant solely for the selected recipient and may
not be altered in any way,
ansmitted to, copied or distributed, in part or in whole, to any
other person or to the media or reproduced in any form, without
prior written consent of
CI Securities Ltd (I-Sec). The author of the report does not
hold any investment in any of the companies mentioned in this
report. I-Sec may beolding a small number of shares/position in the
above-referred companies as on date of release of this report. This
report is based on information
btained from public sources and sources believed to be reliable,
but no independent verification has been made nor is its accuracy
or completeness
aranteed. This report and information herein is solely for
informational purpose and may not be used or considered as an offer
document or
licitation of offer to buy or sell or subscribe for securities
or other financial instruments. Nothing in this report constitutes
investment, legal,
counting and tax advice or a representation that any investment
or strategy is suitable or appropriate to your specific
circumstances. The securities
scussed and opinions expressed in this report may not be
suitable for all investors, who must make their own investment
decisions, based on their
wn investment objectives, financial positions and needs of
specific recipient. This report may not be taken in substitution
for the exercise of
dependent judgment by any recipient. The recipient should
independently evaluate the investment risks. I-Sec and affiliates
accept no liabilities for any
ss or damage of any kind arising out of the use of this report.
Past performance is not necessarily a guide to future performance.
Actual results may
ffer materially from those set forth in projections. I-Sec may
have issued other reports that are inconsistent with and reach
different conclusion from
e information presented in this report. This report is not
directed or intended for distribution to, or use by, any person or
entity who is a citizen or
sident of or located in any locality, state, country or other
jurisdiction, where such distribution, publication, availability or
use would be contrary to law,
gulation or which would subject I-Sec and affiliates to any
registration or licensing requirement within such jurisdiction. The
securities described
rein may or may not be eligible for sale in all jurisdictions or
to certain category of investors. Persons in whose possession this
document may come
e required to inform themselves of and to observe such
restriction.
