Chart Busters: Top trading set-ups to watch out for Tuesday

On the first trading session of the week, the Indian market has witnessed a fierce sell-off as the benchmark index Nifty has tumbled by nearly 2%. The Nifty Midcap 100 and Nifty Smallcap 100 as underperformed benchmark indices. The overall advance-decline was tilted in the favour of the decliners. The Indian Volatility Index (VIX), a gauge for the market’s short-term expectation of volatility, surged by nearly 18% to end at a 17.52 level.

Here are the top trading set-ups to watch out for Tuesday.

Elecon Engineering Co: The stock has formed a Hammer candlestick pattern on the last week of March 2020 and thereafter marked the sequence of higher tops and higher bottoms. From the low of Rs 16.20, the stock has gained over 1100% in just 87 weeks.

On Monday, the stock has marked a fresh 52-week high along with robust volume. Also, the stock has relatively outperformed the frontline indices on Monday. The Relative strength comparison with Nifty 500 and Nifty 50 has also marked higher tops and higher bottoms. As the stock is trading at a 52-week high, all the moving averages based on trade set-ups are showing a bullish strength in the stock. The stock is meeting Mark Minervini’s as well as Daryl Guppy’s multiple moving averages rules. These two set-ups are giving a clear uptrend picture in the stock.

Interestingly, the leading indicator, 14-period daily RSI has given a downward sloping trendline breakout, which is a bullish sign. The daily RSI is currently quoting at 72.70 and it is in rising mode. The daily MACD stays bullish as it is trading above its zero line and signal line. The MACD histogram is suggesting a pickup in upside momentum. 

Considering the robust technical structure of the stock we believe it is likely to continue its upward journey. On the downside, the 20-day EMA is likely to provide the cushion in case of any immediate decline. The 20-day EMA is currently placed at Rs 171.10 level.

Tata Chemicals: The stock has formed a Gravestone Doji pattern as of October 18, 2021, and thereafter witnessed a correction of over 24% in just 10 trading sessions. After registering the low of Rs 876.50, the stock has witnessed counter-trend consolidation for 14 trading sessions, which resulted in the formation of a Bearish Flag pattern.

On Monday, the stock has given a breakdown of a Bearish Flag pattern on the daily chart along with relatively higher volume. Additionally, the stock has formed a sizeable bearish candle on breakout day. Currently, the stock is trading below its short-term moving averages, i.e. 20-day EMA and 50-day EMA levels. These moving averages are edging lower. The leading indicator, RSI is currently quoting 40.30 and it is in falling mode. The fast stochastic is also trading below its slow stochastic line.
 

Technically, all the factors are currently aligned in support of the bears. Hence, we would advise the traders to be with a bearish bias. Any sustainable move below its 100-day EMA level will lead to a sharp downside move in the stock. The 100-day EMA is currently placed at Rs 871.05 level.