Will Chart Pattern Be India’s Cup Of Tea?
India’s stock market is potentially carving out a chart pattern that has proven bullish in the past.
We’ve been running a series of late at The Lyons Share on emerging markets. Our motivation has been the various interesting chart developments among the individual markets. Today’s focus is on one of the larger “emerging markets”: India. Like many EM’s, India’s stock market has had a tough go of it in 2018. After topping out a bit north of the 36,000 level in January, India’s S&P BSE Sensex Index (BSE) proceeded to drop some 10% into March. However, while it took about 4 months, the BSE has finally clawed its way back to those January’s highs.
So will this level prove to be formidable enough resistance to put an end to the Indian bull market, e.g., a double top? Or will the BSE be able to break through and embark on a new up-leg? We can’t know for sure, but we suspect that the BSE will find some resistance here, at least in the near-term. That wouldn’t be unhealthy or unwelcome, however -- even for bulls. Some pause in the BSE to refresh itself and “re-fuel” would probably go a long way in contributing to a more sustainable breakout once (if) it does finally breach these highs.
If this scenario does play out, it also may well unfold within the confines of a “Cup-&-Handle” pattern.
As we laid out in a post on mid-cap stocks the other day, the Cup-&-Handle pattern is generally a very bullish one for prices, involving 2 parts:
The Cup: This phase includes an initial high on the left side of a chart followed by a relatively long, often-rounded retrenchment before a return to the initial high.
The Handle: This phase involves a shorter, shallower dip in the stock and subsequent recovery to the prior highs.
The bullish idea is that after taking a long time for a stock to return to its initial high during the “cup” phase, the “handle” phase is much briefer and shallower. This theoretically indicates an increased eagerness on the part of investors to buy the stock since they did not allow it to pull back nearly as long or as deep as occurred in the cup phase. Regardless of the theory, the chart pattern has often been effective in forecasting an eventual breakout and advance above the former highs.
The Cup-&-Handle is also a pattern that has proven bullish for Indian stocks throughout its 15-year bull market, as this chart points out.
We covered the Cup-&-Handle breakouts in 2014 and 2017 on our blog in real-time. The BSE also carved out a Cup-&-Handle from 2000-2005 that isn’t shown here. Each of those breakouts were followed by significant rallies. Will the outcome be the same for India again? Time will tell.
In a Premium Post at The Lyons Share, we look at the best way – and the best spot – to take advantage of this potential opportunity.
If you are interested in our Premium level charts and analysis, check out The Lyons Share. You can also follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!
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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
