Endurance Technologies forms bearish engulfing candle, signals a possible trend reversal

The stock of Endurance Technologies has formed an inverted hammer candlestick pattern as on the weekend of April 09, 2020, and thereafter marked the sequence of higher tops and higher bottoms. The stock has witnessed over 250% upside from the low of Rs 564.50, which was registered on the weekend of April 20, 2021. The stock has gained nearly 35% from year to date.

However, on the weekly chart, the stock has formed a Bearish Engulfing candlestick pattern, which suggests a pause in the uptrend. The bearish engulfing candlestick pattern is considered to be a bearish reversal pattern, usually occurring at the top of an uptrend or near a potential resistance zone. This pattern consists of two real bodies of opposite colours. The second candle’s body completely engulfs the previous day's body.

Along with this bearish formation, the stock has slipped below its weekly pivot and short-term moving averages, i.e. 8-day EMA and 13-day EMA levels. Among the momentum indicators, the 14-period daily RSI has cooled off after touching the 65-66 zone and, at present, its reading is 52.83. The RSI is trading below its 9-day average and it is in falling mode, which indicates further downside momentum. The weekly RSI has also given a bearish crossover. On the weekly chart, the fast stochastic is trading below its slow stochastic line.

It has also given the sell signal in Martin Pring’s long-term KST set-up. Moreover, a negative divergence was also spotted at the daily and weekly time frame on the 14-period RSI. A negative divergence occurs when the price is making a higher high, while the RSI forms a lower high.

These abovementioned facts create doubt about the continuity of the current uptrend and the possibility of short-term correction cannot be ruled out. In case, the stock sustains below the current week low of Rs 1810 and trades convincingly below this level then, there is a high probability of the current week high point of Rs 1989 becoming a temporary top for the stock.