Cup & Handle pattern in Sun Pharma suggests buying opportunity - here's why

William O'Neil's Cup with Handle is a bullish pattern that marks a consolidation period followed by a breakout. There are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right-hand side and the handle is formed. A subsequent breakout from the handle's trading range signals a continuation of the prior advance.

A cup and handle price pattern on charts resembles a cup and handle where the cup is in the shape of a "U" and the handle has a slight downward drift. A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities.

Sun Pharma is trading above strong resistance line standing around 440 levels indicating strong bullish bias to continue further. Decent volume participation while giving breakout is also giving support to pattern breakout. The counter appears to have formed a short term bottom near the lower base of a double bottom on weekly chart from where it attracts buying interest.

Formation of Cup & Handle pattern on daily chart suggests strength. Sustainability above 200 DMAs in the coming sessions will imply further strength.

Shabbir Kayyumi

Head of Technical & Derivative Research|Narnolia Financial Advisors

• Relief rally may push Nifty towards 11,400; 5 stocks to buy with 6-21% upside

• Emerging Inverse Head & Shoulder pattern suggests buying opportunity in Maruti

• 'Expect strong momentum above 11,181; these 5 stocks to give 9-16% upside'

Figure 1: Cup & Handle pattern and Buy signal on Sun Pharma

Buy Signal:-

1. Recent close prices (Rs 450) are trading above breakout line (Rs 440) of Cup & Handle pattern indicating strong up move to unfold.

2. Short-term moving average 20 DMA- 422 defines short-term trend is providing support to buyers as prices are sustained and trading above it at 450 mark.

3. Mid- term moving average 50 DMA (413) defines mid-term trend augurs with the bulls as prices are sustained and are trading above it around 450 mark.

• Target as per Cup & Handle pattern is calculated by adding the height of the cup to neckline which comes to Rs 510, however, one can book profits near previous swing high which is around Rs 478.

• Entire bullish view negates on breaching of the handle on a closing basis and one should exit from a long position. In the case of Sun Pharma it is placed around 411 levels.

• Cup & Handle pattern suggests buying Sun Pharmaceutical Industries Limited around Rs 440 levels with a stop loss of Rs 411 for higher targets of Rs 510 as indicated in the above chart.

The author is Head - Technical & Derivative Research at Narnolia Financial Advisors Ltd.