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.
Shabbir Kayyumi
January 17, 2021 / 08:10 AM IST
Image: Reuters
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What is MA Crossover Setup?
The Moving Average (MA) cross appears on a chart when a stock’s short-term moving average (20 Simple Moving Average) crosses above its mid-term moving average (50 SMA). As long-term indicators carry more weight, the MA cross indicates a bull market on the horizon and is reinforced by high trading volumes.
There are mainly three stages to a MA 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.
MA 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 MA Crossover setup is believed to be one of the most reliable & popular among traders community.
Why to Buy Bharat Heavy Electricals (BHEL)?
BHEL is having a strong demand zone standing around Rs 36-34 levels indicating strong bullish breakout above these levels. Recently prices have given breakout on this stock forming MA Crossover, as its 20 SMA is crossing 50 SMA from below. This setup indicates prices are trading with strong positive sentiments and are ready to surge higher until prices close below 20 SMA which is standing near Rs 33 mark.
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 and a bearish crossover may take place. Nevertheless, prices action in favour of bulls and any decisive move above Rs 41 will accelerate movement. Above rationale suggests one should buy BHEL on dip for higher targets of Rs 54.
Figure.1. MA Crossover Setup and Buy signal on BHEL
Buy Signal
1. A close above crucial resistance zone (Rs 34-37) indicates current up trend is still intact.
2. Mid-term moving average 50 SMA (Rs 31) defines mid-term trend is very well augur with bulls as prices are sustained and trading around it.
3. Short-term moving average 20 SMA (Rs 33) suggesting that 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 MA Crossover Setup profit needs to trailed towards higher side till we see decisive closing below 20 SMA; however in this stock we will consider as a previous swing high which is placed around Rs 54 mark.
Stop Loss
Entire bullish view negates on decisive closing below 20 SMA or on a bearish crossover of mentioned moving averages. In case of BHEL, we will consider Rs 33 as a stop loss level.
Conclusion
We recommend buying Bharat Heavy Electricals (BHEL) around Rs 39 with a stop loss of Rs 33 on a closing basis for higher targets of Rs 54 as indicated in above chart.
Disclosure: Narnolia Financial Advisors Ltd. is a SEBI registered Research Analyst having SEBI Registration No. INH300006500. The Company/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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