The Golden Crossover setup is believed to be one of the most reliable tool & popular among traders community.
Shabbir Kayyumi
What is a Golden Crossover Setup?
The golden cross appears on a chart when a stock's mid-term moving average (50 DMA) crosses above its long-term moving average (200 DMA). As long-term indicators carry more weight, the golden cross indicates a bull market on the horizon and is reinforced by high trading volumes.
There are mainly three stages to a golden cross. The first stage requires that a downtrend eventually bottoms out as selling is depleted. In the second stage, the shorter moving average forms a crossover up through the larger moving average to trigger a breakout and confirmation of trend reversal. The last stage is the continuing uptrend for the follow through to higher prices.
Golden Cross is popular, simple and easy to spot on charts. Moving averages can be powerful when understood correctly; however they are simple and easiest tool for developing trading setup. The Golden Crossover setup is believed to be one of the most reliable tool & popular among traders community. The golden cross can be contrasted with a death cross indicating a bearish price movement.
Why to buy Canara Bank?
Golden Crossover, a moving average setup is an integral part of technical analysis, but successful traders combine these techniques with momentum indicators and other forms of tools to maximise their odds of success.
Canara Bank is having a strong demand zone standing around Rs 99-104 levels indicating strong bullish breakout above these levels. Recently prices have given breakout on this stock forming Golden Crossover, as its 50 DMA is crossing 200 DMA from below. This setup indicates prices are trading with strong positive sentiment and are ready to trade higher until prices close below 200 DMA.
At the same time the stock is trading above both moving averages which denote that prices are moving with a bullish bias in mid-term as well as in long-term. The moving averages act as support levels on pullbacks, until they crossover back down at which point a death cross may form. Nevertheless, prices are not only trading above demand zone but also adding strength to the current momentum. Moreover, above rationale suggests one should buy Canara Bank on dip for higher targets of Rs 134.
Figure.1. Golden Crossover Setup and Buy signal on Canara Bank
Buy Signal:-
1. A close above demand zone (Rs 99-104) indicates current up trend is still intact.2. Mid-term moving average 50 DMA (Rs 104) defines mid-term trend is very well augur with bulls as prices are sustained and trading around it.
3. Long-term moving average 200 DMA (Rs 90) defines long-term trend is providing support to buyers as prices are sustaining and trading above it.
4. Decent volume participation near demand zone will also give additional confirmation.
Profit Booking:-
In terms of Golden Crossover setup profit needs to trailed towards higher side till we see decisive closing below 200 DMA; however in this stock we will consider as a previous swing pivot which is placed around Rs 134 mark.
Stop Loss:-
Entire bullish view negates on decisive closing below 200 DMA or on a bearish crossover of mentioned moving averages. In case of Canara Bank, we will consider Rs 90 as a stop loss level.
Conclusion
We recommend buying Canara Bank around Rs 104 with a stop loss of Rs 90 on a closing basis for higher targets of Rs 134 as indicated in above chart.
The author is Head - Technical Research at Narnolia Financial Advisors.
Disclosure: Narnolia Financial Advisors/Analyst (s) does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. Clients of Narnolia Financial Advisors Ltd. may be holding aforesaid stocks. The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
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