RSI pullback in DLF suggests buying opportunity

Shailendra Kumar

RSI stands for the Relative Strength Index. It is a momentous oscillator used to identify trend reversal. RSI was invented by Welles Wilder Jr.

The default look-back period for RSI is 14. However, this can be lowered to increase sensitivity or raised to decrease sensitivity. RSI calculates the strength of a stock trend and helps to predict their reversals.

Why buy DLF?

Shailendra Kumar

Chief Investment Officer|Narnolia Financial Advisors

• 'Pace of economic slowdown has fallen but recovery still not visible'

• 'A credible fiscal deficit number, aggressive asset monetization plan to be positive triggers'

• '2020 will see a fresh bull cycle backed by normalised earnings'

There are a lot of trading strategies using RSI; below mentioned is one of the most popular among the trading community which involves buying after completing retracement for higher movement; however the support of another momentum oscillator stochastic can give additional support.

In the last few days, RSI had given a breakout by trading above 50 levels from below and made a high of 80 then after it is trading lower or retracing towards centerline placed at 50 levels. This behaviour is called as ‘RSI PBB’ setup.

RSI PBB is pull back buy setup which indicates, once RSI turns its tail upside after taking support from the zone of 45-55 levels, the target is a previous swing high of RSI which was 80 or previous swing high of prices (260).

Currently, DLF is going through this setup and we expect higher price movement towards previous high 240-260 levels in the coming days.

Buy signal:

Recent RSI gave a breakout and published swing top around 80 levels.

After marking a high of 80, RSI is retracing towards 50 towards mid-line standing around 50 marks.

Strong bullish candle formation near the buying zone has given us confirmation of retracement complete and original trend begin.

Midterm moving average 50-WMA placed around 193 levels defines mid-term trend is very well augured with bulls as prices are sustained and trading above it.

Decent volume participation while forming a bullish candle will also give additional confirmation.

Profit-booking:

Whenever price candle will be near previous swing high which is near 240-260 levels.

Stop loss:

The entire bullish view negates on breaching of a swing low and one should exit from a long position. In the case of DLF, it is standing around 178 marks.

Conclusion

We recommend buying DLF Limited (DLF) around 195-200 levels with a stop loss of 178 for higher targets of 240 and 260 levels as indicated in the above chart.

(The author is Chief Investment Officer, Narnolia Financial Advisors)